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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

 

**FORM 10-Q**

 
| **x**                                                   | **Quarterly Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**   |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
| ** **                                              |
| **For the quarterly period ended June 30,  2009.** |
| ** **                                              |
| **or**                                                  |
| ** **                                              |
| **o**                                                   | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934** |

 

**For thetransition period from                             to                                .**

** **

**CommissionFile Number: 000-52857**

** **

**STONE TAN CHINA ACQUISITION CORP.**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                    | ** ** | **20-8387484**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer    |
| incorporation or organization)  |       | Identification No.) |

 

**Suite 1A,11th Floor**

**Tower 1China Hong Kong City**

**33Canton Road Kowloon, Hong Kong**

(Addressof principal executive offices) (Zip Code)

 

**852-27355493**

(Registrant’stelephone number, including area code)

 

 

(Formername, former address and former fiscal year, if changed since last report)

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes  x    No  o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes  o    No  o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act:

 

| Large Accelerated Filer o                                              |   | Accelerated Filer x         |
|------------------------------------------------------------------------|--------|-----------------------------|
|                                                                   |   |                        |
| Non-Accelerated Filer o  (Do not check if a smaller reporting company) |   | Smaller Reporting Company o |

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes  x  No  o

 

There were 41,212,875shares of the registrant’s common stock issued and outstanding as of August 7,2009.

 

 

 

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**Stone Tan China AcquisitionCorp.Index to Form 10-Q**

 
| ** **        | ** **                                                                                          | **Page**   |
|-------------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **        | ** **                                                                                          | ** ** |
| **Part I.**  | **Financial Information**                                                                           | 3          |
|              |                                                                                                |       |
|              | Item 1.  Financial Statements                                                                       | 3          |
|              |                                                                                                |       |
|              | Balance Sheets                                                                                      | 3          |
|              |                                                                                                |       |
|              | Statements of Operations                                                                            | 4          |
|              |                                                                                                |       |
|              | Statement of Stockholders’ Equity                                                              | 5          |
|              |                                                                                                |       |
|              | Statements of Cash Flows                                                                            | 6          |
|              |                                                                                                |       |
|              | Notes to Condensed  Consolidated Financial Statements                                               | 7          |
|              |                                                                                                |       |
|              | Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 18         |
|              |                                                                                                |       |
|              | Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 21         |
|              |                                                                                                |       |
|              | Item 4. Controls and Procedures                                                                     | 21         |
|              |                                                                                                |       |
| **Part II.** | **Other Information**                                                                               | 22         |
|              |                                                                                                |       |
|              | Item  1. Legal Proceedings                                                                          | 22         |
|              |                                                                                                |       |
|              | Item  1A. Risk Factors                                                                              | 22         |
|              |                                                                                                |       |
|              | Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 22         |
|              |                                                                                                |       |
|              | Item 3. Defaults Upon Senior Securities                                                             | 23         |
|              |                                                                                                |       |
|              | Item 4. Submission of Matters to a Vote of Security  Holders                                        | 23         |
|              |                                                                                                |       |
|              | Item  5. Other Information                                                                          | 23         |
|              |                                                                                                |       |
|              | Item 6.  Exhibits                                                                                   | 23         |
|              |                                                                                                |       |
| SIGNATURES        |                                                                                                | 24         |

 

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**PART I - FINANCIALINFORMATION**

 

**ITEM 1 —FINANCIAL STATEMENTS**

 

**STONE TAN CHINA ACQUISITIONCORP.  AND SUBSIDIARY**(a corporation inthe development stage)

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                    | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **2009**          | ** **  | **2008**              | ** ** |
| ** **                                                                                                                                                                    | ** ** | **(unaudited)**   | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                    |       |              |        |                  |       |
| Current  assets:                                                                                                                                                              |       |              |        |                  |       |
| Cash  and cash equivalents                                                                                                                                                    |       | $                 | 989,641     |                  | $          | 1,473,753 |   |
| Money  market funds - held in trust                                                                                                                                           |       | 263,139,930       |        | 263,192,125           |       |
| Prepaid  expenses                                                                                                                                                             |       | 47,672            |        | 55,815                |       |
| Income  tax refundable                                                                                                                                                        |       | 73,535            |        | 161,732               |       |
| Total  current assets                                                                                                                                                         |       | 264,250,778       |        | 264,883,425           |       |
| Total  assets                                                                                                                                                                 |       | $                 | 264,250,778 |                  | $          | 264,883,425 |   |
|                                                                                                                                                                          |       |              |        |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                 |       |              |        |                  |       |
| Current  liabilities:                                                                                                                                                         |       |              |        |                  |       |
| Accounts  payable and accrued expenses                                                                                                                                        |       | $                 | 108,171     |                  | $          | 162,125 |   |
| Deferred  underwriting fees payable                                                                                                                                           |       | 9,231,684         |        | 9,231,684             |       |
| Deferred  interest on funds held in trust                                                                                                                                     |       | 1,026,081         |        | 982,477               |       |
| Total  current liabilities                                                                                                                                                    |       | 10,365,936        |        | 10,376,286            |       |
|                                                                                                                                                                          |       |              |        |                  |       |
| Common  stock subject to possible redemption - 9,891,089 shares at redemption value                                                                                           |       | 75,308,773        |        | 75,308,773            |       |
|                                                                                                                                                                          |       |              |        |                  |       |
| Commitments  and contingencies                                                                                                                                                |       |              |        |                  |       |
|                                                                                                                                                                          |       |              |        |                  |       |
| Stockholders’  equity:                                                                                                                                                   |       |              |        |                  |       |
| Preferred  stock, $0.0001 par value; authorized - 1,000,000 shares; issued - none                                                                                             |       | —            |        | —                |       |
| Common  stock, $0.0001 par value; authorized - 139,000,000 shares; issued and  outstanding - 41,212,875 shares, inclusive of 9,891,089 shares subject to  possible redemption |       | 4,121             |        | 4,121                 |       |
| Additional  paid-in capital                                                                                                                                                   |       | 175,140,220       |        | 175,140,220           |       |
| Retained  earnings                                                                                                                                                            |       | 3,431,728         |        | 4,054,025             |       |
| Total  stockholders’ equity                                                                                                                                              |       | 178,576,069       |        | 179,198,366           |       |
| Total  liabilities and stockholders’ equity                                                                                                                              |       | $                 | 264,250,778 |                  | $          | 264,883,425 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

