UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549




FORM 20-F




(Mark
One)




 ̈
            REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE
      ACT OF 1934


OR




þ
            ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the fiscal year ended December 31, 2008.


OR




 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934


OR




 ̈
            SHELL COMPANY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934





Date of event requiring this shell
company report





For
the transition period from 
to





Commission
file number: 000-52370





CHINA
FORTUNE ACQUISITION CORP.


(Exact
name of Registrant as specified in its charter)





N/A





(Translation of Registrant’s name into
English)





Cayman
Islands





(Jurisdiction
of incorporation or organization)





Jinmao
Tower, 88 Century Boulevard, Suite 4403, Pudong, Shanghai, People’s Republic of
China





(Address of principal executive
offices)




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





None


(Title of
Class)




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





Title of each class
                
                Name of exchange on which each class is to
      be
                  registeredUnits
                
                OTCBBOrdinary
      Shares
                
                OTCBBWarrants
                
                OTCBB




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:





None


(Title of
Class)





Indicate
the number of outstanding shares of each of the Issuer’s classes of capital or
ordinary shares as of the close of the period covered by the annual report:
11,968,750 ordinary shares, par value US$0.0001 per share, as of
December 31, 2008.





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o   No
þ





If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934. Yes o   No
þ





Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ   No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):





Large
accelerated filer o   Accelerated
filer o   Non-accelerated
filer þ





Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:





US
      GAAP þ
            
            International
      Financial Reporting Standards as issued by the International Accounting
      Standards Board    ̈
            
            Other    ̈





If
“Other” has been checked in response to the previous question indicate by check
mark which financial statement item the registrant has elected to
follow.


Item 17 o


Item 18 þ





If this is an annual report, indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).


Yes þ   No
o








TABLE OF
CONTENTS





PagePART I
                          
                          
                          4Item 1.
                          IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
                          4Item 2.
                          OFFER
      STATISTICS AND EXPECTED TIMETABLE
                          4Item 3.
                          KEY
      INFORMATION
                          4Item 4.
                          INFORMATION
      ON THE COMPANY
                          25Item
      4A.
                          UNRESOLVED
      STAFF COMMENTS
                          38Item
      5.
                          OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
                          38Item
      6.
                          DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
                          40Item
      7.
                          MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
                          43Item
      8.
                          FINANCIAL
      INFORMATION
                          47Item
      9.
                          THE
      OFFER AND LISTING
                          48Item
      10.
                          ADDITIONAL
      INFORMATION
                          49Item
      11.
                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                          60Item
      12.
                          DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
                          60Item
      13.
                          DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES
                          60PART II
                          
                          
                          60Item
      14
                          MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
                          60Item
      15T
                          CONTROLS
      AND PROCEDURES
                          60Item
      16.A
                          AUDIT
      COMMITTEE FINANCIAL EXPERT
                          61Item 16B.
                          CODE
      OF ETHICS
                          62Item 16C.
                          PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                          62Item 16D.
                          EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
                          62Item 16E.
                          PURCHASE
      OF EQUITY SECURITIES BY TH EISSUER AND AFFILIATED
    PURCHASERS
                          62Item 16F
                          CHANGE IN REGISTRANT’S CERTIFYING
      ACCOUNTANT
                          62Item 16G
                          CORPORATE
      GOVERNANCE
                          62PART III
                          
                          
                          63Item 17.
                          FINANCIAL
      STATEMENTS
                          63Item 18.
                          FINANCIAL
      STATEMENTS
                          63Item 19.
                          EXHIBITS
                          63


2





INTRODUCTION





Unless
otherwise indicated and except where the context otherwise requires, references
in this annual report on Form 20-F to:





•
            “we,” “us” or “our company” refer
      to China Fortune Acquisition
Corp.;





•
            “China” or the “PRC” refer to the
      People’s Republic of China as well as the Hong Kong Special Administrative
      Region and the Macau Special Administrative Region, but does not include
      Taiwan;





•
            “shares” or “ordinary shares”
      refers to our ordinary shares;
and





•
            all references to “RMB” or
      “Renminbi” are to the legal currency of China; all references to “$,”
      “dollars,” “US$” and “U.S. dollars” are to the legal currency of the
      United States,





FORWARD-LOOKING
STATEMENTS





This
annual report on Form 20-F contains forward-looking statements that involve
risks and uncertainties. All statements other than statements of historical
facts are forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from those expressed or
implied by the forward-looking statements.




This
annual report contains forward-looking statements as defined in Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934 (the “Exchange Act”). These
forward-looking statements include information about our possible or assumed
future results of operations or our performance. Words such as “expects,”
“intends,” “plans,” “believes,” “anticipates,” “estimates,” and variations of
such words and similar expressions are intended to identify the forward-looking
statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove to be correct. These statements involve known and
unknown risks and are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of which
are beyond our control. Actual results may differ materially from those
expressed or implied by such forward-looking statements.




We
undertake no obligation to publicly update or revise any forward-looking
statements contained in this annual report, or the documents to which we refer
you in this annual report, to reflect any change in our expectations with
respect to such statements or any change in events, conditions or circumstances
on which any statement is based.




China
Fortune Acquisition Corp. is a Cayman Islands company that is referred to in
this annual report on Form 20-F as “China Fortune” “the company,” “we,” “us,” or
“our.” This report should be read in conjunction with our audited consolidated
financial statements and the accompanying notes thereto, which are included in
Item 18 to this annual report.


3





PART
I





ITEM
1.           IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS




Not Applicable.




ITEM
2.           OFFER STATISTICS AND EXPECTED
TIMETABLE




Not Applicable.




ITEM
3.           KEY INFORMATION





A.
Selected Financial Data





Selected Financial
Data





The
selected financial information set forth below has been derived from our audited
financial statements for the period from August 18, 2006 (date of inception) to
December 31, 2008. The information is only a summary and should be read in
conjunction with our audited financial statements and notes thereto contained
elsewhere herein. The financial results should not be construed as indicative of
financial results for subsequent periods.  See “Item 4. Information on
the Company” and “Item 5. Operating and Financial Review and
Prospects.”




Selected
Financial Data


(Expressed
in United States Dollars)




Fiscal
      Years endedDecember 31,2006
                        
                        
                        2007
                        
                        
                        2008Statement
      of Operations Data:Investment
      income
                        
                        
                        -
                        
                        
                        
                        964,752
                        
                        
                        
                        840,178Formation
      costs and operating expenses
                        
                        
                        4,686
                        
                        
                        
                        119,252
                        
                        
                        
                        995,491Net
      income (loss) before income taxes
                        
                        
                        (4,686
                        )
                        
                        
                        (845,500
                        )
                        
                        
                        (155,313
                        )Provision
      for income taxes
                        
                        
                        -
                        
                        
                        
                        -Net
      income (loss)
                        
                        
                        (4,686
                        )
                        
                        
                        (845,500
                        )
                        
                        
                        (155,313
                        )Weighted
      average shares outstanding
                        
                        
                        2,310,268
                        
                        
                        
                        6,615,668
                        
                        
                        
                        9,504,587Basic
      and diluted net income (loss) per share
                        
                        
                        (0.00
                        )
                        
                        
                        0.13
                        
                        
                        
                        (0.02
                        )


4





2007
                    
                    2008Consolidate
      Balance Sheet Data as of December 31, 2007 and 2008:Cash
      and cash equivalents
                    
                    
                    1,281,727
                    
                    210,286Total
      assets
                    
                    
                    74,755,021
                    
                    74,607,857Total
      current liabilities
                    
                    
                    1,883,102
                    
                    1,891,250Total
      shareholders’ equity
                    
                    
                    50,870,001
                    
                    50,462,636


5





B.
Capitalization and Indebtedness





Not
applicable.





C.
Reasons for the Offer and Use of Proceeds





Not
applicable.





D.
Risk Factors





An
investment in our securities involves a high degree of risk. You should consider
carefully all of the risks described below, together with the other information
contained in this Form 20-F before making a decision to invest in our
units.





Risks Related to Our
Business




We
are a development stage company with no operating history and, accordingly, you
will not have any basis on which to evaluate our ability to achieve our business
objective.




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.   We have no plans, arrangements
or understandings with any prospective acquisition candidates.  We
will not generate any revenues until, at the earliest, after the consummation of
a business combination.




If
we are forced to liquidate before a business combination and distribute the
trust account, our public shareholders will receive less than $8.00 per share
and our warrants will expire worthless.




If we are
unable to complete a business combination and are forced to liquidate our
assets, the per-share liquidation distribution will be less than $8.00 because
of the expenses incurred in our initial public offering, our general and
administrative expenses and the costs of seeking a business
combination.  Furthermore, there will be no distribution with respect
to our outstanding warrants which will expire worthless if we liquidate before
the completion of a business combination.




Because
there are numerous companies with a business plan similar to ours seeking to
effectuate a business combination, including companies seeking to consummate a
business combination with companies in China,  it may be more difficult for
us to do so.




There are
numerous similarly structured blank check companies which have completed initial
public offerings with business plans similar to ours and there are a number of
additional offerings for blank check companies that are still in the
registration process but have not completed initial public offerings. Although
some of those companies must complete a business combination in specific
industries, a number of them may consummate a business combination in any
industry they choose. Therefore, we may be subject to competition from these and
other companies seeking to consummate a business plan similar to ours. Because
of this competition, we cannot assure you that we will be able to effectuate a
business combination within the required time periods.




6




If
third parties bring claims against us, the proceeds held in trust could be
reduced and the per-share liquidation price received by shareholders will be
less than $7.91 per share.


As of
December 31, 2008, the per-share liquidation price of the funds held in trust
was $7.91.   Our placing of funds in trust may not protect those
funds from third party claims against us. Although we will attempt to have all
vendors and service providers we engage and prospective target businesses we
negotiate with, execute agreements with us waiving any right, title, interest or
claim of any kind in or to any monies held in the trust account for the benefit
of our public shareholders, there is no guarantee that they will execute such
agreements.  Nor is there any guarantee that, even if such entities
execute such agreements with us, they will not seek recourse against the trust
account. A court could also conclude that such agreements are not legally
enforceable.  Accordingly, the proceeds held in trust could be subject
to claims which could take priority over those of our public
shareholders.  If we liquidate before the completion of a business
combination and distribute the proceeds held in trust to our public
shareholders, our officers and directors have agreed that they will be jointly
and severally liable (on a pro rata basis relative to the number of initial
shares owned by them prior to the completion of the initial public offering) to
ensure that the proceeds in the trust account are not reduced by the claims of
target businesses or claims of vendors or other entities that are owed money by
us for services rendered or contracted for or products sold to us. There can be
no assurance that they will be able to satisfy any indemnification obligations
that may arise.  Therefore, we cannot assure you that the per-share
distribution from the trust fund, if we liquidate, will not be less than $7.91,
plus interest then held in the trust fund, due to such claims.





Additionally,
if we are forced to file a bankruptcy case or an involuntary bankruptcy case is
filed against us which is not dismissed, the proceeds held in the trust account
could be subject to applicable bankruptcy law, and may be included in our
bankruptcy estate and subject to the claims of third parties with priority over
the claims of our shareholders. To the extent any bankruptcy claims deplete the
trust account, we cannot assure you we will be able to return to our public
shareholders at least $7.91 per share.




We
must complete a business combination prior to July 23,  2009 or
our  corporate existence will cease; our shareholders may be held
liable for claims brought  against us  by third parties to
the extent of distributions received by them.




Our
memorandum and articles of association provide that we will continue in
existence only until July 23, 2009.   If we have not completed a
business combination by that date and amended this provision in connection
thereto, our corporate existence will cease except for the purposes of winding
up our affairs and dissolving.  As a result, this has the same effect
as if we had formally went through a voluntary liquidation procedure under the
Companies Law (2004 Revision) of the Cayman Islands (the “Companies
Law”).  In  a voluntary liquidation situation under the
Companies Law, a liquidator would give at least 21 days’ notice to creditors of
his intention to make a distribution by notifying known creditors (if any) who
have not submitted claims and by placing a public advertisement in the Cayman
Islands Official Gazette (although in practice this notice requirement need not
necessarily delay the distribution of assets as the liquidator may be satisfied
that no creditors would be adversely affected as a consequence of a distribution
before this time period has expired). As soon as the affairs of the company are
fully wound-up, the liquidator must lay his final report and accounts before a
final general meeting which must be called by a public notice at least one month
before it takes place.  After the final meeting, the liquidator must
make a return to the Registrar confirming the date on which the meeting was held
and three months after the date of the filing of the return the company is
dissolved.  In the case of a full voluntary liquidation procedure, any
liability of shareholders with respect to a liquidating distribution would be
barred if creditors miss the deadline for submitting claims.  However,
it is our intention to liquidate the trust account to our public shareholders as
soon as reasonably possible and our directors and officers have agreed to take
any such action necessary to dissolve our company and liquidate the trust
account as soon as reasonably practicable if we do not complete a business
combination by July 23, 2009.  Pursuant to our articles of
association, failure to consummate a business combination by July 23, 2009 will
trigger an automatic winding up of the company. As such, our shareholders could
potentially be liable for any claims to the extent of distributions received by
them pursuant to this process and any liability of our shareholders may extend
beyond the date of such dissolution.  Accordingly, we cannot assure
you that third parties will not seek to recover from our shareholders amounts
owed to them by us.


7


An
effective registration statement must be in place when an investor desires to
exercise warrants and if one is not in place such warrants will be practically
worthless.




No
warrant will be exercisable and we will not be obligated to issue ordinary
shares unless, at the time a holder seeks to exercise a warrant, we have a
registration statement under the Securities Act in effect covering the ordinary
shares issuable upon the exercise of the warrants and a current prospectus
relating to the ordinary shares.  Under the terms of the warrant
agreement, we have agreed to use our best efforts to have a registration
statement in effect covering the ordinary shares issuable upon exercise of the
warrants as of the date the warrants become exercisable and to maintain a
current prospectus relating to the ordinary shares issuable upon exercise of the
warrants until the expiration of the warrants. However, we cannot assure you
that we will be able to do so.  We will not be required to net cash
settle the warrants (whether in the case of our failure to maintain a current
prospectus or otherwise).





An
investor will only be able to exercise a warrant if the issuance of ordinary
shares upon such exercise has been registered or qualified or is deemed exempt
under the securities (or “blue sky”) laws of the state of residence of the
holder of the warrants.




No public
warrants will be exercisable and we will not be obligated to issue ordinary
shares unless the ordinary shares issuable upon such exercise has been
registered or qualified or deemed to be exempt under the securities laws of the
state of residence of the holder of the warrants.  Because the
exemptions from qualification in certain states for resales of warrants and for
issuances of ordinary shares by the issuer upon exercise of a warrant may be
different, a warrant may be held by a holder in a state where an exemption is
not available for issuance of ordinary shares upon an exercise and the holder
will be precluded from exercise of the warrant.  At the time that the
warrants become exercisable (following our completion of a business
combination), we expect to become listed on a national securities exchange,
which would provide an exemption from registration in every
state.  Accordingly, we believe holders in every state will be able to
exercise their warrants as long as our prospectus relating to the ordinary
shares issuable upon exercise of the warrants is current. However, we cannot
assure you of this fact. As a result, the public warrants may be deprived of any
value, the market for such warrants may be limited and the holders of such
warrants may not be able to exercise their warrants if the ordinary shares
issuable upon such exercise are not qualified or exempt from qualification in
the jurisdictions in which the holders of such warrants reside.




Since
we have not yet selected a particular industry or target business with which to
complete a business combination, we are unable to currently ascertain the merits
or risks of the industry or business in which we may ultimately
operate.




We may
consummate a business combination with a company in any industry we choose and
are not limited to any particular industry or type of
business.  Accordingly, there is no current basis for you to evaluate
the possible merits or risks of the particular industry in which we may
ultimately operate or the target business which we may ultimately
acquire.  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.  If we complete a business combination with an entity in an
industry characterized by a high level of risk, we may be affected by the
currently unascertainable risks of that industry.  Although our
management will endeavor to evaluate the risks inherent in a particular industry
or target business, 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 units will not ultimately prove to be less favorable to
investors in the initial public offering than a direct investment, if an
opportunity were available, in a target business.




8




We
may issue shares or debt securities to complete a business combination, which
would reduce the equity interest of our shareholders and likely cause a change
in control of our ownership.


Our
memorandum and articles of association authorize the issuance of up to
30,000,000 ordinary shares, par value $.0001 per share, and 1,000,000 preferred
shares, par value $.0001 per share. There are currently 7,606,250 authorized but
unissued ordinary shares available for issuance (after appropriate reservation
for the issuance of the shares upon full exercise of our outstanding warrants
and the unit purchase option granted to EarlyBirdCapital) and all of the
1,000,000 preferred shares available for issuance. Although we have no
commitment as of this date, we are likely to issue a substantial number of
additional ordinary or preferred shares, or a combination of common and
preferred shares, to complete a business combination.   The
issuance of additional ordinary shares or any number of shares of our preferred
shares:




·
            may significantly reduce your
      equity interest;





·
            may subordinate the rights of
      holders of ordinary shares if we issue preferred stock with rights senior
      to those afforded to our ordinary
shares;





·
            may cause a change in control if
      a substantial number of our ordinary shares are issued, which may affect,
      among other things, our ability to use our net operating loss carry
      forwards, if any, and could result in the resignation or removal of our
      present officers and directors;
and





·
            may adversely affect prevailing
      market prices for our ordinary
shares.




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




·
            default and foreclosure on our
      assets if our operating revenues after a business combination are
      insufficient to repay our debt
  obligations;





·
            acceleration of our obligations
      to repay the indebtedness even if we make all principal and interest
      payments when due if we breach certain covenants that require the
      maintenance of certain financial ratios or reserves 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 necessary
      additional financing if the debt security contains covenants restricting
      our ability to obtain such financing while the debt security is
      outstanding.




Our
ability to successfully effect a business combination and to be successful
thereafter will be totally dependent upon the efforts of our key personnel, some
of whom may join us following a business combination.




Our
ability to successfully effect a business combination is dependent upon the
efforts of our key personnel. The role of our key personnel in the target
business, however, cannot presently be fully ascertained. Although our key
personnel such as Bo Yu, Yufeng Zhang, Aidan Stretch and James Walsh may remain
with the target business in senior management or advisory positions following a
business combination, it is likely that some or all of the management of the
target business will remain in place.   While we intend to
closely scrutinize any individuals we engage after a business combination, we
cannot assure you that our assessment of these individuals will prove to be
correct. These individuals may be unfamiliar with the requirements of operating
a public company which could cause us to have to expend time and resources
helping them become familiar with such requirements. This could be expensive and
time-consuming and could lead to various regulatory issues which may adversely
affect our operations.




9




Our
key personnel may negotiate employment or consulting agreements with a target
business in connection with a particular business combination. These agreements
may provide for them to receive compensation following a business combination
and as a result, may cause them to have conflicts of interest in determining
whether a particular business combination is the most advantageous to
us.




Our key
personnel will be able to remain with the company after the consummation of a
business combination only if they are able to negotiate employment or consulting
agreements in connection with the business combination.  Such
negotiations would take place simultaneously with the negotiation of the
business combination and could provide for such individuals to receive
compensation in the form of cash payments and/or our securities for services
they would render to the company after the consummation of the business
combination.  The personal and financial interests of such individuals
may influence their motivation in identifying and selecting a target business.
However, we believe the ability of such individuals to remain with the company
after the consummation of a business combination will not be the determining
factor in our decision as to whether or not we will proceed with any potential
business combination.




Our
officers and directors will 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 conflict of interest 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 could create a conflict of interest when allocating their time
between our operations and their other commitments.  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 devote any specific number of hours to our
affairs. If our officers’ and directors’ 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. We cannot assure you that these
conflicts will be resolved in our favor.





Our
officers and directors may in the future become 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 to which entity a
particular business opportunity should be presented.




Our
officers and directors may in the future become 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 and the other entities to which they owe fiduciary
duties. 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. As a result, a potential
target business may be presented to another entity prior to its presentation to
us and we may miss out on a potential transaction.




All
of our officers and directors own ordinary shares issued prior to the IPO and Bo
Yu, our chairman of the board and chief executive officer, purchased units
simultaneously with the consummation of our IPO. These securities will not
participate in liquidation distributions. Therefore, our officers and directors
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 ordinary shares that were issued prior to our IPO
and Bo Yu, our chairman of the board and chief executive officer, purchased
insider units upon consummation of the IPO.  These individuals have
waived their right to receive distributions upon our liquidation with respect to
their initial shares and the shares included within the insider units if we are
unable to consummate a business combination. The shares acquired prior to the
IPO, as well as the shares included in the insider units, the warrants included
in the insider units and any warrants purchased by our officers or directors in
the aftermarket 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 timely identifying and selecting a target
business and completing a business combination. 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
shareholders’ best interest.


10




If
our ordinary shares become subject to the SEC’s penny stock rules,
broker-dealers may experience difficulty in completing customer transactions and
trading activity in our securities may be adversely affected.




If at any
time we have net tangible assets of $5,000,000 or less and our ordinary shares
have a market price per share of less than $5.00, transactions in our ordinary
shares may be subject to the “penny stock” rules promulgated under the
Securities Exchange Act of 1934. Under these rules, broker-dealers who recommend
such securities to persons other than institutional accredited investors
must:




·
            make a special written
      suitability determination for the
  purchaser;





·
            receive the purchaser’s written
      agreement to the transaction prior to
  sale;





·
            provide the purchaser with risk
      disclosure documents which identify certain risks associated with
      investing in “penny stocks” and which describe the market for these “penny
      stocks” as well as a purchaser’s legal remedies;
  and





·
            obtain a signed and dated
      acknowledgment from the purchaser demonstrating that the purchaser has
      actually received the required risk disclosure document before a
      transaction in a “penny stock” can be
  completed.




If our
ordinary shares become subject to these rules, broker-dealers may find it
difficult to effectuate customer transactions and trading activity in our
securities may be adversely affected. As a result, the market price of our
securities may be depressed, and you may find it more difficult to sell our
securities.





After
our business combination, we will be solely dependent on a single business and a
limited number of products or services.




Our
business combination must be with a business with a fair market value of at
least 80% of our net assets at the time of such acquisition, although this may
entail the simultaneous acquisitions of several operating businesses at the same
time.  By consummating a business combination with only a single
entity, our lack of diversification may subject us to numerous economic,
competitive and regulatory developments.  Further, we would 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. 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.




Alternatively,
if our business combination entails the simultaneous acquisitions of several
operating businesses at the same time from different sellers, we would face
additional risks, including difficulties and expenses incurred in connection
with the subsequent integration of the operations and services or products of
the acquired companies into a single operating business. If we are unable to
adequately address these risks, it could negatively impact our profitability and
results of operations.


11


We
may proceed with a business combination even if public shareholders owning
29.99% of the shares sold in the IPO exercise their conversion
rights.




We may
proceed with a business combination as long as public shareholders owning less
than 30% of the shares sold in the IPO exercise their conversion
rights.  Accordingly, approximately 29.99% of the public shareholders
may exercise their conversion rights and we could still consummate a proposed
business combination.  We have set the conversion percentage at 30% in
order to reduce the likelihood that a group of investors holding a block of our
stock will be able to stop us from completing a business combination that is
otherwise approved by a large majority of our public shareholders.




We
may require shareholders who wish to convert their shares in connection with a
proposed business combination to comply with specific requirements for
conversion that may make it more difficult for them to exercise their conversion
rights prior to the deadline for exercising their rights.