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****STONE TAN CHINA ACQUISITION CORP. AND SUBSIDIARY****

(a corporation in the development stage)

 

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

 
| ** **                                                                                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** | **Period from  January 24, 2007  (Inception) to  June 30,  2009** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2009**                                        | ** ** | **2008**                                      | ** ** | **2009**                                                                                   | ** ** | **2008** | ** ** | **(Cumulative)** | ** ** |
|                                                                                           |       |                                            |       |                                          |       |                                                                                       |       |   |   |   |   |
| Revenues                                                                                       |       | $                                               | —     |                                          | $          | —                                                                                     |       | $ | — |   | $ | — |   | $ | — |   |
| Operating  expenses                                                                            |       | 271,078                                         |       | 320,788                                       |       | 576,073                                                                                    |       | 532,050 |   | 1,686,581 |   |
| Professional  fees incurred relating to potential acquisitions                                 |       | 312,997                                         |       | —                                        |       | 357,075                                                                                    |       | — |   | 891,003 |   |
| Total  operating expenses                                                                      |       | 584,075                                         |       | 320,788                                       |       | 933,148                                                                                    |       | 532,050 |   | 2,577,584 |   |
| Operating  loss                                                                                |       | (584,075                                        | )          | (320,788                                      | )          | (933,148                                                                                   | )          | (532,050 | ) | (2,577,584 | ) |
| Interest  income                                                                               |       | 103,674                                         |       | 1,924,507                                     |       | 259,455                                                                                    |       | 4,595,282 |   | 9,782,379 |   |
| Interest  expense – stockholder                                                           |       | —                                          |       | —                                        |       | —                                                                                     |       | — |   | (12,986 | ) |
| Income  (loss) before provision (benefit) for income tax                                       |       | (480,401                                        | )          | 1,603,719                                     |       | (673,693                                                                                   | )          | 4,063,232 |   | 7,191,809 |   |
| Provision  (benefit) for income tax                                                            |       | (45,000                                         | )          | 553,000                                       |       | (95,000                                                                                    | )          | 1,449,000 |   | 2,734,000 |   |
| Income  (loss) before allocation of trust account interest                                     |       | (435,401                                        | )          | 1,050,719                                     |       | (578,693                                                                                   | )          | 2,614,232 |   | 4,457,809 |   |
| Allocation  of trust account interest relating to common stock subject to possible  redemption |       | (23,573                                         | )          | (407,705                                      | )          | (43,604                                                                                    | )          | (456,373 | ) | (1,026,081 | ) |
| Net  income (loss) available to common stockholders                                            |       | $                                               | (458,974   | )                                             | $          | 643,014                                                                                    |       | $ | (622,297 | ) | $ | 2,157,859 |   | $ | 3,431,728 |   |
|                                                                                           |       |                                            |       |                                          |       |                                                                                       |       |   |   |   |   |
| Net  income (loss) per common share —                                                     |       |                                            |       |                                          |       |                                                                                       |       |   |   |   |   |
| Basic                                                                                          |       | $                                               | (0.01      | )                                             | $          | 0.02                                                                                       |       | $ | (0.02 | ) | $ | 0.05 |   |   |   |
| Diluted                                                                                        |       | $                                               | (0.01      | )                                             | $          | 0.01                                                                                       |       | $ | (0.02 | ) | $ | 0.04 |   |   |   |
| Weighted  average common shares outstanding —                                             |       |                                            |       |                                          |       |                                                                                       |       |   |   |   |   |
| Basic                                                                                          |       | 41,212,875                                      |       | 41,212,875                                    |       | 41,212,875                                                                                 |       | 41,212,875 |   |   |   |
| Diluted                                                                                        |       | 41,212,875                                      |       | 50,992,090                                    |       | 41,212,875                                                                                 |       | 50,911,677 |   |   |   |

 

**See accompanying notes to condensed consolidatedfinancial statements.**

 

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**STONE TAN CHINA ACQUISITIONCORP.  AND SUBSIDIARY**(a corporation inthe development stage)

 

**CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY**

 

**FOR THE PERIOD FROM JANUARY 24, 2007(INCEPTION) TO JUNE 30, 2009**

 
| ** **                                                                                                                    | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Retained** | ** ** | **Total  Stockholders’** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|-------------------------------|------------|
| ** **                                                                                                                    | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings**                  | ** ** | **Equity** | ** ** |
|                                                                                                                          |       |                  |       |                    |       |         |       |                          |       |   |   |
| Balance,  January 24, 2007 (inception)                                                                                   |       | —                |       | $                       | —     |         | $          | —                        |       | $ | — |   | $ | — |   |
| Sale  of common shares to initial stockholders at $0.003 per share                                                            |       | 8,625,000             |       | 863                     |       | 24,137       |       | —                        |       | 25,000 |   |
| Sale  of shares and warrants in private placement and public offering, net of  offering costs of $19,534,385                  |       | 32,970,300            |       | 3,297                   |       | 250,424,717  |       | —                        |       | 250,428,014 |   |
| Sale  of unit purchase option to underwriters                                                                                 |       | —                |       | —                  |       | 100          |       | —                        |       | 100 |   |
| Shares  reclassified to “Common stock subject to possible redemption”                                               |       | —                |       | —                  |       | (75,308,773  | )          | —                        |       | (75,308,773 | ) |
| Shares  surrendered and cancelled                                                                                             |       | (382,425              | )          | (39                     | )          | 39           |       | —                        |       | — |   |
| Net  income available to common stockholders for the period from January 24,  2007 (inception) to December 31, 2007 |       | —                |       | —                  |       | —       |       | 1,542,904                     |       | 1,542,904 |   |
| Balance,  December 31, 2007                                                                                              |       | 41,212,875            |       | 4,121                   |       | 175,140,220  |       | 1,542,904                     |       | 176,687,245 |   |
| Net  income available to common stockholders for the year ended December 31,  2008                                       |       | —                |       | —                  |       | —       |       | 2,511,121                     |       | 2,511,121 |   |
| Balance,  December 31, 2008                                                                                              |       | 41,212,875            |       | 4,121                   |       | 175,140,220  |       | 4,054,025                     |       | 179,198,366 |   |
| Net  loss available to common stockholders for the six months ended June 30,  2009 (unaudited)                           |       | —                |       | —                  |       | —       |       | (622,297                      | )          | (622,297 | ) |
| Balance,  June 30, 2009 (unaudited)                                                                                      |       | 41,212,875            |       | $                       | 4,121      |         | $          | 175,140,220                   |       | $ | 3,431,728 |   | $ | 178,576,069 |   |

 

**See accompanying notes to condensed consolidatedfinancial statements**.

 

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**STONE TAN CHINA ACQUISITIONCORP.  AND SUBSIDIARY**(a corporation inthe development stage)

 