We may
require public shareholders who wish to convert their shares in connection with
a proposed business combination to either tender their certificates to our
transfer agent at any time prior to the vote taken at the shareholder meeting
relating to such business combination or to deliver their shares to the transfer
agent electronically using the Depository Trust Company’s DWAC
(Deposit/Withdrawal At Custodian) System.  In order to obtain a
physical stock certificate, a shareholder’s broker and/or clearing broker, DTC
and our transfer agent will need to act to facilitate this request. It is our
understanding that shareholders should generally allot at least two weeks to
obtain physical certificates from the transfer agent. However, because we do not
have any control over this process or over the brokers or DTC, it may take
significantly longer than two weeks to obtain a physical stock certificate.
While we have been advised that it takes a short time to deliver shares through
the DWAC System, we cannot assure you of this fact. Accordingly, if it takes
longer than we anticipate for shareholders to deliver their shares, shareholders
who wish to convert may be unable to meet the deadline for exercising their
conversion rights and thus may be unable to convert their shares.




The
ability of our shareholders to exercise their conversion rights may not allow us
to effectuate the most desirable business combination or optimize our capital
structure.




When we
seek shareholder approval of any business combination, we will offer each public
shareholder (but not our existing shareholders) the right to have his, her or
its ordinary shares converted to cash if the shareholder votes against the
business combination and the business combination is approved and
completed.  Such holder must both vote against such business
combination and then exercise his, her or its conversion rights to receive a pro
rata portion of the trust account.  Accordingly, if our business
combination requires us to use substantially all of our cash to pay the purchase
price, because we will not know how many shareholders may exercise such
conversion rights, we may either need to reserve part of the trust account for
possible payment upon such conversion, or we may need to arrange third party
financing to help fund our business combination in case a larger percentage of
shareholders exercise their conversion rights than we expect.  Since
we have no specific business combination under consideration, we have not taken
any steps to secure third party financing.  Therefore, we may not be
able to consummate a business combination that requires us to use all of the
funds held in the trust account as part of the purchase price, or we may end up
having a leverage ratio that is not optimal for our business combination. This
may limit our ability to effectuate the most attractive business combination
available to us.





We
may not adequately assess the fair market value of a target business that we
seek to acquire.




The
target business that we acquire, or acquire control of, must have a fair market
value equal to at least 80% of our net assets at the time of such acquisition.
We are not required to obtain an opinion from an unaffiliated third party that
the target business we select has a fair market value in excess of at least 80%
of our net assets. The fair market value of the target may be determined by our
board of directors based upon one or more standards generally accepted by the
financial community (examples of which may include actual and potential sales,
earnings and cash flow and book value). Accordingly, our board could rely
heavily upon assumptions about the future growth and financial prospects of a
target business, rather than its historical results of operations. We cannot
assure you that such assumptions will prove to be correct. Furthermore, we are
not required to obtain an opinion from an unaffiliated third party indicating
that the price we are paying is fair to our stockholders from a financial point
of view unless the target is affiliated with our officers, directors, special
advisors, existing stockholders or their affiliates.  If no opinion is
obtained, our stockholders will be relying on the judgment of our board of
directors, whose collective experience in business evaluations for blank check
companies like ours is not significant.


12




Because
of our limited resources and structure, we may not be able to consummate an
attractive business combination.




We expect
to encounter intense competition from entities other than blank check companies
having a business objective similar to ours, including venture capital funds,
leveraged buyout funds and operating businesses competing for acquisitions. Many
of these entities are well established and have extensive experience in
identifying and effecting business combinations directly or through
affiliates.  Many of these competitors possess greater technical,
human and other resources than we do and our financial resources will be
relatively limited when contrasted with those of many of these competitors.
While we believe that there are numerous potential target businesses that we
could acquire with the net proceeds of the IPO, our ability to compete in
acquiring certain sizable target businesses will be limited by our available
financial resources. This inherent competitive limitation gives others an
advantage in pursuing the acquisition of certain target businesses. Furthermore,
the obligation we have to seek shareholder approval of a business combination
may delay the consummation of a transaction. Additionally, our outstanding
warrants, and the future dilution they potentially represent, may not be viewed
favorably by certain target businesses. Any of these obligations may place us at
a competitive disadvantage in successfully negotiating a business
combination.  Furthermore, our negotiating position with any potential
target may be harmed as we approach the deadline for the consummation of a
business combination as such target business will know that our deadline cannot
be extended. Additionally, because of our structure, there may be fewer
attractive target businesses available to acquire or privately held target
businesses may not be inclined to enter into a transaction with a publicly held
blank check company like us.




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 or abandon a particular business
combination.




Although
we believe that the net proceeds of the IPO will be sufficient to allow us to
consummate a business combination, because we have not yet identified any
prospective target business, we cannot ascertain the capital requirements for
any particular transaction. If the net proceeds of the IPO prove to be
insufficient, either because of the size of the business combination, the
depletion of the available net proceeds in search of a target business, or the
obligation to convert into cash a significant number of shares from dissenting
shareholders, we will be required to seek additional financing. We cannot assure
you that such financing will be available on acceptable terms, if at
all.  To the extent that additional financing proves to be unavailable
when needed to consummate a particular business combination, we would be
compelled to either restructure the transaction or abandon that particular
business combination and seek an alternative target business
candidate.   In addition, if we consummate a business
combination, we may require additional financing to fund the operations or
growth of the target business. The failure to secure additional financing could
have a material adverse effect on the continued development or growth of the
target business.   None of our officers, directors or
shareholders is required to provide any financing to us in connection with or
after a business combination.





13


Our
outstanding warrants and option may have an adverse effect on the market price
of our ordinary shares and make it more difficult to effect a business
combination.


We issued
warrants to purchase 9,375,000 ordinary shares as part of the units offered in
the IPO. We also sold the warrants to purchase 250,000 ordinary shares included
as part of the insider units. We also issued an option to purchase 400,000 units
to the representative of the underwriters which, if exercised, will result in
the issuance of an additional 400,000 warrants. To the extent we issue ordinary
shares to effect a business combination, the potential for the issuance of a
substantial number of additional ordinary shares upon exercise of these warrants
and option could make us a less attractive acquisition vehicle in the eyes of a
target business.  Such securities, when exercised, will increase the
number of issued and outstanding ordinary shares and reduce the value of the
shares issued to complete the business combination. Accordingly, our warrants
and option may make it more difficult to effectuate a business combination or
increase the cost of acquiring the target business. Additionally, the sale, or
even the possibility of sale, of the shares underlying the warrants and option
could have an adverse effect on the market price for our securities or on our
ability to obtain future financing. If and to the extent these warrants and
option are exercised, you may experience dilution to your holdings.




Our
management’s ability to require holders of our warrants to exercise such
warrants on a cashless basis will cause holders to receive fewer ordinary shares
upon their exercise of the warrants than they would have received had they been
able to exercise their warrants for cash.




If we
call our warrants for redemption after the redemption criteria have been
satisfied, our management will have the option to require any holder that wishes
to exercise his warrant to do so on a “cashless basis.” If our management
chooses to require holders to exercise their warrants on a cashless basis, the
number of ordinary shares received by a holder upon exercise will be fewer than
it would have been had such holder exercised his warrant for cash. This will
have the effect of reducing the potential “upside” of the holder’s investment in
our company.




If
our existing shareholders or the purchasers of the insider units exercise their
registration rights with respect to their initial shares or insider units and
underlying securities, it may have an adverse effect on the market price of our
ordinary shares and warrants and the existence of these rights may make it more
difficult to effect a business combination.




Our
existing shareholders are entitled to demand that we register the resale of
their ordinary shares at any time commencing three months prior to the date on
which their shares are released from escrow. Additionally, the purchasers of the
insider units are entitled to demand that we register the resale of the
securities underlying the insider units at any time after we consummate a
business combination. If such individuals exercise their registration rights
with respect to all of their securities, then there will be an additional
2,843,750 ordinary shares and 250,000 warrants eligible for trading in the
public market. The presence of these additional securities trading in the public
market may have an adverse effect on the market price of our ordinary shares. In
addition, the existence of these rights may make it more difficult to effectuate
a business combination or increase the cost of acquiring the target business, as
the shareholders of the target business may be discouraged from entering into a
business combination with us or will request a higher price for their securities
because of the potential effect the exercise of such rights may have on the
trading market for our ordinary shares.




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.




A company
that, among other things, is or holds itself out as being engaged primarily, or
proposes to engage primarily, in the business of investing, reinvesting, owning,
trading or holding certain types of securities would be deemed an investment
company under the Investment Company Act of 1940. Since we will invest the
proceeds held in the trust fund, it is possible that we could be deemed an
investment company. Notwithstanding the foregoing, 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 be invested by the trustee
only in United States “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or
less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act of 1940. 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.


14





If we are
nevertheless deemed to be an investment company under the Investment Company Act
of 1940, we may be subject to certain restrictions that may make it more
difficult for us to complete a business combination, including:




·
            restrictions on the nature of our
      investments; and





·
            restrictions on the issuance of
      securities.




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




·
            registration as an investment
      company;





·
            adoption of a specific form of
      corporate structure; and





·
            reporting, record keeping,
      voting, proxy, compliance policies and procedures and disclosure
      requirements and other rules and
  regulations.




Compliance
with these additional regulatory burdens would require additional expense for
which we have not allotted.




Because
we are incorporated under the laws of the Cayman Islands, you may face
difficulties in protecting your interests, and your ability to protect your
rights through the U.S. federal courts may be limited.




We are a
company incorporated under the laws of the Cayman Islands, and substantially all
of our assets will be located outside the United States.  In addition,
certain of our directors and officers are nationals or residents of
jurisdictions other than the United States and all or a substantial portion of
their assets are located outside the United States. As a result, it may be
difficult for investors to effect service of process within the United States
upon our directors or executive officers, or enforce judgments obtained in the
United States courts against our directors or officers. 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 extraction treaties now in effect between the United
States and the PRC would permit effective enforcement of criminal penalties of
the United States federal securities laws.




Our
corporate affairs will be governed by our memorandum and articles of
association, the Companies Law (as the same may be supplemented or amended from
time to time) or the common law of the Cayman Islands. The rights of
shareholders to take action against the directors, actions by minority
shareholders and the fiduciary responsibilities of our directors to us under
Cayman Islands law are to a large extent governed by the common law of the
Cayman Islands. The common law of the Cayman Islands is derived in part from
comparatively limited judicial precedent in the Cayman Islands as well as from
English common law, the decisions of whose courts are of persuasive authority,
but are not binding on a court in the Cayman Islands. The rights of our
shareholders and the fiduciary responsibilities of our directors under Cayman
Islands law are not as clearly established as they would be under statutes or
judicial precedent in some jurisdictions in the United States.  In
particular, the Cayman Islands has a less developed body of securities laws as
compared to the United States, and some states, such as Delaware, have more
fully developed and judicially interpreted bodies of corporate
law.  In addition, Cayman Islands companies may not have standing to
initiate a shareholder derivative action in a federal court of the United
States.




The
Cayman Islands courts are also unlikely:




·
            to recognize or enforce against
      us judgments of courts of the United States based on certain civil
      liability provisions of U.S. securities laws;
  and




15




·
            To impose liabilities against us,
      in original actions brought in the Cayman Islands, based on certain civil
      liability provisions of U.S. securities laws that are penal in
      nature.




There is
no statutory recognition in the Cayman Islands of judgments obtained in the
United States, although the courts of the Cayman Islands will in certain
circumstances recognize and enforce a non-penal judgment of a foreign court of
competent jurisdiction without retrial on the merits. The Grand Court of the
Cayman Islands may stay proceedings if concurrent proceedings are being brought
elsewhere.




As a
result of all of the above, public shareholders may have more difficulty in
protecting their interests in the face of actions taken by management, members
of the board of directors or controlling shareholders than they would as public
shareholders of a United States company.




Risks
related to operations in China




Business
combinations with companies with operations in China entail special
considerations and risks. If we are successful in completing a business
combination with a target business with operations in China, we will be subject
to, and possibly adversely affected by, the following risks:




After
a business combination, substantially all of our assets will likely be located
in China and substantially all of our revenue will be derived from our
operations in China. Accordingly, our results of operations and prospects will
be subject, to a significant extent, to the economic, political and legal
policies, developments and conditions in China.




The PRC’s
economic, political and social conditions, as well as government policies, could
affect our business. The PRC economy differs from the economies of most
developed countries in many respects.




China’s
GDP has grown consistently since 1978 (National Bureau of Statistics of China).
However, we cannot assure you that such growth will be sustained in the future.
If in the future China’s economy experiences a downturn or grows at a slower
rate than expected, there may be less demand for spending in certain industries.
A decrease in demand for spending in certain industries could materially and
adversely affect our ability to find an attractive target business with which to
consummate a business combination and if we effect a business combination, the
ability of that target business to become profitable.




The PRC’s
economic growth has been uneven, both geographically and among various sectors
of the economy. The PRC government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall PRC economy, but may have a negative effect on us, depending
on the industry in which we engage in a business combination. For example, our
financial condition and results of operations may be adversely affected by PRC
government control over capital investments or changes in tax regulations that
are applicable to a potential target business and a business
combination.




The PRC
economy has been transitioning from a planned economy to a more market-oriented
economy. Although in recent years the PRC government has implemented measures
emphasizing the use of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of productive assets
in China is still owned by the PRC government. In addition, the PRC government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over PRC
economic growth through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies. We cannot assure
you that China’s economic, political or legal systems will not develop in a way
that becomes detrimental to our business, results of operations and
prospects.


16




A recent
positive economic change has been the PRC’s entry into the World Trade
Organization, or WTO, the sole global international organization dealing with
the rules of trade between nations. It is believed that the PRC’s entry will
ultimately result in a reduction on tariffs for industrial products, a reduction
in trade restrictions and an increase in trading with the United States. If
actions are not taken to rectify these problems, trade relations may be strained
and this may have a negative impact on China’s economy.





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




The
relationship between the United States and the PRC is subject to sudden
fluctuation and periodic tension. For instance, the United States recently
announced its intention to impose new short-term quotas on Chinese clothing
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.




As
a result of merger and acquisition regulations implemented on September 8, 2006
relating to acquisitions of assets and equity interests of Chinese companies by
foreign persons, it is expected that acquisitions will take longer and be
subject to economic scrutiny by the PRC government authorities such that we may
not be able to complete a transaction.




On
September 8, 2006, the Ministry of Commerce, together with several other
government agencies, promulgated a comprehensive set of regulations governing
the approval process by which a Chinese company may 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. Although there was a complex series of regulations in place prior to
September 8, 2006 for approval of Chinese enterprises that were administered by
a combination of provincial and centralized agencies, the new regulations have
largely centralized and expanded the approval process to 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 (SASAC), and the China
Securities Regulatory Commission (CSRC). Depending on the structure of the
transaction, these regulations will require the Chinese parties to make a series
of applications and supplemental applications to the aforementioned agencies,
some of which must be made within strict time limits and depending on 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 evaluations
of the acquirer which will permit the government to assess the economics of a
transaction in addition to the 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 and be confirmed by such agencies.
If the completed transactions are not confirmed, it could render the transaction
legally ineffective even if consummated by the parties. In extreme cases, the
authorities could suspend or revoke the business license of the Chinese entities
and cause an unwinding of the transaction. If the transaction was unwound, the
consideration paid to the target business would be returned to us and we would
then be forced to either attempt to complete a new business combination if it
was prior to June 26, 2009 or we would be required to return any amounts which
were held in the trust account to our shareholders and dissolve and liquidate.
It is expected that compliance with the regulations will be more time consuming
than in the past, will be more costly for the Chinese parties and will permit
the government much more extensive evaluation and control over the terms of the
transaction. Therefore, acquisitions in China may not be able to be completed
because the terms of the transaction may not satisfy aspects of the approval
process and may not be completed, even if approved, if they are not consummated
within the time permitted by the approvals granted.


17




Because
the September 8, 2006, PRC merger and acquisition regulations permit the
government agencies to have scrutiny over the economics of an acquisition
transaction and require consideration in a transaction to be paid within stated
time limits, we may not be able to negotiate a transaction that is acceptable to
our shareholders or sufficiently protect their interests in a
transaction.




The
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 through submissions of an appraisal report, an
evaluation report and the acquisition agreement, all of which form part of the
application for approval, depending on the structure of the transaction. The
regulations also prohibit a transaction at an acquisition price 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 a year. Because the
Chinese authorities have been unhappy with offshore flips which converted
domestic companies into foreign investment enterprises (FIEs) in order to take
advantage of certain benefits, including reduced taxation, in China, the new
regulations require new foreign sourced capital of not less than 25% of the
domestic company’s post-acquisition capital in order to obtain FIE treatment.
Accordingly, if a sufficient amount of foreign capital is not infused into the
domestic company, it will not be eligible to obtain FIE treatment. In asset
transactions there must be no harm of third parties and the public interest in
the allocation of assets and liabilities being assumed or acquired. These
aspects of the regulations will limit our ability to negotiate various terms of
the 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. Transaction
structures involving trusts, nominees and similar entities are prohibited.
Therefore, we may not be able to negotiate a transaction with terms that will
satisfy our investors and protect our shareholders interests in an acquisition
of a Chinese business or assets.




The
PRC merger and acquisition regulations of September 8, 2006, have introduced
industry protection and anti-trust aspects to the acquisition of Chinese
companies and assets which may limit our ability to effect an
acquisition.




Under the
PRC merger and acquisition regulations, acquisitions of Chinese domestic
companies relating to “important industries” that may affect the national
economic security or result in the transfer of “actual control” of companies
having “famous Chinese brand names” or “well established Chinese brand names”
must be reported and approved by the relevant agencies. The merger and
acquisition regulations also provide for antitrust review requirements for
certain large transactions or transactions involving large companies and 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 which is similar to
United States anti-trust law concepts. The regulations use various economic
tests to determine if the transaction has to be reported to MOFCOM which include
(i) if any of the parties to the transaction has a turnover in the Chinese
market of more than RMB 1,500,000,000, (ii) if in a transaction outside of the
PRC, any party thereto has assets in the PRC of more than RMB 3,000,000,000,
(iii) if any of the parties to the transaction, before its consummation, has
control not less than 20% of the Chinese market, (iv) if any of the parties as a
result of the transaction will control 25% of the Chinese market, (v) the
foreign investor has acquired 10 or more enterprises in related industries in
the PRC during the last year, or (vi) if in a transaction outside of the PRC
results in the foreign entities acquiring 15 or more FIEs in related industries
within the PRC. 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 ensures employment, (iii) the
transaction will introduce high technologies and increase international
competitiveness, and (iv) the transaction will improve the environment.
Notwithstanding the September 8, 2006, regulations, there is a draft
anti-monopoly law being considered which may replace or supplement the above
provisions. Any transaction that we contemplate will have to comply with these
regulations and may require additional approval or abandonment if we are not
able to satisfy the requirements of the governmental authorities. When we
evaluate a potential transaction, we will consider the need to comply with these
regulations which may result in our modifying or not pursuing a particular
transaction.


18




Although
the merger and acquisition regulations provide specific requirements and
procedures, there are many ambiguities which give the regulators great latitude
in the approval process which will cause uncertainty in our ability to complete
a transaction on a timely basis.




The
merger and acquisition regulations set forth many requirements that have to be
followed, but there are still many ambiguities in the meaning of many
provisions. Although further regulations are anticipated in the future, until
there has been clarification either by pronouncements, regulation or practice,
there is some uncertainty in the scope of the regulations. Moreover, the
ambiguities give the regulators wide latitude in the enforcement of the
regulations and the transactions to which they may or may not apply. Therefore,
we cannot predict the extent to which the regulations will apply to a
transaction, and therefore, there may be uncertainty in whether or not a
transaction will be completed until the approval process is under way or until
the preliminary approvals are obtained.




The
Ministry of Information Industry (MII) issued regulations that regulate and
limit ownership and investment in internet and other value-added
telecommunications businesses in China which may limit the type of businesses we
will be able to acquire.




On July
13, 2006, the MII issued a notice with the purpose of increasing the regulation
of foreign investment in and operations of value added telecom services which
includes internet and telecommunications businesses in China. The regulations
require Chinese entities to own and control the following: (i) internet domain
names, (ii) registered trademarks, and (iii) servers and other infrastructure
equipment used to host and operate web-sites and conduct business. The ownership
requirements functionally limit foreign direct and indirect ownership and
control of the intellectual property of these businesses even when attempted
through various parallel control, licensing, use and management agreements. It
is anticipated that these regulations will be strictly enforced, and the
government has provided that the new regulations apply retroactively and
provides for audit procedures. The failure to comply may cause the MII to
terminate a telecommunications license or otherwise modify existing agreements
or require the disposition of the assets by the foreign entity. Any anticipated
foreign investment in such businesses will be subject to prior approval by the
MII, and it is expected that approval for investment may not be easily obtained
for foreign investment in these businesses unless in strict compliance.
Therefore, investment by us in this sector may not be actively pursued because
certain assets may not be acquirable and accounting consolidation may be
restricted or not permitted as a result of an unfavorable but permitted
transaction structure.





If
the PRC imposes restrictions to reduce inflation, future economic growth in the
PRC could be severely curtailed which could materially and adversely impact 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. 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. Imposition of similar restrictions may lead to a slowing of
economic growth and decrease the interest in the services or products we may
ultimately offer leading to a material and adverse impact on our
profitability.




19




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





Because
our objective is to complete a business combination with a target business
having its primary operating facilities located in the PRC, and because
substantially all revenues and income following a business combination 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. To the extent that we need to convert United
States dollars into Chinese Renminbi for our operations, appreciation of this
currency against the United States dollar could have a material adverse effect
on our business, financial condition and results of operations. Conversely, if
we decide to convert our Renminbi into United States dollars for other business
purposes and the United States dollar appreciates against this currency, the
United States dollar equivalent of the Renminbi we convert would be reduced. The
conversion of Renminbi into foreign currencies such as the United States 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. Historically, China
“pegged” its currency to the United States dollar. This meant that each unit of
Chinese currency had a set ratio for which it could be exchanged for United
States currency, as opposed to having a floating value like other countries’
currencies. Many countries argued that this system of keeping the Chinese
currency low when compared to other countries gave Chinese companies an unfair
price advantage over foreign companies. Due to mounting pressure from other
countries, the PRC recently reformed its economic policies to establish a
floating value for its currency. However, China recently adopted a floating rate
with respect to the Renminbi, with a 0.3% fluctuation. As of March 19, 2007, the
exchange rate of the Renminbi was 0.12928 against the United States dollar,
amounting to approximately an 11% appreciation of the Renminbi. This floating
exchange rate, and any appreciation of the Renminbi that may result from such
rate, could cause the cost of a target business as measured in dollars to
increase. Further, target companies may be adversely affected since the
competitive advantages that existed as a result of the former policies will
cease. We cannot assure you that a target business with which we consummate a
business combination will be able to compete effectively with the new policies
in place.




Exchange
controls that exist in the PRC may limit our ability to utilize our cash flow
effectively following a business combination.




Following
a business combination, we will be subject to the PRC’s rules and regulations on
currency conversion. In the PRC, the State Administration for Foreign Exchange
(SAFE) regulates the conversion of the Renminbi into foreign currencies.
Currently, foreign investment enterprises (FIEs) are required to apply to the
SAFE for “Foreign Exchange Registration Certificates for FIEs.” Following a
business combination, we will likely be an FIE as a result of our ownership
structure. With such registration certificates, which need to be renewed
annually, FIEs are allowed to open foreign currency accounts including a “basic
account” and “capital account.” Currency conversion within the scope of the
“basic account,” such as remittance of foreign currencies for payment of
dividends, can be effected without requiring the approval of the SAFE. However,
conversion of currency in the “capital account,” including capital items such as
direct investment, loans and securities, still require approval of the SAFE. We
cannot assure you that the PRC regulatory authorities will not impose further
restrictions on the convertibility of the Renminbi. Any future restrictions on
currency exchanges may limit our ability to use our cash flow for the
distribution of dividends to our shareholders or to fund operations we may have
outside of the PRC.