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS (UNAUDITED)**

 
| ** **                                                                                                                            | ** ** | **Six Months Ended********June 30,** | ** ** | **Period from  January 24,  2007  (Inception) to  June 30,  2009** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2009**                                  | ** ** | **2008**                                                                               | ** ** | **(Cumulative)** | ** ** |
|                                                                                                                                  |       |                                      |       |                                                                                   |       |   |   |
| Cash  flows from operating activities:                                                                                                |       |                                      |       |                                                                                   |       |   |   |
| Net  income (loss) available to common stockholders                                                                                   |       | $                                         | (622,297   | )                                                                                      | $          | 2,157,859 |   | $ | 3,431,728 |   |
| Adjustments  to reconcile net income (loss) available to common stockholders to net cash  provided by (used in) operating activities: |       |                                      |       |                                                                                   |       |   |   |
| Changes  in operating assets and liabilities:                                                                                         |       |                                      |       |                                                                                   |       |   |   |
| (Increase)  decrease in -                                                                                                             |       |                                      |       |                                                                                   |       |   |   |
| Prepaid  expenses                                                                                                                     |       | 8,143                                     |       | 77,610                                                                                 |       | (47,672 | ) |
| Income  tax refundable                                                                                                                |       | 88,197                                    |       | (319,732                                                                               | )          | (73,535 | ) |
| Increase  (decrease) in -                                                                                                             |       |                                      |       |                                                                                   |       |   |   |
| Accounts  payable and accrued expenses                                                                                                |       | (53,954                                   | )          | (13,120                                                                                | )          | 108,171 |   |
| Income  tax payable                                                                                                                   |       | —                                    |       | (881,000                                                                               | )          | — |   |
| Net  cash provided by (used in) operating activities                                                                                  |       | (579,911                                  | )          | 1,021,617                                                                              |       | 3,418,692 |   |
|                                                                                                                                  |       |                                      |       |                                                                                   |       |   |   |
| Cash  flows from investing activities:                                                                                                |       |                                      |       |                                                                                   |       |   |   |
| Increase  in trust account from interest earned on funds held in trust                                                                |       | (210,833                                  | )          | (4,092,346                                                                             | )          | (8,674,899 | ) |
| Funds  placed in trust account from offerings                                                                                         |       | —                                    |       | —                                                                                 |       | (259,745,716 | ) |
| Withdrawals  from trust account                                                                                                       |       | 306,632                                   |       | 4,424,947                                                                              |       | 6,306,766 |   |
| Net  cash provided by (used in) investing activities                                                                                  |       | 95,799                                    |       | 332,601                                                                                |       | (262,113,849 | ) |
|                                                                                                                                  |       |                                      |       |                                                                                   |       |   |   |
| Cash  flows from financing activities:                                                                                                |       |                                      |       |                                                                                   |       |   |   |
| Proceeds  from initial sale of common stock                                                                                           |       | —                                    |       | —                                                                                 |       | 25,000 |   |
| Gross  proceeds from private placement                                                                                                |       | —                                    |       | —                                                                                 |       | 6,200,000 |   |
| Gross  proceeds from public offering                                                                                                  |       | —                                    |       | —                                                                                 |       | 263,762,399 |   |
| Payments  of offering costs                                                                                                           |       | —                                    |       | —                                                                                 |       | (10,302,701 | ) |
| Proceeds  from underwriter’s purchase option                                                                                     |       | —                                    |       | —                                                                                 |       | 100 |   |
| Proceeds  from stockholder loans                                                                                                      |       | —                                    |       | —                                                                                 |       | 500,000 |   |
| Repayment  of stockholder loans                                                                                                       |       | —                                    |       | —                                                                                 |       | (500,000 | ) |
| Net  cash provided by financing activities                                                                                            |       | —                                    |       | —                                                                                 |       | 259,684,798 |   |
|                                                                                                                                  |       |                                      |       |                                                                                   |       |   |   |
| Net  increase (decrease) in cash and cash equivalents                                                                                 |       | (484,112                                  | )          | 1,354,218                                                                              |       | 989,641 |   |
| Balance  at beginning of period                                                                                                       |       | 1,473,753                                 |       | 1,214,280                                                                              |       | — |   |
| Balance  at end of period                                                                                                             |       | $                                         | 989,641    |                                                                                   | $          | 2,568,498 |   | $ | 989,641 |   |
|                                                                                                                                  |       |                                      |       |                                                                                   |       |   |   |
| Cash  paid for:                                                                                                                       |       |                                      |       |                                                                                   |       |   |   |
| Interest                                                                                                                              |       | $                                         | —     |                                                                                   | $          | 165 |   | $ | 12,986 |   |
| Income  taxes                                                                                                                         |       | $                                         | —     |                                                                                   | $          | 2,649,732 |   | $ | 2,990,732 |   |
|                                                                                                                                  |       |                                      |       |                                                                                   |       |   |   |
| Supplemental  schedule of non-cash investing and financing activities:                                                                |       |                                      |       |                                                                                   |       |   |   |
| Increase  in accrued offering costs and placement fees, net                                                                           |       | $                                         | —     |                                                                                   | $          | — |   | $ | 9,231,684 |   |
| Common  stock subject to possible redemption                                                                                          |       | $                                         | —     |                                                                                   | $          | — |   | $ | 75,308,773 |   |
| Allocation  of trust account interest relating to common stock subject to possible  redemption                                        |       | $                                         | 43,604     |                                                                                   | $          | 456,373 |   | $ | 1,026,081 |   |

 

**See accompanying notes to condensed consolidatedfinancial statements.**

 

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**STONE TAN CHINA ACQUISITIONCORP.  AND SUBSIDIARY**(a corporation inthe development stage)

 

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

 

**Three Months and Six Months Ended June 30,2009 and 2008, and**

**Period from January 24, 2007(Inception) to June 30, 2009 (Cumulative)**

 

**1. Basisof Presentation**

 

The condensedconsolidated financial statements of Stone Tan China Acquisition Corp.,including  its wholly-owned subsidiary, Stone Tan China Acquisition (HongKong) Company Limited (the “Company”), at June 30, 2009, for the threemonths and six months ended June 30, 2009 and 2008, and for the periodfrom January 24, 2007 (inception) to June 30, 2009 (cumulative), areunaudited. In the opinion of management, all adjustments (including normalrecurring adjustments) have been made that are necessary to present fairly thefinancial position of the Company as of June 30, 2009, the results of itsoperations for the three months and six months ended June 30, 2009 and2008, and for the period from January 24, 2007 (inception) to June 30,2009 (cumulative), and its cash flows for the six months ended June 30,2009 and 2008, and for the period from January 24, 2007 (inception) to June 30,2009 (cumulative). Operating results for the interim periods presented are notnecessarily indicative of the results to be expected for a full fiscal year.The condensed consolidated balance sheet at December 31, 2008 has beenderived from the audited consolidated financial statements.

 

These condensedconsolidated financial statements and related notes have been prepared pursuantto the rules and regulations of the Securities and Exchange Commission.Accordingly, certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been omitted pursuant to such rules and regulations. Thesecondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and other information included in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31,2008, as filed with Securities and Exchange Commission.

 

**2.****Organizationand Proposed Business Operations**

 

Stone TanAcquisition Corp. was incorporated in Delaware on January 24, 2007 as ablank check company formed for the purpose of acquiring, through a merger,stock exchange, asset acquisition or other similar business combination, orcontrol through contractual arrangements, an operating business having itsprimary operations in the People’s Republic of China.

 

On August 22,2008, the Company formed a new wholly-owned subsidiary, Stone Tan ChinaAcquisition (Hong Kong) Company Limited, organized under the laws of Hong Kong,in order to facilitate a transaction involving an operating business located inthe People’s Republic of China.

 

At June 30,2009, the Company had not yet commenced any business operations and istherefore considered a “corporation in the development stage.”  Allactivity through June 30, 2009 is related to the Company’s formation,capital raising efforts (as described below), and efforts to acquire abusiness. The Company is subject to the risks associated with development stagecompanies.

 

The Company’sability to acquire an operating business was contingent upon obtaining adequatefinancial resources through a private placement in accordance with Regulation Dunder the Securities Act of 1933, as amended (the “Private Placement”), and aninitial public offering (the “Public Offering”, and together with the PrivatePlacement, the “Offerings”), which are discussed in Note 4. The Company’smanagement has broad discretion with respect to the specific application of thenet proceeds of the Offerings, although substantially all of the net proceedsof the Offerings are intended to be generally applied toward consummating abusiness combination with an operating company. As used herein, a “target business”shall include one or more operating businesses or assets with primaryoperations in the People’s Republic of China, and a “business combination”shall mean the acquisition by the Company of such a target business. There canbe no assurances that the Company will be able to successfully effect abusiness combination.

 

The accompanyingcondensed consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern.  The Company’s Amended andRestated Certificate of Incorporation provides that if the Company is not ableto complete a business combination by October 15, 2009, its corporateexistence will cease, except for the process of winding up 

 

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and liquidating. The Company cannot assure its investors that it will be able to find a suitablebusiness combination by October 15, 2009.  This condition raisessubstantial doubt about the Company’s ability to continue as a goingconcern.  The condensed consolidated financial statements do not includeany adjustments that might result from the outcome of this uncertainty.

 

**3.Summary of Significant Accounting Policies**

 

***Principles of Consolidation***

 

The accompanyingcondensed consolidated financial statements include the financial statements ofStone Tan Acquisition Corp. and its wholly-owned subsidiary, Stone Tan ChinaAcquisition (Hong Kong) Company Limited. All intercompany balances andtransactions have been eliminated in consolidation.

 

***Cash and Cash Equivalents***

 

The Companyconsiders all highly liquid investments with an original maturity of threemonths or less when purchased (including money market funds) to be cashequivalents. Such cash and equivalents, at times, may exceed federally insuredlimits. The Company maintains its accounts with financial institutions withhigh credit ratings.

 

***Income Taxes***

 

The Companyaccounts for income taxes pursuant to Statement of Financial AccountingStandards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”),which establishes financial accounting and reporting standards for the effectsof income taxes that result from an enterprise’s activities during the currentand preceding years. SFAS No. 109 requires an asset and liability approachfor financial accounting and reporting for income taxes.

 

The Company hasadopted FASB Interpretation No. 48, “Accounting for Uncertainty in IncomeTaxes, an interpretation of FASB Statement No. 109, Accounting for IncomeTaxes” (“FIN 48”). FIN 48 addresses the determination of whether tax benefitsclaimed or expected to be claimed on a tax return should be recorded in thefinancial statements. Under FIN 48, the Company may recognize the tax benefitfrom an uncertain tax position only if it is more likely than not that the taxposition will be sustained on examination by the taxing authorities, based onthe technical merits of the position. The tax benefits recognized in thefinancial statements from such a position are measured based on the largestbenefit that has a greater than fifty percent likelihood of being realized uponultimate settlement. FIN 48 also provides guidance on de-recognition,classification, interest and penalties on income taxes, accounting in interimperiods and requires increased disclosures.  The adoption of theprovisions of FIN 48 did not have a material effect on the Company’sconsolidated financial statements. As of June 30, 2009, no liability forunrecognized tax benefits was required to be recorded.

 

The Company filesincome tax returns in the U.S. federal jurisdiction and is subjectto income tax examinations by federal tax authorities for the year2007 and thereafter.  The Company’s policy is to record interest andpenalties on uncertain tax positions as income tax expense. As of June 30,2009, the Company has no accrued interest or penalties related to uncertain taxpositions.