If
the PRC enacts regulations in our target business’ proposed industry segments
which forbid or restrict foreign investment, our ability to consummate a
business combination could be severely impaired.




Many of
the rules and regulations that companies face in China are not explicitly
communicated. If new laws or regulations forbid foreign investment in industries
in which we want to complete a business combination, they could severely limit
the candidate pool of potential target businesses. Additionally, if the relevant
Chinese authorities find us or the target business with which we ultimately
complete a business combination to be in violation of any existing or future
Chinese laws or regulations, they would have broad discretion in dealing with
such a violation, including, without limitation:


20





·
            levying
    fines;





·
            revoking our business and other
      licenses;





·
            requiring that we restructure our
      ownership or operations; and





·
            requiring that we discontinue any
      portion or all of our
business.





Recent
regulations relating to offshore investment activities by PRC residents may
increase the administrative burden we face and create regulatory uncertainties
that may limit or adversely effect our ability to acquire PRC
companies.




Regulations
were issued on January 24, 2005, on April 8, 2005 and on November 21, 2005, by
the SAFE, that will require approvals from, and registrations with, PRC
government authorities in connection with direct or indirect offshore investment
activities by PRC residents and PRC corporate entities; however, there has been
a recent announcement that such regulations may be partially reversed. The SAFE
regulations retroactively require approval and registration of direct or
indirect investments previously made by PRC residents in offshore companies. In
the event that a PRC shareholder with a direct or indirect stake in an offshore
parent company fails to obtain the required SAFE approval and make the required
registration, the PRC subsidiaries of such offshore parent company may be
prohibited from making distributions of profit to the offshore parent and from
paying the offshore parent proceeds from any reduction in capital, share
transfer or liquidation in respect of the PRC subsidiaries. Further, failure to
comply with the various SAFE approval and registration requirements described
above, as currently drafted, could result in liability under PRC law for foreign
exchange evasion. More recently, however, new regulations have been drafted that
would partially reverse the policy that requires Chinese companies to obtain
permission from SAFE to own overseas corporate entities.




As a
result of the lack of implementing rules, the uncertainty as to when the new
draft regulations will take effect, and uncertainty concerning the
reconciliation of the new regulations with other approval requirements, it
remains unclear how these existing regulations, and any future legislation
concerning offshore or cross-border transactions, will be interpreted, amended
and implemented by the relevant government authorities. We are committed to
complying with the relevant rules. As a result of the foregoing, we cannot
assure you that we or the owners of the target business we intend to acquire, as
the case may be, will be able to complete the necessary approval, filings and
registrations for a proposed business combination. This may restrict our ability
to implement our business combination strategy and adversely affect our
operations.




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 and contracts 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.


21





If
we acquire a target business through contractual arrangements with one or more
operating businesses in China, such contracts may not be as effective in
providing operational control as direct ownership of such businesses and may be
difficult to enforce.




The
government of the PRC has restricted or limited foreign ownership of certain
kinds of assets and companies operating in certain industries. The industry
groups that are restricted are wide ranging, including certain aspects of
telecommunications, advertising, food production, and heavy equipment
manufacturers, for example. In addition there can be restrictions on the foreign
ownership of businesses that are determined from time to time to be in
“important industries” that may affect the national economic security or having
“famous Chinese brand names” or “well established Chinese brand names.” Subject
to the review requirements of the Ministry of Commerce and other relevant
agencies as discussed elsewhere for acquisitions of assets and companies in the
PRC and subject to the various percentage ownership limitations that exist from
time to time, acquisitions involving foreign investors and parties in the
various restricted categories of assets and industries may nonetheless sometimes
be consummated using contractual arrangements with permitted Chinese parties. To
the extent that such agreements are employed, they may be for control of
specific assets such as intellectual property or control of blocks of the equity
ownership interests of a company which may not be subject to the merger and
acquisition regulations mentioned above since these types of arrangements
typically do not involve a change of equity ownership in a PRC operating
company, injure a third party or affect the social public interest. The
agreements would be designed to provide our company with the economic benefits
of and control over the subject assets or equity interests similar to the rights
of full ownership, while leaving the technical ownership in the hands of Chinese
parties who would be our nominees and, therefore, may exempt the transaction
from the merger and acquisition regulations, including the application process
required thereunder. However, since there has been limited implementation
guidance provided with respect to the merger and acquisition regulations, there
can be no assurance that the relevant government agency would not apply them to
a business combination effected through contractual arrangements. If such an
agency determines that such an application should have been made consequences
may include levying fines, revoking business and other licenses, requiring
restructure of ownership or operations and requiring discontinuation of any
portion of all of the acquired business. These agreements likely also would
provide for increased ownership or full ownership and control by us when and if
permitted under PRC law and regulation. If we choose to effect a business
combination that employs the use of these types of control arrangements, we may
have difficulty in enforcing our rights. Therefore these contractual
arrangements may not be as effective in providing us with the same economic
benefits, accounting consolidation or control over a target business as would
direct ownership. For example, if the target business or any other entity fails
to perform its obligations under these contractual arrangements, we may have to
incur substantial costs and expend substantial resources to enforce such
arrangements, and rely on legal remedies under Chinese law, including seeking
specific performance or injunctive relief, and claiming damages, which we cannot
assure will be sufficient to off-set the cost of enforcement and may adversely
affect the benefits we expect to receive from the business
combination.




Moreover,
we expect that the contractual arrangements upon which we would be relying would
be governed by Chinese law and would be the only basis of providing resolution
of disputes which may arise through either arbitration or litigation in China.
Accordingly, these contracts would be interpreted in accordance with Chinese law
and any disputes would be resolved in accordance with Chinese legal procedures.
Uncertainties in the Chinese legal system could limit our ability to enforce
these contractual arrangements. In the event we are unable to enforce these
contractual arrangements, we may not be able to exert the effective level of
control or receive the full economic benefits of full direct ownership over the
target business.




22




If
our management following a business combination is unfamiliar with United States
securities laws, they may have to expend time and resources becoming familiar
with such laws which could lead to various regulatory issues.


Following
a business combination, our management will likely resign from their positions
as officers of the company and the management of the target business at the time
of the business combination will remain in place. We cannot assure you that
management of the target business will be familiar with United States securities
laws. If new management is unfamiliar with our laws, they may have to expend
time and resources becoming familiar with such laws. This could be expensive and
time-consuming and could lead to various regulatory issues which may adversely
affect our operations.




Because
any target business with which we attempt to complete a business combination may
be required to provide our shareholders with financial statements prepared in
accordance with and reconciled to United States generally accepted accounting
principles, prospective target businesses may be limited.




In
accordance with requirements of United States Federal securities laws, in order
to seek shareholder approval of a business combination, a proposed target
business may be required to have certain financial statements which are prepared
in accordance with, or which can be reconciled to, U.S. generally accepted
accounting principles and audited in accordance with U.S. generally accepted
auditing standards. To the extent that a proposed target business does not have
financial statements which have been prepared with, or which can be reconciled
to, U.S. generally accepted accounting principles and audited in accordance with
U.S. generally accepted auditing standards, we may not be able to complete a
business combination with that proposed target business. These financial
statement requirements may limit the pool of potential target businesses with
which we may complete a business combination. Furthermore, to the extent that we
seek to acquire a target business that does not have financial statements
prepared in accordance with United States generally accepted accounting
principles, it could make it more difficult for our management to analyze such
target business and determine whether it has a fair market value in excess of
80% of our net assets. It could also delay our preparation of our proxy
statement that we will send to shareholders relating to the proposed business
combination with such a target business, thereby making it more difficult for us
to consummate such a business combination.




If
certain exemptions within the PRC regarding withholding taxes are removed, we
may be required to deduct Chinese corporate withholding taxes from dividends we
may pay to our shareholders following a business combination.




According
to the PRC’s applicable income tax laws, regulations, notices and decisions
related to foreign investment enterprises and their investors (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 20% withholding tax, unless the relevant income is
specifically exempted from tax under the Applicable Foreign Enterprises Tax Law.
Currently, profits derived by a shareholder, such as through dividends, from a
foreign-invested enterprise (an “FIE”) is exempted. However, if the foregoing
exemption is removed in the future following a business combination, we may be
required to deduct certain amounts from dividends we may pay to our shareholders
to pay corporate withholding taxes.




After
we consummate a business combination, our operating company in China will be
subject to restrictions on dividend payments.




After we
consummate a business combination, we will rely on dividends and other
distributions from our operating company to provide us with cash flow and to
meet our other obligations. Current regulations in China would permit our
operating company in China to pay dividends to us only out of its accumulated
distributable profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, our operating company in China will be
required to set aside at least 10% (up to an aggregate amount equal to half of
its registered capital) of its accumulated profits each year. Such reserve
account may not be distributed as cash dividends. In addition, if our operating
company in China incurs debt on its own behalf in the future, the instruments
governing the debt may restrict its ability to pay dividends or make other
payments to us.




23




If
any dividend is declared in the future and paid in a foreign currency, you may
be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you
will actually ultimately receive.




If you
are a U.S. holder, you will be taxed on the U.S. dollar value of your dividends
at the time you receive them, even if you actually receive a smaller amount of
U.S. dollars when the payment is in fact converted into U.S. dollars.
Specifically, if a dividend is declared and paid in a foreign currency, the
amount of the dividend distribution that you must include in your income as a
U.S. holder will be the U.S. dollar value of the payments made in the foreign
currency, determined at the conversion rate of the foreign currency to the U.S.
dollar on the date the dividend distribution is includible in your income,
regardless of whether the payment is in fact converted into U.S. dollars. Thus,
if the value of the foreign currency decreases before you actually convert the
currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars
than the U.S. dollar amount that you will actually ultimately
receive.




We
may become a passive foreign investment company, which could result in adverse
U.S. federal income tax consequences to U.S. investors.




If we are
determined to be a passive foreign investment company, known as a “PFIC,” U.S.
Holders (as defined in the prospectus for our IPO in the section captioned
“Taxation—United States Federal Income Taxation”) could be subject to adverse
United States federal income tax consequences. Specifically, if we are
determined to be a PFIC for any taxable year, each U.S. Holder may be subject to
increased U.S. federal income tax and may be subject to additional reporting
requirements. In general, we will be classified as a PFIC for any taxable year
in which either (1) at least 75% of our gross income is passive income or (2) at
least 50% of the value (determined on the basis of a quarterly average) of our
assets is attributable to assets that produce or are held for the production of
passive income. For purposes of these tests, cash, including working capital,
and investments are considered assets that produce or are held for the
production of passive income. We cannot assure you that we will not be a PFIC in
the current or any future year. We urge U.S. investors to consult their own tax
advisors regarding the possible application of the PFIC rules.




The
legal authorities in China are in the process of evaluating heretofore tax and
fee benefits provided to foreign investors and companies to encourage
development within the country such that these benefits may be lessened or
removed with the consequence that expenses may rise impacting margins and net
income.




The legal
authorities are evaluating tax and fee benefits that have been available to
foreign investors and companies operating in China and tax holidays for new
enterprises. It is anticipated, in the near term, there are going to be changes
that substantially reduce or eliminate many, if not all, the tax and other
governmental fee advantages that heretofore have been available to foreign
entities and newly created entities whether or not such new entities are
foreign. The goal is to institute greater equalization of tax and government fee
treatment of all corporate and similar entities in China. China is being
encouraged to create this more equal treatment because of its WTO obligations
and public opinion within China. There may be phase-ins of various taxes and
fees for entities that currently benefit from either no or lower tax rates and
fees compared to wholly Chinese companies and entities, but there can be no
assurance of this. Even if there are phase-in periods, the length of such
periods is not known. Overall, it is expected that the cost of operating in
China will increase for those companies and entities that have had various tax
and fee advantages in the past. As a result, any target business we might
acquire in China that has had or expects to have benefits from some forms of
preferential tax and fee rates may have increased costs which may have an
adverse impact on operating margins and net income.


24





ITEM
4.        INFORMATION ON THE
COMPANY





Overview




We are a
Cayman Islands blank check company organized on August 18, 2006 as an
exempted company with limited liability.




We were
organized for the purpose of acquiring, through a stock exchange, asset
acquisition or other similar business combination, an operating business, or
control of such operating business, through contractual arrangements, that has
its principal operations located in the People’s Republic of China. Our efforts
in identifying a prospective target business are not limited to a particular
industry. If we have not
completed a business combination by July 23, 2009, our corporate existence will
cease and we will dissolve and liquidate for the purposes of winding up our
affairs.




On July
23, 2007, we closed our IPO of 9,375,000 units with each unit consisting of one
ordinary share and one warrant, each to purchase one ordinary share at an
exercise price of $6.00 per share. The units were sold at an offering price of
$8.00 per unit, generating gross proceeds of $75,000,000.




EarlyBirdCapital,
Inc. acted as the managing underwriter for the IPO.  The securities
sold in the offering were registered under the Securities Act of 1933 pursuant
to a registration statement on Form F-1 (No. 333-137797). The Securities and
Exchange Commission, or the SEC, declared the registration statement effective
on July 17, 2007.  Our units began trading on the Over-the-Bulletin
Board on August 8, 2007.




Simultaneously
with the consummation of the IPO, we consummated the private sale of 250,000
insider units at a price of $8.00 per unit, generating total proceeds of
$2,000,000. The insider units were purchased by Bo Yu, our Chairman of the Board
and Chief Executive Officer. The insider units are identical to the units sold
in the IPO except that if we call the warrants for redemption, the warrants
underlying the insider units will be exercisable on a cashless basis so long as
such warrants are held by Mr. Yu or his affiliates. Mr. Yu has agreed that the
insider units (and underlying securities) will not be sold or transferred by him
until after we have completed a business combination.





$70,375,000
of the proceeds of the offering plus the $2,000,000 we received from the sale of
the insider units (for an aggregate of $72,375,000 or $7.72 per unit sold to the
public in the offering) was placed in a trust account at Lehman Brothers,
maintained by Continental Stock Transfer & Trust Company, acting as
trustee.  These proceeds will not be released until the earlier of the
completion of a business combination and our liquidation. Therefore, unless and
until a business combination is consummated, the proceeds held in the trust
account will not be available for our use for any expenses which we may incur
related to the investigation and selection of a target business and the
negotiation of an agreement to acquire a target business.  These
expenses may be paid prior to a business combination only from the net proceeds
of the initial public offering not held in the trust account.





The  trust
account amount includes $1,875,000 of underwriting discounts and commissions
payable to the underwriters in the offering.  The underwriters have
agreed that such amount will not be paid unless and until we consummate a
business combination.





At the
closing of the IPO the total net proceeds were $71,840,000 ($70,375,000 of
which were placed in trust and the remaining $1,465,000 of the
net proceeds were not placed in trust).





Holders
of the Company’s units have been able to separately trade the ordinary shares
and warrants included in such units since on or about August 8, 2007. The
ordinary shares and warrants are quoted on the OTC Bulletin Board under the
symbols CFAQF and CFAWF, respectively.


25





Our
principal executive offices are located at Jinmao Tower, 88 Century Boulevard,
Suite 4403, Pudong, Shanghai, People’s Republic of China 200121 and our
telephone number is 86-21-5049-1188. Our registered office in the Cayman Islands
is located at M&C Corporate Services Limited, PO Box 309GT, Ugland House
South Church Street, George Town, Grand Cayman, Cayman Islands.  Our
agent for service of process in the United States is Graubard Miller located at
405 Lexington Avenue, New York, New York 10174.




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. Although
substantially all of the net proceeds of our IPO are intended to be generally
applied toward effecting a business combination, the proceeds are not otherwise
being designated for any more specific purposes. Accordingly, investors
invested  in us without an opportunity to evaluate the specific merits
or risks of any one or more business combinations.  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, loss of voting control and compliance with
various federal and state securities laws. 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
in China




Opportunities
for market expansion have emerged for businesses with operations in China due to
certain 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, including 9.5% in 2004, 9.9% in 2005,
      10.7% in 2006, 11.4 % in 2007,  9% in 2008 with a projected rate
      of 7.7% for 2009 (National Bureau of Statistics of
      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;





·
            the recent entry 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, thereby
      causing Chinese companies to attempt to be listed on the United States
      equity markets.




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


26


Government
regulations




Government
regulations relating to foreign exchange controls




The
principal regulation governing foreign exchange in China is the Foreign Currency
Administration Rules (IPPS), as amended. Under these rules, the Renminbi,
China’s currency, is freely redeemable for trade and service related foreign
exchange transactions (such as normal purchases and sales of goods and services
from providers in foreign countries), but not for direct investment, loan or
investment in securities outside of China unless the prior approval of the State
Administration for Foreign Exchange (“SAFE”) of China is obtained. Foreign
investment enterprises (“FIEs”) are required to apply to the SAFE for “Foreign
Exchange Registration Certificates for FIEs.” Following a business combination,
involving a change of equity ownership of a PRC operating entity or through
contractual arrangements with a PRC operating entity, our subsidiary will likely
be an FIE as a result of our ownership structure. With such registration
certificates, which need to be renewed annually, FIEs are allowed to open
foreign currency accounts including a “basic account” and “capital account.”
Currency translation within the scope of the “basic account,” such as remittance
of foreign currencies for payment of dividends, can be effected without
requiring the approval of the SAFE. However, redemption of currency in the
“capital account,” including capital items such as direct investment, loans and
securities, still require approval of the SAFE. This prior approval may delay or
impair our ability to operate following a business combination. On November 21,
2005, the SAFE issued Circular No. 75 on “Relevant Issues Concerning Foreign
Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip
Investment Through Offshore Special Purpose Vehicles.” Circular No. 75 confirms
that the use of offshore special purpose vehicles as holding companies for PRC
investments are permitted as long as proper foreign exchange registrations are
made with the SAFE.




Government
regulations relating to taxation




Until
recently, the PRC domestic corporate income tax rate was 33%, and foreign
invested companies were eligible for tax incentives, depending on their sectors
and locations. However, as part of the recent government policy to improve the
level and quality of foreign investment, China adopted the PRC Enterprise Income
Tax Law and its Implementing Regulations on March 16, 2007 which became
effective as of January 1, 2008. The Implementing Regulations of the Enterprise
Income Tax Law were promulgated by the State Council on December 6, 2007 and
became effective as of January 1, 2008. The new law unifies the income tax rate
for domestic and foreign invested enterprises at 25%. All companies incorporated
in China, regardless of type, ownership or location will be subject to the same
tax rate, although some preferential rates will still apply to encourage the
development of certain sectors, such as hi-tech enterprises, agriculture and
fishery. Businesses who received preferential rates under the old system will
have five years to integrate into the new system. Tax incentives will remain
available for investments in the west and north-east of the country and in
high-technology industries.




Regulation
of foreign currency exchange and dividend distribution




Foreign currency exchange.
Foreign currency exchange in China is governed by a series of regulations,
including the Foreign Currency Administrative Rules (1996), as amended, and the
Administrative Regulations Regarding Settlement, Sale and Payment of Foreign
Exchange (1996), as amended. Under these regulations, the Renminbi is freely
redeemable for trade and service-related foreign exchange transactions, but not
for direct investment, loans or investments in securities outside China without
the prior approval of the SAFE. Pursuant to the Administrative Regulations
Regarding Settlement, Sale and Payment of Foreign Exchange, foreign-invested
enterprises in China may purchase foreign exchange without the approval of SAFE
for trade and service-related foreign exchange transactions by providing
commercial documents evidencing these transactions. They may also retain foreign
exchange, subject to a cap approved by SAFE, to satisfy foreign exchange
liabilities or to pay dividends. However, the relevant Chinese government
authorities may limit or eliminate the ability of foreign-invested enterprises
to purchase and retain foreign currencies in the future. In addition, foreign
exchange transactions for direct investment, loan and investment in securities
outside China are still subject to limitations and require approvals from
SAFE.


27




Regulation of Foreign Exchange in
Certain Onshore and Offshore Transactions. Pursuant to recent regulations
issued by the SAFE, PRC residents are required to register with and receive
approvals from SAFE in connection with offshore investment activities. SAFE has
stated that the purpose of these regulations is to ensure the proper balance of
foreign exchange and the standardization of the cross-border flow of
funds.





On
October 21, 2005, SAFE issued the Notice on Issues Relating to the
Administration of Foreign Exchange in Fund-raising and Reverse Investment
Activities of Domestic Residents Conducted via Offshore Special Purpose
Companies, or Notice 75, which became effective as of November 1,
2005.





According to Notice 75:





•
            prior to establishing or assuming
      control of an offshore company for the purpose of financing that offshore
      company with assets or equity interests in an onshore enterprise in the
      PRC, each PRC resident, whether a natural or legal person, must complete
      the overseas investment foreign exchange registration procedures with the
      relevant local SAFE branch;





•
            an amendment to the registration
      with the local SAFE branch is required to be filed by any PRC resident
      that directly or indirectly holds interests in that offshore company upon
      either (1) the injection of equity interests or assets of an onshore
      enterprise to the offshore company, or (2) the completion of any overseas
      fund raising by such offshore company;
  and





•
            an amendment to the registration
      with the local SAFE branch is also required to be filed by such PRC
      resident when there is any material change involving a change in the
      capital of the offshore company, such as (1) an increase or decrease in
      its capital, (2) a transfer or swap of shares, (3) a merger or division,
      (4) a long term equity or debt investment, or (5) the creation of any
      security interests over the relevant assets located in
      China.





Moreover,
Notice 75 applies retroactively. As a result, PRC residents who have established
or acquired control of offshore companies that have made onshore investments in
the PRC in the past are required to complete the relevant overseas investment
foreign exchange registration procedures by March 31, 2006. Under the relevant
rules, failure to comply with the registration procedures set forth in Notice 75
may result in restrictions being imposed on the foreign exchange activities of
the relevant onshore company, including the payment of dividends and other
distributions to its offshore parent or affiliate and the capital inflow from
the offshore entity, and may also subject relevant PRC residents to penalties
under PRC foreign exchange administration regulations.





As a
Cayman Islands company, and therefore a foreign entity, if we purchase the
assets or equity interests of a PRC company owned by PRC residents, such PRC
residents will be subject to the registration procedures described in the
regulations as currently drafted. Moreover, PRC residents who are beneficial
holders of our shares are required to register with SAFE in connection with
their investment in us.





As a
result of the lack of implementing rules, other uncertainties concerning how the
existing SAFE regulations will be interpreted or implemented, and uncertainty as
to when the new regulations will take effect, we cannot predict how they will
affect our business operations following a business combination. For example,
our ability to conduct foreign exchange activities following a business
combination, such as remittance of dividends and foreign-currency-denominated
borrowings, may be subject to compliance with the SAFE registration requirements
by such PRC residents, over whom we have no control. In addition, we cannot
assure you that such PRC residents will be able to complete the necessary
approval and registration procedures required by the SAFE regulations. We will
require all our shareholders, following a business combination, who are PRC
residents to comply with any SAFE registration requirements, although we have no
control over either our shareholders or the outcome of such registration
procedures. Such uncertainties may restrict our ability to implement our
acquisition strategy and adversely affect our business and prospects following a
business combination.


28




Dividend
distribution.  The principal laws and regulations in China
governing distribution of dividends by foreign-invested companies
include:




·
            The Sino-foreign Equity Joint
      Venture Law (1979), as
amended;





·
            The Regulations for the
      Implementation of the Sino-foreign Equity Joint Venture Law (1983), as
      amended;





·
            The Sino-foreign Cooperative
      Enterprise Law (1988), as
amended;





·
            The Detailed Rules for the
      Implementation of the Sino-foreign Cooperative Enterprise Law (1995), as
      amended;





·
            The Foreign Investment Enterprise
      Law (1986), as amended; and





·
            The Regulations of Implementation
      of the Foreign Investment Enterprise Law (1990), as
      amended.




Under
these regulations, foreign-invested enterprises in China may pay dividends only
out of their accumulated profits, if any, determined in accordance with Chinese
accounting standards and regulations. In addition, wholly foreign-owned
enterprises in China are required to set aside at least 10% of their respective
accumulated profits each year, if any, to fund certain reserve funds unless such
reserve funds have reached 50% of their respective registered capital. These
reserves are not distributable as cash dividends.




Regulation
of foreign investors’ merging Chinese enterprises




On August
8, 2006, the Ministry of Commerce, the State-owned Assets Supervision and
Administration Commission, State Administration of Taxation, State
Administration for Industry and Commerce, China Securities Regulatory Commission
and State Administration of Foreign Exchange jointly promulgated the Provisions
for Foreign Investors to Merge Domestic Enterprises, which became effective
September 8, 2006, replacing the Interim Provisions for Foreign Investors to
Merge Domestic Enterprises issued in March 2003 by four authorities, the
Ministry of Foreign Trade and Economic Cooperation, State Administration of
Taxation, State Administration for Industry and Commerce and State
Administration of Foreign Exchange. The State-owned Assets Supervision and
Administration Commission and China Securities Regulatory Commission newly join
the regulation promulgation.




The
requirements and approval procedures for the Equity Acquisition and Assets
Acquisition remains unchanged as those in the interim regulation. The new
regulation adds one chapter on the acquisition with equity as the consideration
including one section on the special purpose company. This chapter stipulated
the relevant conditions and approval procedures in detail making such
acquisitions workable. The currently mandatory requirement for the submission of
fund remittance into China will be changed.




The
Anti-monopoly Chapter in the new regulation is more or less the same as the
existing interim regulation, although Chinese government is recently tightening
such control.




We cannot
predict how such regulations especially the anti-monopoly examination will
affect our future completion of a business combination. However, we are
confident our strong and in-depth understanding of Chinese market would help us
minimize the negative impacts.


29




Use
of contractual arrangements




The
government of the PRC has restricted or limited foreign ownership of certain
kinds of assets and companies operating in certain industries. The industry
groups that are restricted are wide ranging, including certain aspects of
telecommunications, advertising, food production, and heavy equipment
manufacturers, for example.  In addition there can be restrictions on
the foreign ownership of businesses that are determined from time to time to be
in “important industries” that may affect the national economic security or
having “famous Chinese brand names” or “well established Chinese brand names.”
Subject to the review requirements of the Ministry of Commerce and other
relevant agencies as discussed elsewhere for acquisitions of assets and
companies in the PRC and subject to the various percentage ownership limitations
that exist from time to time, acquisitions involving foreign investors and
parties in the various restricted categories of assets and industries may
nonetheless sometimes be consummated using contractual arrangements with
permitted Chinese parties. To the extent that such agreements are employed, they
may be for control of specific assets such as intellectual property or control
of blocks of the equity ownership interests of a company.  The
agreements would be designed to provide our company with the economic benefits
of and control over the subject assets or equity interests similar to the rights
of full ownership, while leaving the technical ownership in the hands of Chinese
parties who would be our nominees. These agreements likely also would provide
for increased ownership or full ownership and control by us when and if
permitted under PRC law and regulation. If we choose to effect a business
combination that employs the use of these types of control arrangements, we may
have difficulty in enforcing our rights. Therefore these contractual
arrangements may not be as effective in providing us with the same economic
benefits, accounting consolidation or control over a target business as would
direct ownership.




Effecting
a Business Combination




Sources
of Target Businesses




We
anticipate that target business candidates will be brought to our attention from
various unaffiliated sources, including investment bankers, venture capital
funds, private equity funds, leveraged buyout funds, management buyout funds and
other members of the financial community.  Target businesses may be
brought to our attention by these unaffiliated sources as a result of being
solicited by us through calls or mailings.  These sources may also
introduce us to target businesses they think we may be interested in on an
unsolicited basis, since many of these sources will have read this prospectus
and know what types of businesses we are targeting.




Our
officers and directors, as well as their affiliates, may also bring to our
attention target business candidates that they become aware of through their
business contacts as a result of formal or informal inquiries or discussions
they may have, as well as attending trade shows or conventions.  Our
officers and directors have close relationships with many private equity
sponsors and leading mezzanine lenders and a broad range of industry
segments.




Although
we do not presently anticipate engaging the services of professional firms or
other individuals that specialize in business acquisitions on any formal basis,
we may engage these firms or other individuals in the future, in which event we
may pay a finder’s fee, consulting fee or other compensation to be determined in
an arm’s length negotiation based on the terms of the transaction. In no event,
however, will any of our existing officers, directors, shareholders, special
advisors or any entity with which they are affiliated, be paid any finder’s fee,
consulting fee or other compensation prior to, or for any services they render
in order to effectuate, the consummation of a business combination (regardless
of the type of transaction that it is).  If we determine to enter into
a business combination with a target business that is affiliated with our
officers, directors, special advisors or shareholders, we would do so only if we
obtained an opinion from an independent investment banking firm that the
business combination is fair to our unaffiliated shareholders from a financial
point of view.


30





Selection
of a Target Business and Structuring of a Business Combination




Our
management will have virtually unrestricted flexibility in identifying and
selecting a prospective target business.  We have not established any
other specific attributes or criteria (financial or otherwise) for prospective
target businesses.  In evaluating a prospective target business, our
management may consider a variety of factors.  Examples of such
factors may include:




·
            financial condition and results
      of operation;





·
            growth
      potential;





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





·
            capital
      requirements;





·
            competitive
      position;





·
            barriers to
      entry;





·
            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.





These
criteria are not intended to be exhaustive. Any evaluation relating to the
merits of a particular business combination will be based, to the extent
relevant, on the above factors as well as other considerations deemed relevant
by our management in effecting a business combination consistent with our
business objective.  In evaluating a prospective target business, we
will conduct an extensive due diligence review which will encompass, among other
things, meetings with incumbent management and inspection of facilities, as well
as review of financial and other information which is made available to us. This
due diligence review will be conducted either by our management or by
unaffiliated third parties we may engage, although we have no current intention
to engage any such third parties. We will also seek to have all prospective
target businesses execute agreements with us waiving any right, title, interest
or claim of any kind in or to any monies held in the trust account. If any
prospective target business refused to execute such agreement, we would cease
negotiations with such target business.




The time
and costs required to select and evaluate a target business and to structure and
complete the business combination cannot presently be ascertained with any
degree of certainty.  Any costs incurred with respect to the
identification and evaluation of a prospective target business with which a
business combination is not ultimately completed will result in a loss to us and
reduce the amount of capital available to otherwise complete a business
combination.


31


We have
engaged EarlyBirdCapital, the representative of the underwriters, on a
non-exclusive basis, to act as our investment banker to assist us in structuring
a business combination and negotiating its terms (but not for purposes of
locating potential target candidates for our business
combination).  We anticipate that these services will include
assisting us with valuing and structuring any proposed offer to be made to a
target business and negotiating a letter of intent and/or definitive agreement
with any potential target business. We will pay EarlyBirdCapital a cash fee at
the closing of our business combination of 1.0% of the total consideration paid
in connection with the business combination, with a maximum fee to be paid of
$750,000.




Fair
Market Value of Target Business




The
target business that we acquire, or acquire control of, must have a fair market
value equal to at least 80% of our net assets at the time of such acquisition,
although we may acquire a target business whose fair market value significantly
exceeds 80% of our net assets.  In order to consummate such an
acquisition, we may issue a significant amount of our debt or equity securities
to the sellers of such businesses and/or seek to raise additional funds through
a private offering of debt or equity securities. Since we have no specific
business combination under consideration, we have not entered into any such fund
raising arrangement and have no current intention of doing so. The fair market
value of the target will be determined by our board of directors based upon one
or more standards generally accepted by the financial community (such as actual
and potential sales, earnings, cash flow and/or book value). If our board is not
able to independently determine that the target business has a sufficient fair
market value, we will obtain an opinion from an unaffiliated, independent
investment banking firm with respect to the satisfaction of such criteria. We
are not required to obtain an opinion from an investment banking firm as to the
fair market value if our board of directors independently determines that the
target business complies with the 80% threshold.




Probable
Lack of Business Diversification




Our
business combination must be with a target business or businesses which
satisfies the minimum valuation standard at the time of such acquisition, as
discussed above, although this process may entail the simultaneous acquisitions
of several operating businesses at the same time. Therefore, at least initially,
the prospects for our success may be entirely dependent upon the future
performance of a single business. Unlike other entities which may have the
resources to complete several business combinations of entities operating in
multiple industries or multiple areas of a single industry, it is probable that
we will not have the resources to diversify our operations or benefit from the
possible spreading of risks or offsetting of losses.  By consummating
a business combination with only a single entity, our lack of diversification
may:




·
            subject us to numerous economic,
      competitive and regulatory developments, any or all of which may have a
      substantial adverse impact upon the particular industry in which we may
      operate subsequent to a business combination,
  and





·
            result in our dependency on the
      development or market acceptance of a single or limited number of
      products, processes or
services.




If we
determine to simultaneously acquire several businesses and such businesses are
owned by different sellers, we will need for each of these sellers to agree that
our purchase of its business is contingent on the simultaneous closings of the
other acquisitions, which may make it more difficult for us, and delay our
ability, to complete the business combination. With multiple acquisitions, we
could also face additional risks, including additional burdens and costs with
respect to possible multiple negotiations and due diligence investigations (if
there are multiple sellers) and the additional risks associated with the
subsequent assimilation of the operations and services or products of the
acquired companies in a single operating business.


32


Limited
Ability to Evaluate the Target Business’ Management




Although
we intend to scrutinize the management of a prospective target business when
evaluating the desirability of effecting a business combination, we cannot
assure you that our assessment of the target business’ management will prove to
be correct.  In addition, we cannot assure you that the future
management will have the necessary skills, qualifications or abilities to manage
a public company. Furthermore, the future role of our officers and directors, if
any, in the target business following a business combination cannot presently be
stated with any certainty. While it is possible that each of our executive
officers could remain in a senior management or advisory position with us
following a business combination, it is unlikely that they will devote their
full time efforts to our affairs subsequent to a business
combination.  Moreover, they would only be able to remain with the
company after the consummation of a business combination if they are able to
negotiate employment or consulting agreements in connection with the business
combination. These negotiations would take place simultaneously with the
negotiation of the business combination and could provide for them to receive
compensation in the form of cash payments and/or our securities for services
they would render to the company after the consummation of the business
combination.   While the personal and financial interests of our
executive officers may influence their motivation in identifying and selecting a
target business, their ability to remain with the company after the consummation
of a business combination will not be the determining factor in our decision as
to whether or not we will proceed with any potential business combination.
Additionally, we cannot assure you that our officers and directors will have
significant experience or knowledge relating to the operations of the particular
target business.




Following
a business combination, we may seek to recruit additional managers to supplement
the incumbent management of the target business. We cannot assure you that we
will have the ability to recruit additional managers, or that any such
additional managers we do recruit will have the requisite skills, knowledge or
experience necessary to enhance the incumbent management.




Opportunity
for Shareholder Approval of Business Combination




Prior to
the completion of a business combination, we will submit the transaction to our
shareholders for approval, even if the nature of the acquisition is such as
would not ordinarily require shareholder approval under applicable state
law.




In
connection with seeking shareholder approval of a business combination, we will
furnish our shareholders with proxy solicitation materials prepared in
accordance with the Securities Exchange Act of 1934, as amended, which, among
other matters, will include a description of the operations of the target
business and audited historical financial statements of the business. We will
publicly announce the record date for determining the shareholders entitled to
vote at the meeting to approve our business combination at least two business
days prior to such record date.




In
connection with the vote required for any business combination, all of our
existing shareholders, including all of our officers and directors, have agreed
to vote their respective initial shares in accordance with the majority of the
ordinary shares voted by the public shareholders. This voting arrangement shall
not apply to shares included in units purchased in the initial public offering
or purchased after the offering in the aftermarket by any of our existing
shareholders, officers and directors. Accordingly, they may vote these shares on
a proposed business combination any way they choose.  We will proceed
with the business combination only if a majority of the ordinary shares voted by
the public shareholders are voted in favor of the business combination and
public shareholders owning less than 30% of the shares sold in the offering both
exercise their conversion rights and vote against the business
combination.


33


Conversion
Rights




At the
time we seek shareholder approval of any business combination, we will offer
each public shareholder the right to have such shareholder’s ordinary shares
converted to cash if the shareholder votes against the business combination and
the business combination is approved and completed.  Our existing
shareholders will not have such conversion rights with respect to any ordinary
shares owned by them, directly or indirectly, whether included in their initial
shares, in the insider units or purchased by them in the IPO or in the
aftermarket (nor will they seek appraisal rights with respect to such shares if
appraisal rights would be available to them).  The actual per-share
conversion price will be equal to the amount in the trust account, inclusive of
any interest (calculated as of two business days prior to the consummation of
the proposed business combination), divided by the number of shares sold in the
IPO.  At December 31, 2008, the per-share conversion price would be
$7.91, or $0.09 less than the per-unit offering price of $8.00.




An
eligible shareholder may request conversion at any time after the mailing to our
shareholders of the proxy statement and prior to the vote taken with respect to
a proposed business combination at a meeting held for that purpose, but the
request will not be granted unless the shareholder votes against the business
combination and the business combination is approved and
completed.  Additionally, we may require public shareholders, whether
they are a record holder or hold their shares in “street name,” to either tender
their certificates to our transfer agent at any time through the vote on the
business combination or to deliver their shares to the transfer agent
electronically using Depository Trust Company’s DWAC (Deposit/Withdrawal At
Custodian) System, at the holder’s option. The proxy solicitation materials that
we will furnish to shareholders in connection with the vote for any proposed
business combination will indicate whether we are requiring shareholders to
satisfy such certification and delivery requirements. Accordingly, a shareholder
would have from the time we send out our proxy statement through the vote taken
with respect to the business combination at such meeting to tender his shares if
he wishes to seek to exercise his conversion rights.  This time period
varies depending on the specific facts of each transaction. However, as the
delivery process can be accomplished by the shareholder, whether or not he is a
record holder or his shares are held in “street name,” in a matter of hours by
simply contacting the transfer agent or his broker and requesting delivery of
his shares through the DWAC System, we believe this time period is sufficient
for an average investor. However, because we do not have any control over this
process, it may take significantly longer than we anticipated and investors may
not be able to seek conversion in time. Accordingly, we will only require
shareholders to deliver their certificates prior to the vote if we give
shareholders at least two weeks prior between the mailing of the proxy
solicitation materials and the meeting date.  Traditionally, in order
to perfect conversion rights in connection with a blank check company’s business
combination, a holder could simply vote against a proposed business combination
and check a box on the proxy card indicating such holder was seeking to convert.
After the business combination was approved, the company would contact such
shareholder to arrange for him to deliver his certificate to verify ownership.
As a result, the shareholder then had an “option window” after the consummation
of the business combination during which he could monitor the price of the stock
in the market.  If the price rose above the conversion price, he could
sell his shares in the open market before actually delivering his shares to the
company for cancellation. Thus, the conversion right to which shareholders were
aware they needed to commit before the shareholder meeting would become a
continuing right surviving past the consummation of the business combination
until the converting holder delivered his certificate for conversion at the
conversion price. The requirement for physical or electronic delivery prior to
the meeting ensures that a converting holder’s election to convert is
irrevocable once the business combination is approved.  However, we
will not require the foregoing procedures if we determine this problem is no
longer an issue. There is a nominal cost associated with the above-referenced
tendering process and the act of certificating the shares or delivering them
through the DWAC system. The transfer agent will typically charge the tendering
broker $35 and it would be up to the broker whether or not to pass this cost on
to the converting holder. However, this fee would be incurred regardless of
whether or not we require holders seeking to exercise conversion rights to
tender their shares prior to the meeting — the need to deliver shares is a
requirement of conversion regardless of the timing of when such delivery must be
effectuated. Accordingly, this would not result in any increased cost to
shareholders when compared to the traditional process.





Any
request for conversion, once made, may be withdrawn at any time prior to time
the vote is taken with respect to the proposed business
combination.  Furthermore, if a shareholder delivered his certificate
for conversion and subsequently decided prior to the meeting not to elect
conversion, he may simply request that the transfer agent return the certificate
(physically or electronically). We anticipate that the funds to be distributed
to shareholders entitled to convert their shares who elect conversion will be
distributed promptly after completion of a business
combination.  Public shareholders who convert their stock into their
share of the trust account still have the right to exercise any warrants they
still hold.


34




If a vote
on our initial business combination is held and the business combination is not
approved, we may continue to try to consummate a business combination with a
different target until July 23, 2009 (24 months from the completion of our
IPO).  If the initial business combination is not approved or
completed for any reason, then public shareholders voting against our initial
business combination who exercised their conversion rights would not be entitled
to convert their ordinary shares into a pro rata share of the aggregate amount
then on deposit in the trust account.   In such case, if we have
required public shareholders to tender their certificates prior to the meeting,
we will promptly return such certificates to the tendering public
shareholder.  Public shareholders would be entitled to receive their
pro rata share of the aggregate amount on deposit in the trust account only in
the event that the initial business combination they voted against was duly
approved and subsequently completed, or in connection with our
liquidation.




We will
not complete any business combination if public shareholders, owning 30% or more
of the shares sold in the initial public offering, both vote against the
business combination and exercise their conversion
rights.  Accordingly, it is our understanding and intention in every
case to structure and consummate a business combination in which public
shareholders owning 29.99% of the shares sold in the initial public offering may
exercise their conversion rights and the business combination will still go
forward.   We have set the conversion percentage to 30% in order
to reduce the likelihood that a small group of investors holding a block of our
stock will be able to stop us from completing a business combination that is
otherwise approved by a large majority of our public shareholders.




Automatic
Dissolution and Subsequent Liquidation If No Business Combination prior to July
23, 2009




Our
memorandum and articles of association provide that we will continue in
existence only until July 23, 2009.   This provision may not
be amended except in connection with the consummation of a business
combination.   If we have not completed a business combination by
such date, it will trigger our automatic dissolution.  This has the
same effect as if our board of directors and shareholders had formally voted to
approve our voluntary winding up and dissolution and formally began a voluntary
winding up procedure under the Companies Law.  Accordingly, no vote is
required from our shareholders to commence such a voluntary winding up and
dissolution.  We view this provision terminating our corporate life by
July 23, 2009 as an obligation to our shareholders and will not take
any action to amend or waive this provision to allow us to survive for a longer
period of time except in connection with the consummation of a business
combination.





Under the
Companies Law, in the case of a full voluntary liquidation procedure, a
liquidator would give at least 21 days’ notice to creditors of his intention to
make a distribution by notifying known creditors (if any) who have not submitted
claims and by placing a public advertisement in the Cayman Islands Official
Gazette, although in practice this notice requirement need not necessarily delay
the distribution of assets as the liquidator may be satisfied that no creditors
would be adversely affected as a consequence of a distribution before this time
period has expired.  We anticipate that the trust account would be
liquidated shortly following the expiration of the 21 day period.  As
soon as the affairs of the company are fully wound-up, the liquidator must lay
his final report and accounts before a final general meeting which must be
called by a public notice at least one month before it takes
place.  After the final meeting, the liquidator must make a return to
the Registrar confirming the date on which the meeting was held and three months
after the date of such filing the company is dissolved.




If we are
unable to complete a business combination by July 23, 2009, we will
distribute to all of our public shareholders, in proportion to their respective
equity interests, an aggregate sum equal to the amount in the trust account,
inclusive of any interest, plus any remaining net assets (subject to our
obligations under Cayman Islands law to provide for claims of
creditors).  We would expect to notify the trustee of the trust
account to begin liquidating such assets promptly after expiration of the 21 day
period and anticipate it will take no more than 10 business days to effectuate
such distribution. Our initial shareholders have waived their rights to
participate in any liquidation distribution with respect to their initial shares
and the shares included within the insider units.  There will be no
distribution from the trust account with respect to our warrants which will
expire worthless. We will pay the costs of liquidation from our remaining assets
outside of the trust fund.  If such funds are insufficient, our
initial shareholders have contractually agreed to advance us the funds necessary
to complete such liquidation (currently anticipated to be no more than $15,000)
and have contractually agreed not to seek repayment of such
expenses.


35





If we
were to expend all of the net proceeds of the IPO, other than the proceeds
deposited in the trust account, and taking into account interest, if any, earned
on the trust account, the per-share liquidation price, as of December 31, 2008,
would be $7.91or $0.09 less than the per-unit offering price of $8.00.The proceeds deposited
in the trust account could, however, become subject to the claims of our
creditors (which could include vendors and service providers we have engaged to
assist us in any way in connection with our search for a target business and
that are owed money by us, as well as target businesses themselves) which could
have higher priority than the claims of our public shareholders.  Our
officers and directors have agreed, pursuant to agreements with us and
EarlyBirdCapital that, if we liquidate prior to the consummation of a business
combination, they will be personally liable (on a pro rata basis relative to the
number of initial shares owned by them prior to the completion of the offering)
to pay debts and obligations to target businesses or vendors or other entities
that are owed money by us for services rendered or contracted for or products
sold to us in excess of the net proceeds of the IPO not held in the trust
account.    However, if our officers and directors do not
satisfy those obligations the actual per-share liquidation price could be less
than $7.91, plus interest, due to claims of creditors.




Our
public shareholders will be entitled to receive funds from the trust account
only in the event of the expiration of our existence and our liquidation or if
they seek to convert their respective shares into cash upon a business
combination which the shareholder voted against and which is completed by
us.  In no other circumstances will a shareholder have any right or
interest of any kind to or in the trust account.




If we are
unable to consummate a transaction by July 23, 2009, our purpose and
powers will be limited to dissolving, liquidating and winding up.  On
notice from us, the trustee of the trust account will liquidate the investments
constituting the trust account and will turn over the proceeds to our transfer
agent for distribution to our public shareholders as part of our plan of
distribution and dissolution.  Concurrently, we shall pay, or reserve
for payment, from funds not held in trust, our liabilities and obligations,
although we cannot assure you that there will be sufficient funds for such
purpose.  If there are insufficient funds held outside the trust
account for such purpose, our directors and officers have agreed to indemnify us
for all claims of creditors to the extent we do not obtain valid and enforceable
waivers from such entities in order to protect the amounts held in
trust.  We cannot assure you that they will be able to satisfy their
indemnification obligations if required to.  As a result, if we
liquidate, the per-share distribution from the trust fund could be less than
$7.91 due to claims or potential claims of creditors.




Additionally,
in any liquidation proceedings of the company under Cayman Islands’ law, the
funds held in our trust account may be included in our estate and subject to the
claims of third parties with priority over the claims of our
shareholders.  To the extent any such claims deplete the trust
account, we cannot assure you we will be able to return to our public
shareholders the liquidation amounts payable to them.  Furthermore, a
liquidator of the company might seek to hold a shareholder liable to contribute
to our estate to the extent of distributions received by them pursuant to the
dissolution of the trust account beyond the date of dissolution of the trust
account.  Additionally, we cannot assure you that third parties will
not seek to recover from our shareholders amounts owed to them by
us.  Furthermore, our board may be viewed as having breached their
fiduciary duties to our creditors and/or may have acted in bad faith, and
thereby exposing itself and our company to claims for having paid public
shareholders from the trust account prior to addressing the claims of creditors.
We cannot assure you that claims will not be brought against us for these
reasons.