 

***Earnings Per Common Share***

 

The Companycomputes earnings (loss) per common share (“EPS”) in accordance with Statementof Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”)and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS No. 128requires companies with complex capital structures to present basic and dilutedEPS.  Basic EPS is measured as the income (loss) available to commonshareholders divided by the weighted average common shares outstanding for theperiod.  Diluted EPS is similar to basic EPS but presents the dilutiveeffect on a per share basis of potential common shares (e.g., convertiblesecurities, options and warrants) as if they had been converted at thebeginning of the periods presented, or issuance date, if later.  Potentialcommon shares that have an anti-dilutive effect (i.e., those that increaseincome per share or decrease loss per share) are excluded from the calculationof diluted EPS.

 

The calculation ofnet income (loss) per common share is summarized below. The calculation ofdiluted weighted average common shares outstanding for the three months and sixmonths ended June 30, 2009 and 2008 is based on the average of the closingprice of the Company’s common stock, as quoted on the OTC Bulletin Board forthe applicable period.

 

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| ** **                                              | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                              | ** ** | **2009**                                        | ** ** | **2008**                                      | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Basic:**                                              |       |                                            |       |                                          |       |   |   |   |   |
| Net  income (loss) available to common stockholders     |       | $                                               | (458,974   | )                                             | $          | 643,014 |   | $ | (622,297 | ) | $ | 2,157,859 |   |
| Weighted  average common shares outstanding             |       | 41,212,875                                      |       | 41,212,875                                    |       | 41,212,875 |   | 41,212,875 |   |
| Net  income (loss) per common share — basic   |       | $                                               | (0.01      | )                                             | $          | 0.02 |   | $ | (0.02 | ) | $ | 0.05 |   |
|                                                    |       |                                            |       |                                          |       |   |   |   |   |
| **Diluted:**                                            |       |                                            |       |                                          |       |   |   |   |   |
| Net  income (loss) available to common stockholders     |       | $                                               | (458,974   | )                                             | $          | 643,014 |   | $ | (622,297 | ) | $ | 2,157,859 |   |
| Weighted  average common shares outstanding             |       | 41,212,875                                      |       | 41,212,875                                    |       | 41,212,875 |   | 41,212,875 |   |
| Effect  of dilutive warrants                            |       | —                                          |       | 9,779,215                                     |       | — |   | 9,698,802 |   |
| Diluted  weighted average common shares outstanding     |       | 41,212,875                                      |       | 50,992,090                                    |       | 41,212,875 |   | 50,911,677 |   |
| Net  income (loss) per common share — diluted |       | $                                               | (0.01      | )                                             | $          | 0.01 |   | $ | (0.02 | ) | $ | 0.04 |   |

 

At June 30,2009 and 2008, potentially dilutive securities consisted of outstandingwarrants and options to acquire an aggregate of 44,170,300 shares of commonstock, all of which were anti-dilutive at June 30, 2009, and 5,000,000 ofwhich were anti-dilutive at June 30, 2008.

 
| Founders  warrants                       |   | 6,200,000  |   |
|------------------------------------------|--------|------------|--------|
| Public  warrants                         |   | 32,970,300 |   |
| Underwriters’  unit purchase option |   | 5,000,000  |   |
| Total                                    |   | 44,170,300 |   |

 

***Use of Estimates***

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of expensesduring the reporting period. Actual results could differ from those estimates.

 

***Fair Value of Financial Instruments***

 

The carryingamounts of cash and cash equivalents, money market funds - held in trust,prepaid expenses, income tax refundable, accounts payable and accrued expenses,and deferred underwriting fees payable approximate their respective fairvalues, due to the short-term nature of these items.

 

***Share-Based Payments***

 

The Companyaccounts for share-based payments pursuant to Statement of Financial AccountingStandards No. 123R “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123Rrequires all share-based payments, including grants of employee stock optionsto employees, to be recognized in the financial statements based on their fairvalues. The Company adopted SFAS No. 123R on January 24, 2007(inception). The Company expects that SFAS No. 123R could have a materialimpact on the Company’s consolidated financial statements to the extent thatthe Company grants stock-based compensation in future periods.  Through June 30, 2009, the Company hasnot granted any share-based compensation.

 

***Deferred Interest on Funds Held in Trust***

 

Deferred intereston funds held in trust consists of the 30% less one share portion of theinterest earned on the funds held in trust, reduced by certain permittedwithdrawals, including income taxes, by the Company, which is the maximumamount that the Company would be obligated to pay to stockholders who elect tohave their stock redeemed by the Company without resulting in a rejection of abusiness combination.