36





Competition
for Target Business




In
identifying, evaluating and selecting a target business, we may encounter
intense competition from other entities having a business objective similar to
ours.  There are numerous blank check companies that have completed
initial public offerings that are seeking to carry out a business plan similar
to ours. In addition, we may be subject to competition from entities other than
blank check companies that have a business objective similar to ours, including
venture capital firms, leverage buyout firms and operating businesses looking to
expand their operations through the acquisition of a target
business.  Many of these entities are well established and have
extensive experience identifying and effecting business combinations directly or
through affiliates. Many of these competitors possess greater technical, human
and other resources than us and our financial resources will be relatively
limited when contrasted with those of many of these competitors. While we
believe there may be numerous potential target businesses that we could acquire
with the net proceeds of the IPO, our ability to compete in acquiring certain
sizable target businesses will be limited by our available financial
resources.  This inherent competitive limitation gives others an
advantage in pursuing the acquisition of a target business. Further, the
following may not be viewed favorably by certain target businesses:





·
            our obligation to seek
      shareholder approval of a business combination may delay the completion of
      a transaction;





·
            our obligation to convert into
      cash ordinary shares held by our public shareholders to such holders that
      both vote against the business combination and exercise their conversion
      rights may reduce the resources available to us for a business
      combination; and





·
            our outstanding warrants and
      option, and the potential future dilution they
      represent.





Any of
these factors may place us at a competitive disadvantage in successfully
negotiating a business combination.  Our management believes, however,
that our status as a public entity and potential access to the United States
public equity markets may give us a competitive advantage over privately-held
entities having a similar business objective as ours in acquiring a target
business with significant growth potential on favorable terms.




If we succeed in effecting a business
combination, there will be, in all likelihood, intense competition from
competitors of the target business. We cannot assure you that, subsequent to a
business combination, we will have the resources or ability to compete
effectively.




Facilities




We
maintain our principal executive offices at Jinmao Tower, 88 Century Boulevard,
Suite 4403, Pudong, Shanghai, People’s Republic of China 200121. The cost for
this space is included in the $7,500 per-month fee Cathay Fortune Corp. will
charges us for general and administrative services commencing July 23, 2007
pursuant to a letter agreement between us and Cathay Fortune Corp. We believe,
based on rents and fees for similar services in the PRC, that the fee charged by
Cathay Fortune Corp. is at least as favorable as we could have obtained from an
unaffiliated person. We consider our current office space, combined with the
other office space otherwise available to our executive officers, adequate for
our current operations.




37




Periodic
Reporting and Audited Financial Statements


As a
foreign private issuer, we are exempt from the rules under the Securities
Exchange Act of 1934, as amended, regarding proxy statements.  In
addition, we will not be required under the Exchange Act to file current reports
with the SEC as frequently or as promptly as United States companies whose
securities are registered under the Exchange Act.  However, we have
agreed with the representatives of the underwriters that for the period ending
upon our liquidation or the consummation of our initial business combination, in
connection with any proposed business combination, we will deliver to our
stockholders a proxy statement containing the information required by the rules
under the Securities Exchange Act of 1934.   We have also agreed
with the representatives of the underwriters that for the period ending on the
consummation of a business combination, we will comply with the rules and
regulations under the Exchange Act prescribing the requirements and filing
deadlines for current reports on Form 8-K and will file reports on Form 6-K
complying with those rules and regulations.  We will also furnish to
US shareholders an English language version of our annual financial statements
and all other materials regularly provided to other shareholders, and
publish an English language version of our interim financial statements
filed with the SEC.




We will
provide stockholders with audited financial statements of the prospective target
business as part of the proxy solicitation materials sent to stockholders to
assist them in assessing the target business. In all likelihood, these financial
statements will need to be prepared in accordance with United States generally
accepted accounting principles or prepared or reconciled in accordance with
International Financial Reporting Standards.  We cannot assure you
that any particular target business identified by us as a potential acquisition
candidate will have financial statements prepared in accordance with United
States generally accepted accounting principles or prepared or reconciled in
accordance with International Financial Reporting Standards or that the
potential target business will be able to prepare its financial statements in
accordance with United States generally accepted accounting principles or
prepared or reconciled in accordance with International Financial Reporting
Standards. To the extent that such financial statements cannot be obtained, we
may not be able to acquire the proposed target business. While this may limit
the pool of potential acquisition candidates, we do not believe that this
limitation will be material.





Legal
Proceedings




There is
no litigation currently pending or, to our knowledge, contemplated against us or
any of our officers or directors in their capacity as such.




ITEM 4A.
            UNRESOLVED STAFF
      COMMENTS




None.





ITEM 5.
            OPERATING AND FINANCIAL REVIEW
      AND PROSPECTS





We were
formed on August 18, 2006 to serve as a vehicle to effect a merger, capital
stock exchange, asset acquisition or other similar business combination with one
or more operating businesses in PRC.   We intend to utilize cash
derived from the proceeds of our IPO, which was completed in July 2007, our
capital stock, debt or a combination of cash, capital stock and debt, in
effecting a business combination.





The
issuance of additional share capital:





·
            May significantly reduce the
      equity interest of our
shareholders;





·
            May subordinate the rights of
      holders of ordinary shares if preferred shares are issued with rights
      senior to those afforded to our ordinary
  shares;





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


38





·
            May adversely affect prevailing
      market prices for our ordinary
shares.





Similarly,
if we issued 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 contained covenants that required
      the maintenance of certain financial ratios or reserves and any such
      covenant were breached without a waiver or renegotiation of that
      covenant;





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





·
            our inability to obtain
      additional financing, if necessary, if the debt security contained
      covenants restricting our ability to obtain additional financing while
      such security was
outstanding.





For the
year ended December 31, 2008, we had a net loss of $155,313 derived from
interest income of $840,178 offset by $995,491 of operating
expenses.





For the
year ended December 31, 2007, we had net income of $845,500 derived from
interest income of $964,752 offset by $119,252 of formation costs and operating
expenses.





For the
period from August 18, 2006 (inception) to December 31, 2008, we had
net income of $685,501 attributable to investment income and formation
costs and operating expenses.





On July
23, 2007, we consummated our IPO and raised net proceeds of
$71,840,000.  On consummation of our IPO, $70,735,000of the net proceeds
(plus $2,000,000 we received  from the sale of insider units) was
deposited in trust, with the remaining net proceeds ($1,465,000) becoming
available to pay for business, legal and accounting due diligence on prospective
acquisitions and continuing general and administrative expenses.  We
intend to utilize our cash, including the funds held in the trust fund, capital
stock, debt or a combination of the foregoing to effect a business
combination.  To the extent that our capital stock or debt securities
are used in whole or in part as consideration to effect a business combination,
the proceeds held in the trust fund as well as any other available cash will be
used to finance the operations of the target business.





We
believe that the funds available to us outside of the trust account (originally
$1,465,000) will be sufficient to allow us to operate until July 23, 2009,
assuming that a business combination is not consummated during that
time.  Over this time period, we will be using these funds for
identifying and evaluating prospective acquisition candidates, performing
business due diligence on prospective target businesses, traveling to and from
the offices, plants or similar locations of prospective target businesses,
reviewing corporate documents and material agreements of prospective target
businesses, selecting the target business to acquire and structuring,
negotiating and consummating the business combination. We anticipate that we
will incur approximately $400,000 of expenses for legal, accounting and other
third-party expenses attendant to the due diligence investigations, structuring
and negotiating of a business combination, $180,000 for the administrative fee
payable to Cathay Fortune Corp. ($7,500 per month for 24 months), $250,000 of
expenses for the due diligence and investigation of a target business by our
officers, directors and existing stockholders, $100,000 of expenses in legal and
accounting fees relating to our SEC reporting obligations and $535,000 for
general working capital that will be used for miscellaneous expenses, taxes and
reserves, including approximately $120,000 for director and officer liability
insurance premiums.  We do not believe we will need to raise
additional funds following the IPO in order to meet the expenditures required
for operating our business. However, we may need to raise additional funds
through a private offering of debt or equity securities if such funds are
required to consummate a business combination that is presented to us, although
we have not entered into any such arrangement and have no current intention of
doing so.


39





Commencing
on July 23, 2007 and ending on the acquisition of a target business or our
liquidation, we began incurring a fee from Cathay Fortune Corp., an affiliate of
our officers and directors, of $7,500 per month for providing us with office
space and certain general and administrative services. Additionally, prior to
the date of our IPO, Bo Yu advanced an aggregate of $125,000 to us for payment
of offering expenses on our behalf.  This loan was repaid following
our initial public offering from the proceeds of the offering.





ITEM
      6.
            DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES





Directors
and Executive Officers





Our
current directors and executive officers are as follows:




Name
            
            Age
            
            PositionBo
      Yu
            
            42
            
            Chairman
      of the Board of Directors and Chief Executive OfficerYufeng
      Zhang
            
            33
            
            Chief
      Financial Officer, Secretary, Treasurer and DirectorAidan
      Stretch
            
            41
            
            DirectorJames
      Walsh
            
            41
            
            Director





Bo Yu has
been our chairman of the board and chief executive officer since our inception.
Mr. Yu founded Cathay Fortune Corp., a private equity firm, in July 2003
and has served as its chairman of the management committee and chief executive
officer since that date. From December 2001 to July 2003, Mr. Yu was the
chairman of the management committee of China Fortune Securities Co., Ltd., a
leading privately owned broker-dealer in China. From May 1997 to July 2003,
Mr. Yu served as the chairman of the board of Beijing Leader Investment
Corp., Ltd., a private derivatives trading and assets management firm. From June
1990 to August 1998, Mr. Yu was the founder and the chairman of the board
of Dalian DongLi Artistic Textile Co., Ltd., a privately owned textile
manufacturer. From 1985 to 1990, Mr. Yu held various positions at the
Municipal Tax Bureau of Dalian City.





Yufeng (Edgar)
Zhang has been our chief financial officer and a member of our board of
directors since our inception. Mr. Zhang has served as a managing director
of Cathay Fortune since June 2002. From April 2001 to May 2002, Mr. Zhang
worked as a senior associate at Sinosure Inc., a US-China corporate finance
boutique specialized in advising cross-board transactions for small and middle
size companies. From July 1998 to March 2001, Mr. Zhang worked as a senior
manager of the investment department at DTZ Debenham Tie Leung, a European
corporate real estate consulting firm, in advising international institutional
real estate investments in China. From July 1996 to June 1998, Mr. Zhang
worked as a manager for Shanghai Caohejing Hi-tech Park to facilitate foreign
direct investments in the state-level industrial park. Mr. Zhang received a
B.S. from Shanghai Jiao Tong University. He is also an active member of Chinese
Institute of Certified Public Accountants (CICPA).





Aidan
Stretch has served as a member of our board of directors since our
inception. Since July 2006, Mr. Stretch has been a consultant to Cathay
Fortune. From January 2005 until June 2006, Mr. Stretch has served as a
managing director of WindyPoint Capital Corp., an investment banking firm. From
July 1998 to December 2004, Mr. Stretch served as a managing director of
Broadmark Capital Corp., an investment banking firm. From May 1996 to June 1998,
Mr. Stretch was the principal at Sustainable Development Group, a
consulting firm. Mr. Stretch received a B.A. from the University of
Liverpool, a Diploma of Architecture from the University of Liverpool and the
University of Oregon and has completed the Environmental Management Program and
Executive M.B.A. studies at the University of Washington, Graduate School of
Business.


40





James
Walsh has served as a member of our board of directors since our
inception. Since July 2006, Mr. Walsh has been a consultant to Cathay
Fortune. From January 2005 to June 2006, Mr. Walsh served as a director of
WindyPoint Capital Corp. From March 1999 to December 2005, Mr. Walsh served
as a senior vice president of Broadmark Capital Corp. From September 1996 to
February 1999, Mr. Walsh served as an account executive at Honeywell
International Inc., a New York Stock Exchange listed manufacturer of civil and
military avionics and other aerospace products. Mr. Walsh received a B.A.
from Duke University and an M.B.A. from the University of Washington, Graduate
School of Business.





Executive
Compensation





No
executive officer has received any cash compensation for services rendered to
us. Commencing July 17, 2007 through the acquisition of a target business, we
will pay Cathay Fortune Corp., an affiliate of our officers and directors, a fee
of $7,500 per month for providing us with office space and certain office and
secretarial services. However, this arrangement is solely for our benefit and is
not intended to provide our officers and directors compensation in lieu of a
salary. Other than the $7,500 per month administrative fee, no compensation of
any kind, including finders, consulting or other similar fees, will be paid to
any of our existing shareholders, including our directors, or any of their
respective affiliates, prior to, or for any services they render in order to
effectuate, the consummation of a business combination. However, such
individuals 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. There
is no limit on the amount of these out-of-pocket expenses and there will be no
review of the reasonableness of the expenses by anyone other than our board of
directors, which includes persons who may seek reimbursement, or a court of
competent jurisdiction if such reimbursement is challenged. Because of the
foregoing, we will generally not have the benefit of independent directors
examining the propriety of expenses incurred on our behalf and subject to
reimbursement.





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





Compensation
Discussion and Analysis





Overall,
following our initial business combination, if any, we will seek to provide
total compensation packages that are competitive in terms of potential value to
our executives, and which are tailored to the unique characteristics and needs
of our company within our industry in order to create an executive compensation
program that will adequately reward our executives for their roles in creating
value for our shareholders.  We intend to be competitive with other
similarly situated companies in our industry following completion of our initial
business combination.  The compensation decisions regarding our
executives will be based on our need to attract individuals with the skills
necessary for us to achieve our business plan, to reward those individuals
fairly over time, and to retain those individuals who continue to perform at or
above our expectations.





It is
likely that our executives’ compensation will have three primary
components – salary, cash incentive bonus and stock-based
awards.   We will view the three components of executive
compensation as related but distinct.   We do not believe that
significant compensation derived from one component of compensation should
negate or reduce compensation from other components. We anticipate determining
the appropriate level for each compensation component based in part, but not
exclusively, on our view of internal equity and consistency, individual
performance and other information deemed relevant and timely. We have not
adopted any formal or informal policies or guidelines for allocating
compensation between long-term and currently paid out compensation, between cash
and non-cash compensation, or among different forms of
compensation.


41





We may
utilize the services of third parties from time to time in connection with the
hiring and compensation awarded to executive employees. This could include
subscriptions to executive compensation surveys and other
databases.





Benchmarking
of Cash and Equity Compensation





We
believe it is important when making compensation-related decisions to be
informed as to current practices of similarly situated publicly held
companies.  We expect to stay apprised of the cash and equity
compensation practices of publicly held companies in the industry we operate in
following our initial business combination through the review of such companies’
public reports and through other resources.  It is expected that any
companies chosen for inclusion in any benchmarking group would have business
characteristics comparable to our company, including revenues, financial growth
metrics, stage of development, employee headcount and market capitalization.
While benchmarking may not always be appropriate as a stand-alone tool for
setting compensation due to the aspects of our post-acquisition business and
objectives that may be unique to us, we generally believe that gathering this
information will be an important part of our compensation-related
decision-making process.





Compensation
Components





Base Salary. Generally, we
anticipate setting executive base salaries at levels comparable with those of
executives in similar positions and with similar responsibilities at comparable
companies. We will seek to maintain base salary amounts at or near the industry
norms while avoiding paying amounts in excess of what we believe is necessary to
motivate executives to meet corporate goals. It is anticipated base salaries
will generally be reviewed annually, subject to terms of employment agreements,
and that we will seek to adjust base salary amounts to realign such salaries
with industry norms after taking into account individual responsibilities,
performance and experience.





Annual Bonuses.We may design and
utilize cash incentive bonuses for executives to focus them on achieving key
operational and financial objectives within a yearly time horizon. Wewill structure cash
incentive bonus compensation so that it is taxable to our employees at the time
it becomes available to them. At this time, it is not anticipated that any
executive officer’s annual cash compensation will exceed $1 million, and we have
accordingly not made any plans to qualify for any compensation deductions under
Section 162(m) of the Internal Revenue Code.





Equity Awards.We may also use stock
options and other stock-based awards to reward long-term performance. We believe
that providing a meaningful portion of our executives’ total compensation
package in stock options and other stock-based awards will align the incentives
of our executives with the interests of our shareholders and with our long-term
success.





Board
Practices





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 James Walsh, will expire
at our first annual meeting of shareholders. The term of office of the second
class of directors, consisting of Aidan Stretch, will expire at the second
annual meeting. The term of the third class of directors, consisting of Bo Yu
and Yufeng Zhang, will expire at the third annual meeting.





Employees





We have
two executive officers. These individuals are not obligated to devote any
specific number of hours to our matters and intend to devote only as much time
as he deems necessary to our affairs. The amount of time they will devote in any
time period will vary based on whether a target business has been selected for
the business combination and the stage of the business combination process the
company is in. Accordingly, once management locates a suitable target business
to acquire, they will spend more time investigating such target business and
negotiating and processing the business combination (and consequently spend more
time to our affairs) than they would prior to locating a suitable target
business.  It is our expectation that Messrs. Yu and Zhang will devote
an average of approximately 10 hours per week to our business.  We do
not have any full time employees prior to the consummation of a business
combination.


42





ITEM
      7.
            MAJOR
      SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS





A.
Major Shareholders





The
following table sets forth information regarding the beneficial ownership of our
ordinary shares as of June 23, 2009 by:





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





·
            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 ordinary shares beneficially
owned by them.





Name and Address of Beneficial Owner (1)
                    
                    Amount and Nature of
                      Beneficial Ownership
                    
                    Percent of ClassBo Yu (2)
                    
                    
                    2,148,438
                    (3)
                    18.0
                    %Yufeng
      Zhang
                    
                    
                    210,938
                    
                    1.8
                    %Aidan
      Stretch (4)
                    
                    
                    117,187
                    
                    *James
      Walsh (4)
                    
                    
                    117,187
                    
                    *David
      M. Knott (5)
                    
                    
                    600,000
                    (6)
                    5.0
                    %Farallon
      Partners, LLC (7)
                    
                    
                    600,000
                    (8)
                    5.0
                    %HBK
      Investments L.P.
                    
                    
                    1,196,800
                    (9)
                    9.9
                    %Arrowgrass
      Capital Partners LP  (10)
                    
                    
                    700,000
                    
                    5.8
                    %All directors and
      executive officers as a group (four individuals)
                    
                    
                    2,593,750
                    (3)
                    21.7
                    %





*Less
than one percent.





(1)
            Unless otherwise indicated, the
      business address of each of the individuals is Jinmao Tower, 88 Century
      Boulevard, Suite 4403, Pudong, Shanghai, People’s Republic of China
      200121.





(2)
            Mr. Yu has been our chairman of
      the board and chief executive officer since our
      inception.





(3)
            Does not include 250,000 ordinary
      shares issuable upon exercise of warrants included within the insider
      units that are not exercisable and will not become exercisable within 60
      days.





(4)
            The business address of these
      individuals is 1700 Seventh Avenue, Suite 2100, Seattle, Washington
      98101.





(5)
            The business address of Mr. Knott
      is 485 Underhill Boulevard, Suite 205, Syosset, New York
      11791.


43





(6)
            Represents 480,000 shares
      beneficially held by Dorset Management Corporation and 120,000 shares
      owned by Ostra Capital Partners, L.P. (“Ostra”).  The general
      partner of Ostra is Ostra GP, LLC and the manager of Ostra GP, LLC is an
      individual employed by one or more entities controlled by David M. Knott.
      Mr. Knott is the president of Dorset Management Corporation. The address
      of Dorset Management Corporation is the same as that for Mr. Knott, above.
      The foregoing information was derived from a Schedule 13G filed with the
      SEC on July 23, 2007, as amended on February 17,
    2009.





(7)
            The business address of Farallon
      Partners, L.L.C. is c/o Farallon Capital Management, L.L.C., One Maritime
      Plaza, Suite 2100, San Francisco, California
  94111.





(8)
            Represents (i) 188,600 shares of
      common stock held by Farallon Capital Partners, L.P. (“FCP”), (ii) 102,800
      shares of common stock held by Farallon Capital Institutional Partners,
      L.P. (“FCIP”), (iii) 11,400 shares of common stock held by Farallon
      Capital Institutional Partners II, L.P.(“FCIP II”), (iv) 8,600 shares of
      common stock held by Farallon Capital Institutional Partners III, L.P.
      (“FCIP III”), (v) 5,700 shares of common stock held by Tinicum Partners,
      L.P. (“Tinicum”) and (vi) 282,900 shares of common stock held by Farallon
      Capital Offshore Investors II, L.P. (“FCOI II”). The foregoing information was
      derived from a Schedule 13G filed with the SEC on July 30, 2007, as
      amended on September 20,
2007.





(9)
            Represents
      1,196,800 shares over which HBK Investments L.P. (“Investments”), HBK
      Services LLC (“Services”), HBK Partners II L.P. (“Partners”), HBK
      Management LLC (“Management”) and HBK Master Fund L.P. (“Master Fund”)
      each have shared voting and dispositive power. Investments has delegated
      discretion to vote and dispose of the Securities to Services. Services
      may, from time to time, delegate discretion to vote and dispose of certain
      of the Securities to HBK New York LLC, HBK Virginia LLC, HBK Europe
      Management LLP and/or HBK Hong Kong Ltd. (collectively, the
      “Subadvisors”). Each of Services and the Subadvisors is under common
      control with Investments.  The address of the principal business
      office for each Reporting Person is as follows: HBK Investments L.P.: 2101
      Cedar Springs Road, Suite 700, Dallas, Texas 75201;  HBK
      Services LLC: 2101 Cedar Springs Road, Suite 700, Dallas, Texas 75201; HBK
      New York LLC: 350 Park Avenue, 20th Floor, New York, New York 10022: HBK
      Partners II L.P.: 2101 Cedar Springs Road, Suite 700, Dallas, Texas 75201;
      HBK Management LLC: 2101 Cedar Springs Road, Suite 700, Dallas, Texas
      75201;  HBK Master Fund L.P.: c/o HBK Services LLC, 2101 Cedar
      Springs Road, Suite 700, Dallas, Texas 75201. The foregoing information
      was derived from a Schedule 13G filed with the SEC on January 1,
      2009.





(10)
            Represents shares beneficially
      owned by Arrowgrass Capital Partners (US), LP,  a Delaware
      limited partnership (“ACP”).  Arrowgrass Capital Services (US),
      Inc., a Delaware corporation (“ACS”),  is the general partner of
      ACP and has power to direct the affairs of ACP including decisions with
      respect to the sale of the shares.  ACP and ACS have shared
      voting and dispositive power.  The business address for each of
      ACP and ACS is 245 Park Avenue, New York, New York
      10167.   The foregoing information was derived from a
      Schedule 13G filed with the SEC on June 15,
  2009.





All of
the ordinary shares issued prior to our IPO have been placed in escrow with
Continental Stock Transfer & Trust Company, as escrow agent, until (i) nine
months after the consummation of a business combination with respect to half of
such shares and (ii) one year after the consummation of a business combination
with respect to the remainder of such shares. These shares may be released from
escrow earlier than such dates if, within the first year after we consummate a
business combination, we consummate a subsequent liquidation, merger, stock
exchange or other similar transaction which results in all of our shareholders
having the right to exchange their ordinary shares for cash, securities or other
property. Additionally, if holders of more than 20% of the shares sold in the
IPO  vote against a proposed business combination and seek to exercise
their conversion rights and such business combination is consummated, our
initial shareholders have agreed to forfeit and return to us for cancellation a
number of shares so that the existing shareholders will collectively own no more
than 23.81% of our outstanding ordinary shares upon consummation of such
business combination (without giving effect to any shares that may be issued in
the business combination).  During the escrow period, the holders of
these securities will not be able to sell or transfer their securities except to
their spouses and children or trusts established for their benefit, but will
retain all other rights as our shareholders, including, without limitation, the
right to vote their ordinary shares and the right to receive cash dividends, if
declared.  If dividends are declared and payable in ordinary shares,
such dividends will also be placed in escrow.  If we are unable to
effect a business combination and liquidate, none of our existing shareholders
will receive any portion of the liquidation proceeds with respect to their
initial shares.


44





Bo Yu
purchased an aggregate of 250,000 insider units (for an aggregate purchase price
of $2,000,000) from us. The insider units and underlying securities are
identical to the units and underlying securities offered in the IPO except that
if we call the warrants for redemption, the warrants underlying the insider
units may be exercisable on a cashless basis at the holder’s option (except in
the case of a forced cashless exercise upon our redemption of the warrants, as
described below) so long as such warrants are held by Mr. Yu or his
affiliates. Additionally, Mr. Yu has waived his right to receive
distributions upon our liquidation prior to a business combination with respect
to the securities underlying the insider units. Furthermore, he has agreed that
the insider units and underlying securities will not be sold or transferred by
him until after we have completed a business combination.





Bo Yu is
our “promoter” as that term is defined under the Federal securities
laws.





B.
            Related
      Party Transactions





In August
2006, we issued 2,000,000 ordinary shares to the individuals set forth below for
$25,000 in cash, at a purchase price of $0.0125 per share, as
follows:





Name
                
                Number of Shares
                
                Relationship to UsBo
      Yu
                
                
                1,440,000
                
                Chairman
      of the Board and Chief Executive OfficerYufeng
      Zhang
                
                
                180,000
                
                Chief
      Financial Officer, Secretary, Treasurer and DirectorGang
      Chen
                
                
                180,000
                
                StockholderAidan
      Stretch
                
                
                100,000
                
                DirectorJames
      Walsh
                
                
                100,000
                
                Director





In
January 2007, Gang Chen transferred his 180,000 shares to Bo Yu for $2,250 (or
$0.0125 per share). Effective July 17, 2007, our board of directors
authorized a stock dividend of 0.171875 ordinary shares for each outstanding
ordinary share, effectively lowering the purchase price to $0.01 per
share.





The
holders of the majority of these shares are entitled to demand that we register
these shares pursuant to an agreement signed prior to the date of the
IPO.   The holders of the majority of these shares may elect to
exercise these registration rights at any time commencing three months prior to
the date on which these ordinary shares are released from escrow.  In
addition, these shareholders have certain “piggy-back” registration rights with
respect to registration statements filed subsequent to our consummation of a
business combination.  We will bear the expenses incurred in
connection with the filing of any such registration statements.





Bo Yu
purchased the 250,000 insider units (for an aggregate purchase price of
$2,000,000, or $8.00 per unit) from us.  This purchase took place on a
private placement basis simultaneously with the consummation of the initial
public offering.  The purchase price for the insider units was
delivered to Graubard Miller, our counsel in connection with the IPO, who is
also acting as escrow agent in connection with the private sale of insider
units.  Continental Stock Transfer & Trust Company deposited the
$2,000,000purchase price for these units into the trust fund simultaneously with
the consummation of the offering.   The insider units are
identical to the units offered in the IPO except that if we call the warrants
for redemption, the warrants underlying the insider units may be exercised on a
cashless basis at the holder’s option (except in the case of a forced cashless
exercise on our redemption of the warrants) so long as such warrants are held by
Mr. Yu or his affiliates.  Additionally, Mr. Yu has waived
his right to receive distributions on our liquidation prior to a business
combination with respect to the securities underlying the insider
units.  Furthermore, he has agreed that the insider units and
underlying securities will not be sold or transferred by him until after we have
completed a business combination.


45





Cathay
Fortune Corp., an affiliate of our officers and directors, has agreed that,
commencing July 17, 2007 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
Cathay Fortune Corp. $7,500 per month for these services. Bo Yu is the chief
executive officer and chairman of the management committee of Cathay Fortune
Corp, Yufeng Zhang is a managing director of Cathay Fortune Corp., and each of
Aidan Stretch and James Walsh is a consultant to Cathay Fortune Corp. As a
result, they will benefit from the transaction to the extent of their interest
in Cathay Fortune Corp. However, this arrangement is solely for our benefit and
is not intended to provide our officers and directors compensation in lieu of a
salary. We believe, based on rents and fees for similar services in the Shanghai
area in the PRC, that the fee charged by Cathay Fortune Corp. 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.





Bo Yu
advanced to us an aggregate of $125,000 to cover expenses related to the initial
public offering. The loan was repaid from the proceeds of our IPO not being
placed in the trust account.





We will
reimburse our existing shareholders, officers, directors, special advisors or
their affiliates 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 finder’s fees, consulting fees or other similar compensation,
are being paid to any of our existing shareholders, officers, directors or
special advisors or to any of their respective affiliates, for services rendered
to us prior to, or in connection with the consummation of our initial business
combination (regardless of the type of transaction that it is).





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 be on terms believed by us to be no less favorable to us than are available
from unaffiliated third parties.  Such transactions or loans,
including any forgiveness of loans, will require prior approval 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, in either
case who had 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.   It is our
intention to obtain estimates from unaffiliated third parties for similar goods
or services to ascertain whether such transactions with affiliates are on terms
that are no less favorable to us than are otherwise available from such
unaffiliated third parties.  If a transaction with an affiliated third
party were found to be on terms less favorable to us than with an unaffiliated
third party, we would not engage in such transaction.





C.
            Interest
      of Experts and Counsel





Not
applicable.





46




ITEM
      8.
            FINANCIAL
      INFORMATION





A.
            Consolidated
      Statements and Other Financial
Information





Please
see “Item 18. Financial Statements” for a list of the financial statements filed
as part of this annual report.





B.
            Significant
      Changes





Not
applicable.


47


ITEM
      9.
            THE
      OFFER AND LISTING





A.
            Offer
      and Listing Details





The
following table sets forth the range of high and low sales prices for the units,
ordinary shares and warrants for the periods indicated since the units commenced
public trading on July 18, 2007, and since the ordinary shares and warrants
commenced public trading on August 8, 2007.





Units
                
                Ordinary Shares
                
                WarrantsHigh
                
                Low
                
                High
                
                Low
                
                High
                
                Low2009:Second
      Quarter*
                
                
                7.50
                
                7.50
                
                
                7.90
                
                7.70
                
                
                0.22
                
                0.03First
      Quarter
                
                
                7.50
                
                7.45
                
                
                8.00
                
                7.40
                
                
                0.10
                
                0.032008:Fourth
      Quarter
                
                
                8.40
                
                7.18
                
                
                8.00
                
                6.90
                
                
                0.32
                
                0.03Third
      Quarter
                
                
                8.22
                
                7.97
                
                
                7.67
                
                7.22
                
                
                0.82.
                
                0.23Second
      Quarter
                
                
                8.45
                
                7.76
                
                
                7.45
                
                7.27
                
                
                1.00
                
                0.58First
      Quarter
                
                
                8.50
                
                8.18
                
                
                7.40
                
                7.25
                
                
                1.16
                
                0.952007:Fourth
      Quarter
                
                
                8.65
                
                8.18
                
                
                7.35
                
                7.25
                
                
                1.45
                
                0.92Third
      Quarter
                
                
                8.60
                
                8.05
                
                
                7.35
                
                7.17
                
                
                1.10
                
                0.95





* Through
June 24, 2009.





B.
            Plan
      of Distribution





Not
applicable.





C.
            Markets





Our
units, ordinary shares and warrants are traded under the symbols “CFAUF,”
“CFAQF” and “CFAWF,” respectively, on the OTC Bulletin Board.





D.
            Selling
      Shareholders





Not
applicable.





E.
            Dilution





Not
applicable.





F.
            Expenses
      of the Issue





Not
applicable.


48





ITEM
      10.
            ADDITIONAL
      INFORMATION





A.
            Share
      Capital





Not
applicable.





B.
            Memorandum
      and Articles of Incorporation





The
following represents a summary of certain key provisions of our amended and
restated memorandum and articles of association.    The
summary does not purport to be a summary of all of the provisions of our
memorandum and articles of all relevant provisions of Cayman Islands law
governing the management and regulation of Cayman Islands exempted
companies.





Register





We are a
blank check company incorporated in the Cayman Islands on August 18, 2006 under
the Companies Law (2004 Revision) of the Cayman Islands (the “Companies Law”)
with company registration number 172599. Our memorandum and articles of
association authorizes the issuance of up to 30,000,000 ordinary shares, par
value $.0001 per share, and 1,000,000 preferred shares, par value $.0001 per
share.





Objects
and Purposes





Our
memorandum and articles grants us full power and authority to carry out the any
objectives not prohibited by the Companies Law or any other law of the Cayman
Islands. Our memorandum and articles of association provide that we will
continue in existence only until July 23, 2009. If we have not completed a
business combination by such date, our corporate existence will cease except for
the purposes of winding up our affairs and liquidating.





Directors





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. There is no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the shares eligible to vote
for the election of directors can elect all of the directors.





Directors
may engage in transactions with the Company and vote on such transactions,
provided the nature of the interest is disclosed.   Directors
also may exercise all the powers of the Company to borrow money and to mortgage
or charge its undertaking, property and uncalled capital or any part thereof and
to issue debentures, debenture stock, mortgages, bonds and other such securities
whether outright or as security for any debt, liability or obligation of the
Company or of any third party.





Rights and
Obligations of Shareholders





Dividends





Subject
to the Companies Law (2004 Revision) of the Cayman Islands, directors may
declare dividends and distributions on our ordinary shares in issue and
authorize payment on the dividends or distributions out of lawfully available
funds.  No dividend or distribution may be paid except out of the
realized or unrealized profits of the Company, or out of the share premium
account or as otherwise permitted by the Companies Law.


49





Voting
Rights





Subject
to any rights or restrictions attached to any shares, on a show of hands every
member who (being an individual) is present in person or by proxy or, if a
corporation or other non-natural person is present by its duly authorized
representative or proxy, has one vote and on a poll every member has one vote
for every share of which he is the holder.





In the
case of joint holders of record the vote of the senior holder who tenders a
vote, whether in person or by proxy, is accepted to the exclusion of the votes
of the other joint holders, and seniority is determined by the order in which
the names of the holders stand in the Register of Members.





A member
of unsound mind, or in respect of whom an order has been made by any court,
having jurisdiction in lunacy, may vote, whether on a show of hands or on a
poll, by his committee, receiver, curator bonis, or other person on such
member's behalf appointed by that court, and any such committee, receiver,
curator bonis or other person may vote by proxy.





No person
is entitled to vote at any general meeting or at any separate meeting of the
holders of a class of shares unless he is registered as a member on the record
date for such meeting nor unless all calls or other monies then payable by him
in respect of shares have been paid.





On a poll
or on a show of hands votes may be cast either personally or by proxy. A member
may appoint more than one proxy or the same proxy under one or more instruments
to attend and vote at a meeting. Where a member appoints more than one proxy the
instrument of proxy shall state which proxy is entitled to vote on a show of
hands.





A member
holding more than one share need not cast the votes in respect of his shares in
the same way on any resolution and therefore may vote a share or some or all
such shares either for or against a resolution and/or abstain from voting a
share or some or all of the shares and, subject to the terms of the instrument
appointing him, a proxy appointed under one or more instruments may vote a share
or some or all of the shares in respect of which he is appointed either for or
against a resolution and/or abstain from voting.





Any
person in consequence of the death or bankruptcy or liquidation or dissolution
of a member (or in any other way than by transfer) who becomes the holder of a
share may vote at any general meeting in respect thereof in the same manner as
if he were the registered holder of such shares, provided that forty-eight hours
at least before the time of the holding of the meeting or adjourned meeting, as
the case may be, at which he proposes to vote, he satisfies the directors of his
entitlement to such shares, or the directors have previously admitted his right
to vote at such meeting in respect thereof.





Change
to Rights of Shareholders





Shareholders
may change the rights of their class of shares by:





·
            getting the written consent of
      three-quarters of the shareholders of that class;
  or


·
            passing a special resolution at a
      general meeting of the shareholders of that
  class.





There are
no general limitations on the rights to own shares specified by the
articles.





General
Meetings





A general
meeting may be convened:




·
            by a majority of directors at any
      time;


50





·
            our
      chief executive officer; or





·
            our
      chairman of the board.





They
shall on a members requisition forthwith proceed to convene an extraordinary
general meeting of the Company.





A members
requisition is a requisition of members of the Company holding at the date of
deposit of the requisition not less than ten per cent in par value of the
capital of the Company which as at that date carries the right of voting at
general meetings of the Company. The requisition must state the objects of the
meeting and must be signed by the requisitionists and deposited at the
registered office, and may consist of several documents in like form each signed
by one or more requisitionists.





If the
directors do not within twenty-one days from the date of the deposit of the
requisition duly proceed to convene a general meeting to be held within a
further twenty-one days, the requisitionists, or any of them representing more
than one-half of the total voting rights of all of them, may themselves convene
a general meeting, but any meeting so convened shall not be held after the
expiration of three months after the expiration of the said twenty-one
days.





A general
meeting convened as aforesaid by requisitionists shall be convened in the same
manner as nearly as possible as that in which general meetings are to be
convened by directors.





Notice of
a general meeting is given to all shareholders. All business transacted at an
extraordinary general meeting or an annual general meeting is considered special
business except:





·
            the declaration and sanctioning
      of dividends;





·
            consideration and adoption of the
      accounts and balance sheet and the reports of directors and auditors and
      other documents required to be annexed to the balance
      sheet;





·
            the election of
      directors;





·
            appointment of auditors (where
      special notice of the intention for such appointment is not required by
      applicable law) and other
officers;





·
            the fixing or remuneration of the
      auditors, and the voting of remuneration or extra remuneration to the
      directors;





·
            the granting of any mandate or
      authority to the directors to offer, allot, grant options over or
      otherwise dispose of the unissued shares in the capital of the Company
      representing not more than twenty per cent. in nominal value of its
      existing share capital; and





·
            the granting of any mandate or
      authority to the directors to repurchase the securities of the
      Company.





A quorum
of shareholders is required to be present at any meeting in order to carry out
business. A quorum consists of the holder or holders present in person or by
proxy entitled to exercise more than fifty percent of the voting rights of the
shares of each class or series of shares entitled to vote as a class or series
thereon and the same proportion of the votes of the remaining shares entitled to
vote thereon unless the Company has only one member entitled to vote at such
general meeting in which case the quorum consists of that one member present in
person or by proxy or (in the case of a corporation or other non-natural person)
by a duly authorized representative.


51





There is
no requirement under Cayman Islands law to convene an annual meeting or to
convene any general meeting of the shareholders. The directors are permitted to
designate any general meeting of shareholders as an annual general
meeting.





Changes
in Capital





We may
increase our share capital by ordinary resolution. The new shares will be
subject to all of the provisions to which the original shares are subject. We
may also by ordinary resolution:





·
            Consolidate and divide all or any
      of our share capital into shares of a larger
  amount;


·
            sub-divide existing shares into
      shares of a smaller amount;
and


·
            cancel any shares which, at the
      date of the resolution, are not held or agreed to be held by any
      person.





We may
reduce our share capital and any capital redemption reserve by special
resolution in accordance with relevant provisions of Cayman Islands
law.





Indemnity





Pursuant
to our amended and restated memorandum and articles of association, every
director, agent or officer of the Company shall be indemnified by the Company
against any liability incurred by him as a result of any act or failure to act
in carrying out his functions other than any such liability that he may incur by
his own fraud or willful default.  No such director, agent or officer
shall be liable to the Company for any loss or damage in carrying out his
functions unless that liability arises through the fraud or willful default of
such director, agent or officer.





Certain
Requirements and Restrictions





Our
amended and restated memorandum and articles of association set forth certain
requirements and restrictions that shall apply to us until the consummation of a
business combination. Specifically, Articles 168 through 171 of our amended and
restated articles of association will provide among other things,
that:





·
            prior to the consummation of any
      business combination, we shall submit such business combination to our
      shareholders for approval;


·
            we may consummate our initial
      business combination if: (i) approved by a majority of the ordinary shares
      voted by the public shareholders and (ii) public shareholders owning less
      than 30% of the ordinary shares sold in the initial public offering
      exercise their conversion rights described
  below


·
            if our initial business
      combination is approved and consummated, public shareholders who voted
      against the business combination and exercised their redemption rights
      will receive their pro rata share of the trust account (net of
      taxes);


·
            we will continue in existence
      only until July 23, 2009, otherwise our corporate existence will cease by
      operation of law and we will distribute to all of our public shareholders
      their pro rata share of the trust account (net of taxes);
      and


·
            we may not consummate any share
      capital exchange, stock purchase, asset acquisition or similar transaction
      other than a business combination that meets the conditions specified in
      this Form 20-F, including the requirement that our initial business
      combination be with one or more operating businesses whose fair market
      value, either individually or collectively, is equal to at least 80% of
      our net assets held in trust (net of taxes) at the time of such business
      combination.


52





C.
            Material
      Contracts





As of
December 31, 2008, the Company has not entered into any material
contracts.





D.
            Exchange
      Controls and Other Limitations Affecting Security
  Holders





Under
Cayman Islands law, there are currently no restrictions on the export or import
of capital, including foreign exchange controls or restrictions that affect the
remittance of dividends, interest or other payments to nonresident holders of
our shares.





E.
            Taxation





The
following summary of the material Cayman Islands and United States federal
income tax consequences of an investment in ordinary shares is based upon laws
and relevant interpretations thereof in effect as of the date of this Form 20-F,
all of which are subject to change. This summary does not deal with all possible
tax consequences relating to an investment in our ordinary shares, such as the
tax consequences under state, local and other tax laws.





Cayman
Islands Taxation





The
government of the Cayman Islands, will not, under existing legislation, impose
any income, corporate or capital gains tax, estate duty, inheritance tax, gift
tax or withholding tax upon the company or its shareholders. The Cayman Islands
are not party to any double taxation treaties.





No Cayman
Islands stamp duty is payable in respect of the issue or transfer of ordinary
shares. However, an instrument transferring title to an ordinary share, if
brought to or executed in the Cayman Islands, is subject to Cayman Islands stamp
duty.





We have
applied for and can expect to receive an undertaking from the
Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6 of
the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period of
20 years from the date of the undertaking, no law which is enacted in the Cayman
Islands imposing any tax to be levied on profits, income, gains or appreciations
shall apply to us or our operations and, in addition, that no tax to be levied
on profits, income, gains or appreciations or which is in the nature of estate
duty or inheritance tax shall be payable (i) on the shares, debentures or other
obligations of the company or (ii) by way of the withholding in whole or in part
of a payment of dividend or other distribution of income or capital by the
company to its members or a payment of principal or interest or other sums due
under a debenture or other obligation of the company.





United
States Federal Income Taxation





This
section describes the material United States federal income tax consequences of
the acquisition, ownership and disposition of our ordinary shares and warrants.
This section does not address any aspect of United States federal gift or estate
tax, or the state, local or foreign tax consequences of an investment in our
ordinary shares and warrants. This section only applies to you if you hold your
ordinary shares and warrants as capital assets for tax purposes. This discussion
does not discuss all the tax consequences that may be relevant to particular
investors in light of their circumstances or to investors that are subject to
special rules, including:





·
            a
  bank;


·
            a dealer in securities or
      currencies;


·
            a trader in securities that
      elects to use a mark-to-market method of accounting for your securities
      holdings;




53




·
            a tax-exempt
      organization;


·
            an insurance
      company;


·
            a person liable for alternative
      minimum tax;


·
            a person that actually or
      constructively owns 10% or more of the vote or value of our
      shares;


·
            a person that holds ordinary
      shares that are a hedge or that are hedged against currency risks or as
      part of a straddle or a conversion
  transaction;


·
            a U.S. holder (as defined below)
      whose functional currency is not the U.S.
  dollar;


·
            a person who acquired shares
      pursuant to the exercise of a compensatory stock option;
      or


·
            a person who owns shares through
      a partnership or other pass-through
  entity.





This
section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations promulgated thereunder,
and judicial and administrative interpretations thereof, all as in effect as of
the date hereof and all of which are subject to changes, possibly retroactively.
There is currently no comprehensive tax treaty between the United States and the
Cayman Islands.





For
purposes of the United States federal income tax discussion below, you are a
U.S. holder if you are a beneficial owner of ordinary shares or warrants and you
are:





·
            a citizen or resident of the
      United States;


·
            a domestic
      corporation;


·
            an estate whose income is subject
      to United States federal income tax regardless of its
      source;


·
            or a trust if (A) a United States
      court can exercise primary supervision over the trust’s administration and
      one or more United States persons are authorized to control all
      substantial decisions of the trust, or (B) the trust was in existence on
      August 20, 1996, and validly elected to continue to be treated as a United
      States domestic trust.





In
general, the tax consequences for shares owned by a partnership depends on the
tax status of the parties.





A
non-U.S. holder is a beneficial owner of ordinary shares or warrants that is not
a United States Holder for United States federal income tax
purposes.





You
should consult your own tax advisor regarding the United States federal, state
and local tax consequences of owning and disposing of the ordinary shares or
warrants in your particular circumstances.





This
discussion addresses only United States federal income taxation.





Allocation
of Purchase Price Between Shares and Warrants





For U.S.
federal income tax purposes, a U.S. holder must allocate the purchase price of a
unit between the share and the warrants that comprise the unit based on the
relative fair market value of each and must compute its basis in the share and
warrants in accordance with that allocation. We may be required to allocate a
portion of the purchase price of the unit to each component comprising part of
the unit. While uncertain, it is possible that the IRS could apply, by analogy,
rules pursuant to which our allocation of the purchase price will be binding on
a U.S. holder of a unit, unless the U.S. holder explicitly discloses in a
statement attached to the U.S. holder’s timely filed U.S. federal income tax
return for the taxable year that includes the acquisition date of the unit that
the U.S. holder’s allocation of the purchase price between the share and the
warrants that comprise the unit is different from our allocation. Our allocation
is not, however, binding on the IRS.


54





Each U.S.
holder is advised to consult such holder’s own tax advisor with respect to the
risks associated with an allocation of the purchase price between the shares and
the warrants that comprise a unit that is inconsistent with our allocation of
the purchase price.





Taxation
of Dividends





U.S.
Holders.Under the United States federal income tax laws, and
subject to the personal foreign investment company rules discussed below, if you
are a U.S. holder, the gross amount of any dividend we pay out of our current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) is subject to United States federal income taxation.  If
you are a non-corporate U.S. holder, dividends paid to you in taxable years
beginning before January 1, 2011 that constitute qualified dividend income will
be taxable to you at a maximum tax rate of 15% provided that you hold our
ordinary shares for more than 60 days during the 120-day period beginning 60
days before the ex-dividend date and meet other holding period
requirements.  Dividends we pay with respect to our ordinary shares
generally will be qualified dividend income provided that, in the year in which
the dividend is paid, our ordinary shares are readily tradable on an established
securities market in the United States.