 

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***Recently Adopted Accounting Pronouncements***

 

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurements” (“SFAS No. 157”), which establishes a frameworkfor measuring fair value in accordance with generally accepted accountingprinciples, clarifies the definition of fair value within that framework andexpands disclosures about fair value measurements. SFAS No. 157 applieswhenever other standards require (or permit) assets or liabilities to bemeasured at fair value, except for the measurement of share-based payments. TheCompany adopted SFAS No. 157 on January 1, 2008.  However, sincethe issuance of SFAS No. 157, the FASB has issued several FASB StaffPositions (FSPs) to clarify the application of SFAS No. 157.  In February 2008,the FASB released FSP No. 157-2, “Effective Date of FASB Statement No. 157”,which delayed the effective date of SFAS No. 157 for all nonfinancialassets and nonfinancial liabilities, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis (atleast annually).  In October 2008, the FASB issued FSP No. 157-3,“Determining the Fair Value of a Financial Asset When the Market for That AssetIs Not Active”, which clarifies the application of SFAS No. 157 in amarket that is not active and provides guidance in key considerations indetermining the fair value of a financial asset when the market for thatfinancial asset is not active.  FSPs apply to financial assets within thescope of accounting pronouncements that require or permit fair valuemeasurements in accordance with SFAS No. 157.  In April 2009,the FASB issued FSP No. 157-4, “Determining the Fair Value When the Volumeand Level of Activity for the Asset or Liability Have Significantly Decreasedand Identifying Transactions That Are Not Orderly”, which provides additionalguidance for estimating fair value in accordance with SFAS No. 157, whenthe volume and level of activity for the asset or liability have significantlydecreased.  FSP No. 157-4 also provides guidance on identifyingcircumstances that indicate a transaction is not orderly.  The Companyadopted FSP No. 157-4 on June 30, 2009. Additional disclosuresrequired as a result of the Company’s implementation of SFAS No. 157 arepresented at Note 6.

 

In February 2007,the FASB issued Statement of Financial Accounting Standards No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”),which provides companies with an option to report selected financial assets andliabilities at fair value. SFAS No. 159’s objective is to reduce bothcomplexity in accounting for financial instruments and the volatility inearnings caused by measuring related assets and liabilities differently.Generally accepted accounting principles have required different measurementattributes for different assets and liabilities that can create artificialvolatility in earnings. SFAS No. 159 helps to mitigate this type ofaccounting-induced volatility by enabling companies to report related assetsand liabilities at fair value, which would likely reduce the need for companiesto comply with detailed rules for hedge accounting. SFAS No. 159 alsoestablishes presentation and disclosure requirements designed to facilitatecomparisons between companies that choose different measurement attributes forsimilar types of assets and liabilities. SFAS No. 159 requires companiesto provide additional information that will help investors and other users offinancial statements to more easily understand the effect of the Company’schoice to use fair value on its earnings. SFAS No. 159 also requires companiesto display the fair value of those assets and liabilities for which the Companyhas chosen to use fair value on the face of the balance sheet. SFAS No. 159does not eliminate disclosure requirements included in other accountingstandards, including requirements for disclosures about fair value measurementsincluded in SFAS No. 157 and SFAS No. 107.  The Company adoptedSFAS No. 159 on January 1, 2008. The adoption of SFAS No. 159did not have any impact on the Company’s consolidated financial statementpresentation or disclosures.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 141(R), “BusinessCombinations” (“SFAS No. 141(R)”), which requires an acquirer to recognize inits financial statements as of the acquisition date (i) the identifiableassets acquired, the liabilities assumed, and any noncontrolling interest inthe acquiree, measured at their fair values on the acquisition date, and (ii) goodwillas the excess of the consideration transferred plus the fair value of anynoncontrolling interest in the acquiree at the acquisition date over the fairvalues of the identifiable net assets acquired. Acquisition-related costs,which are the costs an acquirer incurs to effect a business combination, willbe accounted for as expenses in the periods in which the costs are incurred andthe services are received, except that costs to issue debt or equity securitieswill be recognized in accordance with other applicable GAAP. SFAS No. 141(R) makessignificant amendments to other Statement of Financial Accounting Standards andother authoritative guidance to provide additional guidance or to conform theguidance in that literature to that provided in SFAS No. 141(R). SFAS No. 141(R) alsoprovides guidance as to what information is to be disclosed to enable users offinancial statements to evaluate the nature and financial effects of a businesscombination. SFAS No. 141(R) is effective for financial statementsissued for fiscal years beginning on or after December 15, 2008. TheCompany adopted SFAS No. 141(R) on January 1, 2009.  Theadoption of SFAS No. 141(R) will affect how the Company accounts fora business combination in 2009 and beyond.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51”(“SFAS No. 160”), which requires that ownership interests in subsidiariesheld by parties other than the parent, and the amount of consolidated netincome, be clearly identified, labeled and presented in the consolidatedfinancial statements.  SFAS No. 160 also requires that once asubsidiary is deconsolidated, any retained 

 

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noncontrolling equityinvestment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish betweenthe interests of the parent and the interests of the noncontrollingowners.  SFAS No. 160 amends FASB No. 128 to provide that thecalculation of earnings per share amounts in the consolidated financialstatements will continue to be based on the amounts attributable to the parent.SFAS No. 160 is effective for financial statements issued for fiscalyears, and interim periods within those fiscal years, beginning on or after December 15,2008, and requires retroactive adoption of the presentation and disclosurerequirements for existing minority interests.  All other requirements areapplied prospectively.  The Company adopted SFAS No. 160 on January 1,2009.  The adoption of SFAS No. 160 did not have any impact on theCompany’s consolidated financial statement presentation or disclosures.