The
dividend will not be eligible for the dividends-received deduction generally
allowed to United States corporations in respect of dividends received from
other United States corporations.  Distributions in excess of current
and accumulated earnings and profits, as determined for United States federal
income tax purposes, will be treated as a non-taxable return of capital to the
extent of your basis in our ordinary shares and thereafter as capital
gain.  If the dividend is declared and paid in a foreign currency, the
amount of the dividend distribution that you must include in your income as a
U.S. holder will be the U.S. dollar value of the payments made in the foreign
currency, determined at the spot foreign currency/U.S. dollar rate on the date
the dividend distribution is includible in your income, regardless of whether
the payment is in fact converted into U.S. dollars. Therefore, since the value
of the foreign currency may decrease before you actually convert the currency
into U.S. dollars, you may actually be taxed on a larger amount in U.S. dollars
than the U.S. dollar amount that you will ultimately receive. Generally, any
gain or loss resulting from currency exchange fluctuations during the period
from the date you include the dividend payment in income to the date you convert
the payment into U.S. dollars will be treated as ordinary income or loss and
will not be eligible for the special tax rate applicable to qualified dividend
income. The gain or loss generally will be income or loss from sources within
the United States for foreign tax credit limitation purposes.





Dividends
will be income from sources outside the United States, but generally will be
passive income or financial services income, which is treated separately from
other types of income for purposes of computing the foreign tax credit allowable
to you.





Non-U.S.
Holders.If you are a non-U.S. holder, dividends paid to you
in respect of our ordinary shares will not be subject to United States federal
income tax unless the dividends are effectively connected with your conduct of a
trade or business within the United States, and the dividends are attributable
to a permanent establishment that you maintain in the United States if that is
required by an applicable income tax treaty as a condition for subjecting you to
United States taxation on a net income basis. In such cases you will be taxed in
the same manner as a U.S. holder. If you are a corporate non-U.S. holder,
effectively connected dividends may, under certain circumstances, be subject to
an additional branch profits tax at a 30% rate or at a lower rate if you are
eligible for the benefits of an income tax treaty that provides for a lower
rate.


55





Taxation
of Capital Gains





U.S.
Holders.Subject to the PFIC rules discussed below, if you are
a U.S. holder and you sell or otherwise dispose of your ordinary shares or
warrants, you will recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the U.S. dollar value of the
amount that you realize and your tax basis, determined in U.S. dollars, in your
ordinary shares or warrants. Capital gain of a noncorporate U.S. holder that is
recognized before January 1, 2011 is generally taxed at a maximum rate of 15%
where the holder has a holding period greater than one year.  The gain
or loss will generally be income or loss from sources within the United States
for foreign tax credit limitation purposes. Your ability to deduct capital
losses is subject to limitations.





Non-U.S. Holders.If you are
a non-U.S. holder, you will not be subject to United States federal income tax
on gain recognized on the sale or other disposition of your ordinary shares or
warrants unless:




·
            the gain is effectively connected
      with your conduct of a trade or business in the United States and the
      dividends are attributable to a permanent establishment that you maintain
      in the United States if that is required by an applicable income tax
      treaty as a condition for subjecting you to United States taxation on a
      net income basis; or


·
            you are an individual, you are
      present in the United States for 183 or more days in the taxable year of
      the sale and certain other conditions
  exist





If you
are a corporate non-U.S. holder, effectively connected gains that you recognize,
under certain circumstances, may also be subject to an additional branch profits
tax at a 30% rate or at a lower rate if you are eligible for the benefits of an
income tax treaty that provides for a lower rate.





Exercise,
Disposition or Lapse of Warrants





Subject
to the discussion of the PFIC rules below, a U.S. holder generally will not
recognize gain or loss upon the exercise of a warrant. Shares acquired pursuant
to the exercise of a warrant will have a tax basis equal to the U.S. holder’s
tax basis in the warrant (that is, an amount equal to the portion of the
purchase price of each Unit allocated to the warrant as described above in
“Allocation of Purchase Price Between Shares and Warrants”), increased by the
amount paid to exercise the warrant. The holding period of such share would
begin on the day following the date of exercise of the warrant and will not
include the period during which the U.S. holder held the warrant.





Subject
to the discussion of the PFIC rules below, upon the sale or other disposition of
a warrant (other than by exercise), a U.S. holder will recognize capital gain or
loss in an amount equal to the difference between the amount realized and the
U.S. holder’s tax basis in the warrant (that is, as discussed above, the portion
of the purchase price of a unit allocated to such warrant). Such gain or loss
will be long-term capital gain or loss if the U.S. holder has held the warrant
for more than one year. Under certain circumstances, we have the right to redeem
the warrants. A redemption of warrants will be treated as a sale or exchange of
the warrants.





The terms
of the warrant provide for certain adjustments to the number of shares for which
the warrant may be exercised or to the exercise price of the warrants. Such
adjustment may, under certain circumstances, result in constructive
distributions that could be taxable as a dividend to the U.S. holder of the
warrants. Conversely, the absence of an appropriate adjustment may result in a
constructive distribution that could be taxable as a dividend to a U.S. holder
of the shares. See “Taxation of Dividends.”





If a
warrant is allowed to lapse unexercised, a U.S. holder will recognize a capital
loss in an amount equal to such holder’s tax basis in the warrant. Such loss
will be long-term if the warrant has been held for more than one year. The
ability to deduct any such loss may be subject to certain limitations, and
holders should consult their own tax advisors as to the potential applicability
to them of such limitations.





As
discussed above in “Allocation of Purchase Price Between Shares and Warrants”,
the allocation of price of a unit between the share and the warrants comprising
such unit is not binding on the IRS. If the IRS were successfully to challenge
your allocation, the amount of gain recognized upon disposition of a share or
warrant could be increased, and the amount of loss recognized upon disposition
of a share or warrant or upon lapse of a warrant could be reduced.




56




Passive
Foreign Investment Company Rules





Special
United States tax rules apply to a company that is considered a passive foreign
investment company, or PFIC.  Under these rules, we will be classified
as a PFIC for United States federal income tax purposes in any taxable year in
which either:




·
            At least 75% of our gross income
      for the taxable year is passive income;
  or


·
            at least 50% of the gross value,
      determined on the basis of a quarterly average, of our assets is
      attributable to assets that produce or are held for the production of
      passive income.





Passive
income generally includes dividends, interest, royalties, rents (not including
certain rents and royalties derived in the active conduct of a trade or
business), annuities and gains from assets that produce passive income. If a
foreign corporation owns directly or indirectly at least 25% by value of the
stock of another corporation, the foreign corporation is treated for purposes of
the PFIC tests as owning its proportionate share of the assets of the other
corporation, and as receiving directly its proportionate share of the other
corporation’s income.





Newly
formed corporations, such as us, are excepted out of the PFIC rules for their
first year of existence. In addition, we expect to conduct our affairs in a
manner so that we will not qualify as a PFIC in the foreseeable future. Our
determination of whether we are a PFIC is, however, not binding on the Internal
Revenue Service. We cannot assure you that we will not be a PFIC in any future
year.





If we are
treated as a PFIC, and you are a U.S. holder that does not make a mark-to-market
election, as described below, you will be subject to special rules with respect
to:





·
            any gain you realize on the sale
      or other disposition of your ordinary shares or warrants;
      and





·
            any excess distribution that we
      make to you (generally, any distributions to you during a single taxable
      year that are greater than 125% of the average annual distributions
      received by you in respect of the ordinary shares during the three
      preceding taxable years or, if shorter, your holding period for the
      ordinary shares or ordinary
shares).





Under
these rules:





·
            the gain or excess distribution
      will be allocated ratably over your holding period for the ordinary
      shares;


·
            the amount allocated to the
      taxable year in which you realized the gain or excess distribution will be
      taxed as ordinary income;


·
            the amount allocated to each
      prior year, with certain exceptions, will be taxed at the highest tax rate
      in effect for that year; and


·
            the interest charge generally
      applicable to underpayments of tax will be imposed in respect of the tax
      attributable to each such
year.





Special
rules apply for calculating the amount of the foreign tax credit with respect to
excess distributions by a PFIC.





If you
own ordinary shares in a PFIC that are treated as marketable shares, you may
make a mark-to-market election. If you make this election, you will not be
subject to the PFIC rules described above. Instead, in general, you will include
as ordinary income each year the excess, if any, of the fair market value of
your ordinary shares or warrants at the end of the taxable year over your
adjusted basis in your ordinary shares or warrants. These amounts of ordinary
income will not be eligible for the favorable tax rates applicable to qualified
dividend income or long-term capital gains. You will also be allowed to take an
ordinary loss in respect of the excess, if any, of the adjusted basis of your
ordinary shares over their fair market value at the end of the taxable year (but
only to the extent of the net amount of previously included income as a result
of the mark-to-market election). Your basis in the ordinary shares or warrants
will be adjusted to reflect any such income or loss amounts. Your gain, if any,
recognized upon the sale of your ordinary shares or warrants will be taxed as
ordinary income.




57




In
addition, notwithstanding any election you make with regard to the ordinary
shares, dividends that you receive from us will not constitute qualified
dividend income to you if we are a PFIC either in the taxable year of the
distribution or the preceding taxable year. Dividends that you receive that do
not constitute qualified dividend income are not eligible for taxation at the
15% maximum rate applicable to qualified dividend income. Instead, you must
include the gross amount of any such dividend paid by us out of our accumulated
earnings and profits (as determined for United States federal income tax
purposes) in your gross income, and it will be subject to tax at rates
applicable to ordinary income.





If you
own ordinary shares during any year that we are a PFIC, you must file Internal
Revenue Service Form 8621.





You
should consult your own tax advisor regarding the application of the PFIC rules
to our ordinary shares or warrants in your particular circumstances, including
the availability of making an election to avoid adverse United States federal
income tax consequences under the PFIC rules in the case we are determined to be
a PFIC in a future year.





Backup
Withholding and Information Reporting





If you
are a noncorporate U.S. holder, information reporting requirements, on Internal
Revenue Service Form 1099, generally will apply to:





·
            dividend payments or other
      taxable distributions made to you within the United States,
      and


·
            the payment of proceeds to you
      from the sale of ordinary shares effected at a United States office of a
      broker.





Additionally, backup withholding may
apply to such payments if you are a noncorporate U.S. holder
that:





·
            fails to provide an accurate
      taxpayer identification
number,


·
            is notified by the Internal
      Revenue Service that you have failed to report all interest and dividends
      required to be shown on your federal income tax returns,
      or


·
            in certain circumstances, fails
      to comply with applicable certification
    requirements.





If you
are a non-U.S. holder, you are generally exempt from backup withholding and
information reporting requirements with respect to:





·
            dividend payments made to you
      outside the United States by us or another non-United States payor
      and


·
            other dividend payments and the
      payment of the proceeds from the sale of ordinary shares and warrants
      effected at a United States office of a broker, as long as the income
      associated with such payments is otherwise exempt from United States
      federal income tax, and the payor or broker does not have actual knowledge
      or reason to know that you are a United States person and you have
      furnished the payor or
broker:


·
            dividend payments if you have
      provided us with an Internal Revenue Service Form W-8BEN or an acceptable
      substitute form upon which you certify, under penalties of perjury, that
      you are a non-United States person,
or


·
            other documentation upon which it
      may rely to treat the payments as made to a non-United States person in
      accordance with U.S. Treasury regulations,
  or


·
            you otherwise establish an
      exemption.




58




Payment
of the proceeds from the sale of ordinary shares or warrants effected at a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, a sale of ordinary shares or warrants
that is effected at a foreign office of a broker will be subject to information
reporting and backup withholding if:





·
            the proceeds are transferred to
      an account maintained by you in the United
  States,


·
            the payment of proceeds or the
      confirmation of the sale is mailed to you at a United States address,
      or


·
            the sale has some other specified
      connection with the United States as provided in U.S. Treasury
      regulations,





unless
the broker does not have actual knowledge or reason to know that you are a
United States person and the documentation requirements described above are met
or you otherwise establish an exemption.





In
addition, a sale of ordinary shares or warrants effected at a foreign office of
a broker will be subject to information reporting if the broker is:





·
            a United States
      person,


·
            a controlled foreign corporation
      for United States tax
purposes,


·
            a foreign person 50% or more of
      whose gross income is effectively connected with the conduct of a United
      States trade or business for a specified three-year period,
      or


·
            a foreign partnership, if at any
      time during its tax year:


·
            one or more of its partners are
      “U.S. persons”, as defined in U.S. Treasury regulations, who in the
      aggregate hold more than 50% of the income or capital interest in the
      partnership, or


·
            such foreign partnership is
      engaged in the conduct of a United States trade or
      business,





unless
the broker does not have actual knowledge or reason to know that you are a
United States person and the documentation requirements described above are met
or you otherwise establish an exemption. Backup withholding will apply if the
sale is subject to information reporting and the broker has actual knowledge
that you are a United States person.





You
generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund claim
with the United States Internal Revenue Service.





F.
Dividends and Paying Agents





Not
applicable.





G.
Statement by Experts





Not
applicable.





H.
Documents on Display





We file
annual reports and other information with the SEC. You may read and copy any
report or document we file, including the exhibits, at the SEC’s public
reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Such materials can also be obtained on the SEC’s site on the internet at
http://www.sec.gov.




59




We will
also provide without charge to each person, including any beneficial owner, upon
written or oral request of that person, a copy of any and all of the information
that has been incorporated by reference in this annual report. Please direct
such requests to Yufeng Zhang, Chief Financial Officer, China Fortune
Acquisition Corp., Jinmao Tower, 88 Century Boulevard, Suite 4403, Pudong,
Shanghai, People’s Republic of China.





I.
Subsidiary Information





Not
applicable.





ITEM
      11.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Market
risk is a broad term for the risk of economic loss due to adverse changes in the
fair value of a financial instrument. These changes may be the result of various
factors, including interest rates, foreign exchange rates, commodity prices
and/or equity prices. $72,375,000 of the net offering proceeds has been placed
into a trust account at Lehman Brothers maintained by Continental Stock Transfer
& Trust Company, acting as trustee. The proceeds held in trust will only be
invested in United States “government securities,” defined as any Treasury Bill
issued by the United States having a maturity of 180 days or less or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act of 1940. Thus, we are subject to market risk primarily
through the effect of changes in interest rates on government securities. In
addition, following a business combination, it is possible that some or all of
our revenues and expenses may be denominated in non-United States currencies,
primarily Renminbi, which could subject us to increased risks relating to
foreign exchange rate fluctuations that could have a material adverse effect on
our business, financial condition and operating results.





ITEM
      12.
            DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY
SECURITIES





Not
applicable.





PART
II





ITEM
      13.
            DEFAULTS,
      DIVIDEND ARREARAGES AND
DELINQUENCIES





There has
been no default of any indebtedness nor is there any arrearage in the payment of
dividends.








ITEM 14.
            MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS





There
have been no changes to the instruments defining the rights of the holders of
any class of registered securities, and the rights of holders of the registered
securities have not been altered by the issuance or modification of any other
class of securities. There are no restrictions on working capital and no removal
or substitution of assets securing any class of our registered
securities.





ITEM
      15T.
            CONTROLS
      AND PROCEDURES





(a) 
Disclosure Controls
and Procedures.   Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed in company reports filed or submitted under the
Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in company reports filed or submitted under
the Exchange Act is accumulated and communicated to management, including our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.




60




As
required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive
officer and chief financial officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008. Based upon their evaluation, they concluded
that our disclosure controls and procedures were effective.





(b) 
Management’s Annual
Report on Internal Control over Financial Reporting.





Our
internal control over financial reporting is a process designed by, or under the
supervision of, our chief executive officer and chief financial officer and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes in accordance
with generally accepted accounting principles.





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





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act.





We
evaluated and assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008.  In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal
Control — Integrated Framework.  Based on our
assessment using those criteria, we concluded that our internal control over
financial reporting were effective as of December 31, 2008.





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
SEC that permits the company to provide only management’s report in this annual
report.





(c) 
Changes in Internal
Control over Financial Reporting.





During
the most recently completed fiscal quarter, there has been no change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.





ITEM
      16A.
            AUDIT
      COMMITTEE FINANCIAL EXPERT





We do not
currently have an audit committee nor do we have an “audit committee financial
expert” within the meaning of paragraph (b) of Item
16A.    We do not believe that such an audit committee or
audit committee expert is necessary at this stage of our
development.   We intend to review this position following our
initial business combination.


61


ITEM
      16B.
            CODE
      OF ETHICS





In July
2007, our board of directors adopted a code of ethics that applies to our
directors, officers and employees as well as those of our subsidiaries. Requests
for copies of our code of ethics should be sent in writing to China Fortune
Acquisition Corp., Jinmao Tower, 88 Century Boulevard, Suite 4403, Pudong,
Shanghai, People’s Republic of China.





ITEM
      16C.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





The
aggregate fees billed for the last fiscal year for professional services
rendered by our auditor are as follows:




2007
                                    
                                    2008Audit
      Fees
                                    
                                    $
                                    27,500
                                    
                                    $
                                    7,500Audit-Related
      Fees
                                    
                                    $
                                    27,500
                                    
                                    $
                                    3,500Tax
      Fees
                                    
                                    $
                                    
                                    
                                    $
                                    -All
      Other Fees
                                    
                                    $
                                    
                                    
                                    $
                                    -





Audit
fees represent fees for professional services related to the audit of our
financial statements for the fiscal years ended December 31, 2007 and December
31, 2008.  Audit-related fees represent fees for professional services
related to the filing of our registration statement with the SEC and the review
of our interim financial statements.





Our board
of directors pre-approves all audit, audit-related and non-audit services not
prohibited by law to be performed by our independent auditors and associated
fees prior to the engagement of the independent auditor with respect to such
services.





ITEM
16D.                
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES





Not
applicable.





ITEM
16E.                
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS





Not
applicable.





ITEM
16F.                
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.





Not
applicable.





ITEM
16G.                
CORPORATE GOVERNANCE





Not
applicable.


62




PART
III





ITEM
17.                
FINANCIAL STATEMENTS





We have
elected to provide financial statements pursuant to Item 18.





ITEM
18.                
FINANCIAL STATEMENTS





The
following financial statements are filed as part of this annual
report.





Page
                        NumberReports
      of Independent Registered Public Accounting Firm
                      F-2Balance
      Sheet
                      F-4Statement
      of Operations
                      F-5Statement
      of Changes in Shareholders’ Equity
                      F-6Statement
      of Cash Flows
                      F-7Notes
      to Financial Statements
                      F-8
      –
F-13





ITEM
19. EXHIBITS





Exhibit No.
            
            Description1.1
            
            Form
      of Underwriting Agreement.*1.2
            
            Form
      of Selected Dealers Agreement.*3.1
            
            Memorandum
      and Articles of Association.**4.1
            
            Specimen
      Unit Certificate.*4.2
            
            Specimen
      Ordinary Share Certificate.*4.3
            
            Specimen
      Warrant Certificate.*4.4
            
            Form
      of Unit Purchase Option to be granted to
  Representative.*4.5
            
            Form
      of Warrant Agreement between Continental Stock Transfer & Trust
      Company and the Registrant.*10.1
            
            Letter
      Agreement among the Registrant, EarlyBirdCapital, Inc. and Bo
      Yu.*10.2
            
            Letter
      Agreement among the Registrant, EarlyBirdCapital, Inc. and Gang
      Chen.*10.3
            
            Letter
      Agreement among the Registrant, EarlyBirdCapital, Inc. and Yufeng
      Zhang.*10.4
            
            Letter
      Agreement among the Registrant, EarlyBirdCapital, Inc. and Aidan
      Stretch.*10.5
            
            Letter
      Agreement among the Registrant, EarlyBirdCapital, Inc. and James
      Walsh.*10.6
            
            Form
      of Investment Management Trust Agreement between Continental Stock
      Transfer & Trust Company and the Registrant.*10.7
            
            Form
      of Stock Escrow Agreement between the Registrant, Continental Stock
      Transfer & Trust Company and the Initial
  Stockholders.*10.8
            
            Form
      of Letter Agreement between Cathay Fortune Corp. and Registrant regarding
      administrative support.*10.9
            
            Form
      of Promissory Note, dated as of September 8, 2006, issued to Cathay
      Fortune Corp.*10.10
            
            Form
      of Registration Rights Agreement among the Registrant and the Initial
      Stockholders.*10.11
            
            Form
      of Subscription Agreement among the Registrant, EarlyBirdCapital, Inc.,
      Graubard Miller and Bo Yu.*31.1
            
            Certification
      of the Chief Executive Officer Pursuant to Rule 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as
Amended


63





31.2
            
            Certification
      of the Chief Financial Officer Pursuant to Rule 13a-14 and 15d-14 under
      the Securities Exchange Act of 1934, as Amended32.1
            
            Certification
      of the Chief Executive Officer and Chief Financial Officer Pursuant
      to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002





*
Incorporated by reference to the Registrant's Form F-1 (Commission File No.
333-137797)


64





SIGNATURES





The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused and authorized the undersigned to sign this annual
report on its behalf.




CHINA
      FORTUNE ACQUISITION CORP.By:
              /s/ Yufeng ZhangYufeng
      ZhangDated:
      June 30, 2009
              
              Chief
      Financial Officer, Secretary and
                Treasurer


65





CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)





INDEX
TO FINANCIAL STATEMENTS





PageReports
      of Independent Registered Public Accounting Firm
                
                
                F-2Financial
      StatementsBalance
      Sheet
                
                
                F-4Statements
      of Operations
                
                
                F-5Statements
      of Changes in Shareholders’ Equity
                
                
                F-6Statements
      of Cash Flows
                
                
                F-7Notes
      to Financial Statements
                
                
                F-8 –
      F-13


F-1




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders of


China
Fortune Acquisition Corp


(a
corporation in the development stage)


Cayman
Islands.





We have
audited the accompanying balance sheet of China Fortune Acquisition Corp. as of
December 31, 2008 and the related statements of operations, stockholders’
equity, and cash flows for the year then ended and the amounts included in the
cumulative columns in the statements of operations and cash flows for the year
ended December 31, 2008.   China Fortune Acquisition Corp.’s
management is responsible for these financial statements.   Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audit 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. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 China Fortune Acquisition Corp. as
of December 31, 2008, and the results of its operations and its cash flows for
the year then ended and the amounts included in the cumulative columns in the
statements of operations and cash flows for the year ended Decemer 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.





/s/
Rotenberg & Co LLP





Rotenberg
& Co LLP


Rochester, New York


June 23,
2009


F-2




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors
 China
Fortune Acquisition Corp.
 
 We have
audited the accompanying balance sheet of China Fortune Acquisition Corp. (a
corporation in the development stage) as of December 31, 2007, and the related
statements of operations, changes in shareholders’ equity and cash flows for the
year then ended and for the period from August 18, 2006 (inception) through
December 31, 2007. 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 audit.
 
 We conducted our audit 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. The company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides 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 China Fortune Acquisition Corp. as
of December 31, 2007, and the results of its operations and its cash flows for
the year then ended and for the period from August 18, 2006 (inception) through
December 31, 2007 in conformity with accounting principles generally accepted in
the United States of America.
 
 /s/ UHY
LLP
 
 Albany,
New York
 June 13,
2008




F-3




CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


BALANCE
SHEETS


December
31, 2008 and 2007




2008
                      
                      
                      2007ASSETSCURRENT
      ASSETSCash
                      
                      $
                      210,286
                      
                      
                      $
                      1,281,727Investments
      held in Trust Account
                      
                      
                      74,179,930
                      
                      
                      
                      73,339,752Prepaid
      expenses
                      
                      
                      217,641
                      
                      
                      
                      133,542Total
      current assets
                      
                      
                      74,607,857
                      
                      
                      
                      74,755,021Total
      assets
                      
                      $
                      74,607,857
                      
                      
                      $
                      74,755,021LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccrued
      expenses
                      
                      $
                      16,250
                      
                      
                      $
                      8,102Deferred
      underwriters fees
                      
                      
                      1,875,000
                      
                      
                      
                      1,875,000Total
      current liabilities
                      
                      
                      1,891,250
                      
                      
                      
                      1,883,102Ordinary
      shares, subject to possible conversion, 2,811,563 shares at conversion
      value
                      
                      
                      22,253,971
                      
                      
                      
                      22,001,918Total
      liabilities
                      
                      
                      24,145,221
                      
                      
                      
                      23,885,020SHAREHOLDERS'
      EQUITYPreferred
      shares, $.0001 par value Authorized 1,000,000 shares; none
      issued
                      
                      
                      -
                      
                      
                      
                      -Ordinary
      shares, $.0001 par value Authorized 30,000,000 shares Issued and
      outstanding 11,978,750 shares
                      
                      
                      1,197
                      
                      
                      
                      1,197Additional
      paid-in capital
                      
                      
                      49,775,938
                      
                      
                      
                      50,027,990Earnings
      accumulated during the development stage
                      
                      
                      685,501
                      
                      
                      
                      840,814Total
      shareholders' equity
                      
                      
                      50,462,636
                      
                      
                      
                      50,870,001Total
      liabilities and shareholders’ equity
                      
                      $
                      74,607,857
                      
                      
                      $
                      74,755,021





See notes to
financial statements.


F-4


CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


STATEMENTS
OF OPERATIONS


For
the Year ended December 31, 2008 and for the Periods From


August
18, 2006 (Inception) to December 31, 2008 and 2007




Period from
                          August 18,
                          2006(inception)
                          to December
                          31,2008
                        
                        
                        2007
                        
                        
                        2008Investment
      income
                        
                        $
                        840,178
                        
                        
                        $
                        964,752
                        
                        
                        $
                        1,804,930Formation
      costs and operating expenses
                        
                        
                        995,491
                        
                        
                        
                        119,252
                        
                        
                        
                        1,119,429Net
      income (loss) before income taxes
                        
                        
                        (155,313
                        )
                        
                        
                        845,500
                        
                        
                        
                        685,501Provision
      for income taxes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      income (loss)
                        
                        $
                        (155,313
                        )
                        
                        $
                        845,500
                        
                        
                        $
                        685,501Weighted
      average shares outstanding (basic and diluted)
                        
                        
                        9,504,587
                        
                        
                        
                        6,615,668
                        
                        
                        
                        6,175,672Basic
      and diluted net income (loss) per share
                        
                        $
                        (0.02
                        )
                        
                        $
                        0.13
                        
                        
                        $
                        0.11





See
notes to financial statements.


F-5


CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


STATEMENT
OF CHANGES IN SHAREHOLDERS’ EQUITY


For
the Years ended December 31, 2008and 2007 and for the Period From


August
18, 2006 (Inception) to December 31, 2008




Earnings(Deficit)AccumulatedAdditional
                  
                  
                  During theOrdinary Shares
                  
                  
                  Paid-in
                  
                  
                  Development
                  
                  
                  Shareholders'Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stage
                  
                  
                  EquityBalance
      at August 18, 2006 (inception)
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Common
      shares issued to initial stockholders at $0.01 per
    share
                  
                  
                  2,343,750
                  
                  
                  
                  234
                  
                  
                  
                  24,766
                  
                  
                  
                  -
                  
                  
                  
                  25,000Net
      loss for the period
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,686
                  )
                  
                  
                  (4,686
                  )Balance
      at December 31, 2006
                  
                  
                  2,343,750
                  
                  
                  
                  234
                  
                  
                  
                  24,766
                  
                  
                  
                  (4,686
                  )
                  
                  
                  20,314Sale
      of 9,375,000 units, net of underwriters discount and offering expense
      (includes 2,811,563 shares subject to possible redemption)
                  
                  
                  9,375,000
                  
                  
                  
                  938
                  
                  
                  
                  70,005,067
                  
                  
                  
                  -
                  
                  
                  
                  70,006,005Proceeds
      subject to possible conversion of 2,811,563 shares
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (21,705,266
                  )
                  
                  
                  -
                  
                  
                  
                  (21,705,266
                  )Proceeds
      from issuance of underwriter purchase option
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100
                  
                  
                  
                  -
                  
                  
                  
                  100Proceeds
      from private placement of insider units
                  
                  
                  250,000
                  
                  
                  
                  25
                  
                  
                  
                  1,999,975
                  
                  
                  
                  -
                  
                  
                  
                  2,000,000Accretion
      of trust relating to ordinary shares subject to possible
      redemption
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (296,652
                  )
                  
                  
                  -
                  
                  
                  
                  (296,652
                  )Net
      income for 2007
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  845,500
                  
                  
                  
                  845,500Balance
      at December 31, 2007
                  
                  
                  11,968,750
                  
                  
                  $
                  1,197
                  
                  
                  $
                  50,027,990
                  
                  
                  $
                  840,814
                  
                  
                  $
                  50,870,001Accretion
      of trust  relating to ordinary shares subject to possible
      redemption
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (252,053
                  )
                  
                  
                  -
                  
                  
                  
                  (252,053
                  )Net
      loss for 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (155,313
                  )
                  
                  
                  (155,313
                  )Balance
      at December 31, 2008
                  
                  
                  11,968,750
                  
                  
                  
                  1,197
                  
                  
                  
                  49,775,937
                  
                  
                  $
                  685,501
                  
                  
                  $
                  50,462,635


See
notes to financial statements.


F-6





CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


STATEMENTS
OF CASH FLOWS


For
the Years ended December 31, 2008 and 2007 and for the Period From


August
18, 2006 (Inception) to December 31, 2008





Period from
                        August 18,
                        2006(inception) to
                        December 31,2008
                      
                      
                      2007
                      
                      
                      2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                      
                      $
                      (155,313
                      )
                      
                      $
                      845,500
                      
                      
                      $
                      685,501Adjustments to reconcile net
      income (loss) to net cash provided by (used in) operating
      activities:Change
      in operating assets and liabilities:Prepaid
      expenses
                      
                      
                      (84,099
                      )
                      
                      
                      (133,542
                      )
                      
                      
                      (217,641
                      )Accrued
      expenses
                      
                      
                      8,148
                      
                      
                      
                      3,641
                      
                      
                      
                      16,250Net
      cash provided by (used in) operating activities
                      
                      
                      (231,264
                      )
                      
                      
                      715,599
                      
                      
                      
                      484,110CASH
      FLOWS FROM INVESTING ACTIVITIESCash
      held in trust account
                      
                      
                      (840,177
                      )
      )
                      
                      
                      (73,339,752
                      )
                      
                      
                      (74,179,929
                      )Net
      cash used in investing activities
                      
                      
                      (840,177
                      )
      )
                      
                      
                      (73,339,752
                      )
                      
                      
                      (74,179,929
                      )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of ordinary shares to founding shareholders
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      25,000Proceeds
      from notes payable, related party
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      125,000Repayment
      of notes payable, related party
                      
                      
                      -
                      
                      
                      
                      (125,000
                      )
                      
                      
                      (125,000
                      )Payment
      of deferred offering costs
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (113,765
                      )Proceeds
      from initial public offering, net of offering expenses
                      
                      
                      -
                      
                      
                      
                      71,994,770
                      
                      
                      
                      71,994,770Proceeds
      from issuance of underwriter purchase option
                      
                      
                      -
                      
                      
                      
                      100
                      
                      
                      
                      100Proceeds
      from private placement of insider units
                      
                      
                      -
                      
                      
                      
                      2,000,000
                      
                      
                      
                      2,000,000Net
      cash provided by financing activities
                      
                      
                      -
                      
                      
                      
                      73,869,870
                      
                      
                      
                      73,906,105Increase
      / (decrease) in cash
                      
                      
                      (1,071,441
                      )
                      
                      
                      1,245,717
                      
                      
                      
                      210,286Cash,
      beginning of period
                      
                      
                      1,281,727
                      
                      
                      
                      36,010
                      
                      
                      
                      -Cash,
      end of year
                      
                      $
                      210,286
                      
                      
                      $
                      1,281,727
                      
                      
                      $
                      210,286Interest
      paid
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      -0-Taxes
      paid
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      -0-




See
notes to financial statements.


F-7


CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


NOTES
TO FINANCIAL STATEMENTS


December
31, 2008





NOTE
1 — ORGANIZATION AND BUSINESS OPERATIONS





ChinaFortune Acquisition Corp. (the “Company”) was incorporated in the Cayman
Islands on August 18, 2006 as a blank check company whose objective is to
acquire, through a stock exchange, asset acquisition or other similar business
combination, an operating business, or control of such operating business
through contractual arrangements, that has its principal operations located in
the People’s Republic of China.





All
activity through December 31, 2008 relates to the Company’s formation, the
public offering described below and efforts to consummate a business
combination.  The Company has selected December 31 as its fiscal
year-end.





The
registration statement for the Company’s public offering (“Offering”) was
declared effective July 17, 2007. The Company consummated the offering on
July 23, 2007 and received net proceeds of approximately $72,050,000 (Note 3)
and $2,000,000 from the sale of Insider Units (Note 4). The Company’s management
has broad discretion with respect to the specific application of the net
proceeds of this Offering, although substantially all of the net proceeds of
this Offering are intended to be generally applied toward consummating a
business combination with an operating business that has its principal
operations located in the People’s Republic of China (“Business
Combination”).  Furthermore, there is no assurance that the Company
will be able to successfully effect a Business Combination.  An
initial amount of $72,375,000 (including $2,000,000 of proceeds from the Insider
Units was deposited into a trust account (“Trust Account”) and is invested in
United States “government securities” within the meaning of Section 2(a)(16) of
the Investment Company Act of 1940 having a maturity of 180 days or less or in
money market funds meeting certain conditions under Rule 2a-7 promulgated under
the Investment Company Act of 1940 until the earlier of (i) the consummation of
its first Business Combination and (ii) liquidation of the
Company.  The placing of funds in the Trust Account may not protect
those funds from third party claims against the Company. Although the Company
will seek to have all vendors, prospective target businesses and other entities
it engages execute agreements with the Company waiving any right, title,
interest or claim of any kind in or to any monies held in the Trust Account,
there is no guarantee that they will execute such agreements.  The
Company’s directors have agreed that they will be proportionally liable under
certain circumstances to ensure that the proceeds in the Trust Account are not
reduced by the claims of target businesses or by vendors or other entities that
are owed money by the Company for services rendered contracted for or products
sold to the Company.  However, there can be no assurance that they
will be able to satisfy those obligations.  The remaining net proceeds
(not held in the Trust Account) may be used to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general and
administrative expenses.





The Company, after signing a definitive
agreement for the acquisition of a target business, is required to submit such
transaction for shareholder approval.  In the event that shareholders
owning 30% or more of the shares sold in 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
shareholders prior to the Offering, including all of the officers and directors
of the Company (“Initial Shareholders”), have agreed to vote their 2,343,750
founding ordinary shares in accordance with the vote of the majority in interest
of all other shareholders of the Company (“Public Shareholders”) with respect to
any Business Combination.  After consummation of a Business
Combination, these voting safeguards will no longer be applicable.


F-8


CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


NOTES
TO FINANCIAL STATEMENTS


December
31, 2008





NOTE 1 — ORGANIZATION AND BUSINESS
OPERATIONS (Continued)





With
respect to a Business Combination which is approved and consummated, any Public
Shareholder 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 Account, calculated as of two business days
prior to the consummation of the proposed Business Combination, divided by the
number of ordinary shares held by Public Shareholders at the consummation of the
Offering.  Accordingly, Public Shareholders holding 29.99% of the
aggregate number of shares owned by all Public Shareholders may seek conversion
of their shares in the event of a Business Combination.  Such Public
Shareholders are entitled to receive their per share interest in the Trust
Account computed without regard to the shares held by Initial
Shareholders.  Accordingly, a portion of the net proceeds from the
Offering (29.99% of the amount held in the Trust Account, $22,253,971) has been
classified as ordinary shares subject to possible redemption on the accompanying
balance sheet.





The
Company’s memorandum and articles of association provides that the Company will
continue in existence only until July 23, 2009.  If the Company has
not completed a Business Combination by such date, its corporate existence will
cease and it will dissolve and liquidate for the purposes of winding up its
affairs.  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 (assuming no value is attributed to the Warrants contained in
the Units to be offered in the Offering discussed in Note 3).





NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Accounting





The
financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”).





Cash
and cash equivalents





The
Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.





Fair
value of financial instruments





For
certain of the Company’s financial instruments, including cash and cash
equivalents, investments held in trust account, prepaid expenses, and accrued
expenses, the carrying amounts approximate fair values due to their short
maturities.





Investment
Held in Trust




The
Trust Account at December 31, 2008 is comprised of U.S Treasury Bills
carried at market. Such securities generate current income which is exempt from
federal income tax.





Earnings
Per Share




Basic
earnings per share is computed by dividing net loss by the weighted-average
number of shares of ordinary shares outstanding during the period. Basic
earnings per share is computed by dividing income available to ordinary
shareholders by the weighted average ordinary shares outstanding during the
period. Calculation of the weighted average ordinary shares outstanding during
the period is based on 2,343,750 initial shares outstanding throughout each
period from August 18, 2006 (inception) to July 17, 2007 and 11,968,750 ordinary
shares outstanding after the effective date of the offering and closing of the
private placement.





Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue ordinary shares were exercised or
converted into ordinary shares or resulted in the issuance of ordinary
shares that then shared in the earning of the Company.  Diluted
earnings per share are the same as the basic earnings per share for the year
ended December 31, 2008 because the anti-diluted effect of securities and other
contracts to issue ordinary shares





Earning
per share for the year ended December 31, 2008 attributable to ordinary shares
subject to possible redemption approximated ($0.02) per ordinary
share.


F-9





CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


NOTES
TO FINANCIAL STATEMENTS


December
31, 2008





NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES(Continued)





Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.




Income
Tax





The
Company is incorporated in Cayman Islands and has no US taxation liabilities as
of December 31, 2008.





Effect
of Recent Accounting Pronouncements




SFAS
141R, Business Combinations




In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007), ‘‘Business Combinations’’ (‘‘FAS 141R’’).
FAS 141R replaces Statement of Financial Accounting Standards No. 141,
‘‘Business Combinations’’ (‘‘FAS 141’’), although it retains the
fundamental requirement in FAS 141 that the acquisition method of
accounting be used for all business combinations. FAS 141R establishes
principles and requirements for how the acquirer in a business combination
(a) recognizes and measures the assets acquired, liabilities assumed and
any noncontrolling (‘‘minority’’) interest in the acquiree, (b) recognizes
and measures the goodwill acquired in a business combination or a gain from a
bargain purchase and (c) determines what information to disclose regarding
the business combination. FAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
Company’s 2009 fiscal year. The Company is currently assessing the potential
effect of FAS 141R on its financial statements.





SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements




In December
2007, the FASB issued Statement of Financial Accounting Standards No. 160,
‘‘Noncontrolling (‘‘minority’’) Interests in Consolidated Financial Statements’’
(‘‘FAS 160’’). FAS 160 establishes accounting and reporting standards
for the noncontrolling (‘‘minority’’) interest in a subsidiary, commonly
referred to as minority interest. Among other matters, FAS 160 requires
(a) the noncontrolling (‘‘minority’’) interest be reported within equity in
the balance sheet and (b) the amount of consolidated net income
attributable to the parent and to the noncontrolling (‘‘minority’’) interest to
be clearly presented in the statement of income. FAS 160 is effective for
the Company’s 2009 fiscal year. FAS 160 is to be applied prospectively,
except for the presentation and disclosure requirements, which shall be applied
retrospectively for all periods presented. The Company is currently assessing
the potential effect of FAS 160 on its financial statements.




In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, "Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133”.  SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities.  SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged.  As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended December 31, 2009.  The Company is currently evaluating the
impact of SFAS 161 on its consolidated financial statements but does not expect
it to have a material effect.




In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, "The Hierarchy of Generally Accepted
Accounting Principles”.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States.  SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of SFAS
162 on its consolidated financial statements but does not expect it to have a
material effect.





In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, "Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60" (“SFAS
163”).  SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement.  SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years.  As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31,
2009.  The Company is currently evaluating the impact of SFAS 163 on
its consolidated financial statements but does not expect it to have a material
effect.





Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.


F-10





CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


NOTES
TO FINANCIAL STATEMENTS


December
31, 2008





NOTE
3 — PUBLIC OFFERING





On July
23, 2007, the Company sold 9,375,000 units (“Units”) at a price of $8.00 per
Unit in the Offering. Each Unit consists of one ordinary share of the Company
and one Redeemable Purchase Warrant (“Warrants”).  Each Warrant
entitles the holder to purchase from the Company one ordinary share at an
exercise price of $6.00 commencing the later of the completion of a Business
Combination and July 17, 2008 and expiring July 16, 2011. The Company may redeem
the Warrants, at a price of $.01 per Warrant upon 30 days’ notice while the
Warrants are exercisable, only in the event that the last sale price of the
ordinary shares is at least $11.50 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.  If the Company redeems the Warrants as described
above, management will have the option to require any holder that wishes to
exercise his Warrant to do so on a "cashless basis." In such event, the holder
would pay the exercise price by surrendering his Warrants for that number of
ordinary shares equal to the quotient obtained by dividing (x) the product of
the number of ordinary shares underlying the Warrants, multiplied by the
difference between the exercise price of the Warrants and the "fair market
value" (defined below) by (y) the fair market value. The "fair market value"
shall mean the average reported last sale price of the ordinary shares for the
10 trading days ending on the third trading day prior to the date on which the
notice of redemption is sent to holders of Warrants.   In
accordance with the warrant agreement relating to the Warrants sold and issued
in the Offering, the Company is only required to use its best efforts to
maintain the effectiveness of the registration statement covering the
Warrants.  The Company will not be obligated to deliver securities,
and there are no contractual penalties for failure to deliver securities, if a
registration statement is not effective at the time of
exercise.  Additionally, in the event that a registration is not
effective at the time of exercise, the holder of such Warrant shall not be
entitled to exercise such Warrant and in no event (whether in the case of a
registration statement not being effective or otherwise) will the Company be
required to net cash settle the warrant exercise.  Consequently, the
Warrants may expire unexercised and unredeemed.





The
Company paid the underwriters in the Offering an underwriting discount of 5.5%
of the gross proceeds of the Offering and a non-accountable expense allowance of
0.5% of the gross proceeds of the Offering.  However, the underwriters
agreed that 2.5% of the underwriting discounts will not be payable unless and
until the Company completes a Business Combination and have waived their right
to receive such payment upon the Company’s liquidation if it is unable to
complete a Business Combination.  Accordingly, the Company has
recorded deferred underwriting fees of $1,875,000 on the accompanying balance
sheet.





The
Company also issued a unit purchase option, for $100, to EarlyBirdCapital, Inc.
(“EBC”), the representative of the underwriters in the Offering, to purchase
400,000 Units at an exercise price of $10.00 per Unit.  The Units
issuable upon exercise of this option are identical to the Units sold in the
Offering.  The Company accounted for the fair value of the unit
purchase option, inclusive of the receipt of the $100 cash payment, as an
expense of the Offering resulting in a charge directly to shareholders’ equity.
The Company estimated that the fair value of this unit purchase option was
approximately $1.2 million ($2.99 per Unit) using a Black-Scholes option-pricing
model. The fair value of the unit purchase option granted to the underwriter was
estimated as of the date of grant using the following assumptions: (1) expected
volatility of 42.88%, (2) risk-free interest rate of 4.74% and (3) expected life
of 5 years. The Company will have no obligation to net cash settle the exercise
of the unit purchase option or the Warrants underlying the unit purchase option.
The holder of the unit purchase option will not be entitled to exercise the unit
purchase option or the Warrants underlying the unit purchase option unless a
registration statement covering the securities underlying the unit purchase
option is effective or an exemption from registration is available. If the
holder is unable to exercise the unit purchase option or underlying Warrants,
the unit purchase option or Warrants, as applicable, will expire
worthless.


F-11





CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


NOTES
TO FINANCIAL STATEMENTS


December
31, 2008





NOTE
4 — INSIDER UNITS





Simultaneously with the consummating of
the Offering, one of the Initial Stockholders purchased 250,000 Units (“Insider
Units”) at $8.00 per Unit (for an aggregate purchase price of $2,000,000)
privately from the Company. All of the proceeds received from these purchases
were placed in the Trust Account. The Insider Units purchased are identical to
the Units sold in the Offering except that if the Company calls the Warrants for
redemption, the warrants included in the Insider Units may be exercisable on a
“cashless basis,” at the holder’s option (except in the case of a forced
cashless exercise upon the Company’s redemption of the Warrants, as described
above), so long as such securities are held by such purchaser or his affiliates.
Furthermore, the purchaser has agreed that the Insider Units will not be sold or
transferred by him until after the Company has completed a Business
Combination.





NOTE
5 — NOTE PAYABLE, RELATED PARTY





At
inception, the Company issued a $125,000 unsecured promissory note to Mr. Bo Yu,
the Company’s Chairman and Chief Executive Officer.  The note was
non-interest bearing was repaid from proceeds of the public
offering.  Due to the short-term nature of the note, the fair value of
the note approximates its carrying amount.




NOTE
6 — COMMITMENTS





The
Company occupies office space provided by an affiliate of the Company’s officers
and directors.  Such affiliate agreed that, until the Company
consummates a Business Combination or its liquidation, it will make such office
space, as well as certain office and secretarial services, available to the
Company, as may be required by the Company from time to time.  The
Company has agreed to pay such affiliate $7,500 per month for such services
commencing on July 17, 2007. Expense under the arrangement approximated $90,000
during the year ended December 31, 2008.





Pursuant
to letter agreements dated as of September 26, 2006 with the Company and EBC,
the initial shareholders have waived their rights to receive distributions with
respect to their founding shares upon the Company’s liquidation.





The
Initial Shareholders and the holders of the Insider Units (or underlying
securities) are entitled to registration rights with respect to their founding
shares or Insider Units (or underlying securities) pursuant to an agreement
dated as of July 17, 2007.  The holders of the majority of the
founding shares are entitled to make up to two demands that the Company register
such shares. The holders of the majority of the founding shares can elect to
exercise these registration rights at any time commencing three months prior to
the date on which these ordinary shares are to be released from escrow. The
holders of the Insider Units (or underlying securities) are entitled to demand
that the Company register these securities at any time after the Company
consummates a Business Combination.  In addition, the Initial
Shareholders and holders of the Insider Units (or underlying securities) have
certain “piggy-back” registration rights on registration statements filed after
the Company’s consummation of a Business Combination.





EBC has
been engaged by the Company to act as the Company’s non exclusive investment
banker in connection with a proposed Business Combination. For assisting the
Company in structuring and negotiating the terms of a Business Combination, the
Company will pay EBC a cash transaction fee equal to 1% of the total
consideration paid in connection with the Business Combination, with a maximum
fee to be paid of $750,000.


F-12





CHINA
FORTUNE ACQUISITION CORP.


(A
CORPORATION IN THE DEVELOPMENT STAGE)


NOTES
TO FINANCIAL STATEMENTS


December
31, 2008





NOTE
7 — PREFERRED SHARES





The
Company is authorized to issue 1,000,000 preferred shares with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors.





The
agreement with the underwriters prohibits the Company, prior to a Business
Combination, from issuing preferred shares which participates in the proceeds of
the Trust Account or which votes as a class with the ordinary shares on a
Business Combination.


F-13