 

In March 2008,the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosuresabout Derivative Instruments and Hedging Activities — an amendment of FASBStatement No. 133” (“SFAS No. 161”).  SFAS No. 161 amendsand expands the disclosure requirements of SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities” (“SFAS No. 133”). Theobjective of SFAS No. 161 is to provide users of financial statements withan enhanced understanding of how and why an entity uses derivative instruments,how derivative instruments and related hedged items are accounted for underSFAS No. 133 and its related interpretations, and how derivativeinstruments and related hedged items affect an entity’s financial position,financial performance, and cash flows.  SFAS No. 161 requiresqualitative disclosures about objectives and strategies for using derivatives,quantitative disclosures about fair value amounts of and gains and losses onderivative instruments, and disclosures about credit-risk-related contingentfeatures in derivative agreements.  SFAS No. 161 applies to allderivative financial instruments, including bifurcated derivative instruments(and nonderivative instruments that are designed and qualify as hedginginstruments pursuant to paragraphs 37 and 42 of SFAS No. 133) and relatedhedged items accounted for under SFAS No. 133 and its relatedinterpretations.  SFAS No. 161 also amends certain provisions of SFASNo. 133. SFAS No. 161 is effective for financial statements issuedfor fiscal years and interim periods beginning after November 15, 2008,with early application encouraged.  SFAS No. 161 encourages, but doesnot require, comparative disclosures for earlier periods at initialadoption.  The Company adopted SFAS No. 161 on January 1,2009.  The adoption of SFAS No. 161 did not have any impact on theCompany’s consolidated financial statement presentation or disclosures.

 

InMay 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”).  SFAS No. 165 establishes generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued.  SFAS No. 165 also sets forth the periodafter the balance sheet date during which management of a reporting entityshould evaluate events or transactions that may occur for potential recognitionor disclosure in the financial statements, the circumstances under which anentity should recognize events or transactions occurring after the balancesheet date in its financial statements, and the disclosures that an entityshould make about events or transactions that occurred after the balance sheetdate. SFAS No. 165 is effective for interim or annual financial periodsending after June 15, 2009, and shall be applied prospectively.  The Company adopted SFAS No. 165 on June 30,2009.  Accordingly, subsequent eventshave been evaluated through August 6, 2009 (see Note 13).

 

***Recently Issued Accounting Pronouncements***

 

In June 2009,the FASB issued SFAS No. 168, “The FASB Accounting Standards Codificationand the Hierarchy of Generally Accepted Accounting Principles — a replacementof FASB Statement No. 162” (“SFAS No. 168”).  SFAS No.168 establishes the “FASB AccountingStandards Codification” (“Codification”), which will become the source ofauthoritative generally accepted accounting principles (“GAAP”) to berecognized by the FASB and to be applied by nongovernmental entities.  Rules and interpretive releases of theSEC under authority of federal securities laws are also sources ofauthoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting andreporting standards. All other non-SEC accounting literature which is notgrandfathered or not included in the Codification will no longer beauthoritative. Once the Codification is in effect, all of its content willcarry the same level of authority.  SFAS No. 168is effective for financial statements issued for interim or annual reportingperiods ending after September 15, 2009. The Company expects to adopt SFAS No. 168 on September 30,2009.

 

Management doesnot believe that any other recently issued, but not yet effective, accountingstandards or pronouncements, if currently adopted, would have a material effecton the Company’s consolidated financial statements.

 

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**4.Private Placement and Public Offering**

 

On October 19,2007, the Company completed its Public Offering of 30,000,000 units at a priceof $8.00 per unit. Each unit consisted of one share of the Company’s commonstock, $0.0001 par value, and one redeemable common stock purchase warrant.Each warrant entitles the holder to purchase from the Company one share ofcommon stock at an exercise price of $5.50 per share commencing the later ofthe completion of a business combination with a target business, or October 15,2008, and expires on October 15, 2011. The warrants will be redeemable ata price of $0.01 per warrant upon 30 days notice after the warrants becomeexercisable, only in the event that the last sale price of the common stock isat least $11.50 per share for any 20 trading days within a 30 trading dayperiod ending on the third day prior to date on which notice of redemption isgiven.

 

The Company paidthe underwriters in the Public Offering an underwriting discount of 3.5% of thegross proceeds and upon the consummation of a business combination, theunderwriters will receive an additional underwriting discount equal to 3.5% ofthe gross proceeds. The Company also issued a unit purchase option, for $100,upon consummation of the Public Offering, to Morgan Joseph & Co. Inc.(“Morgan”) , the representative of the underwriters, to purchase up to a totalof 2,500,000 units at $10.00 per unit. The units issuable upon exercise of thisoption are otherwise identical to those sold in the Public Offering, exceptthat the exercise price of the warrants underlying the units is $7.00. Thisoption is exercisable for cash, or on a cashless basis, commencing October 15,2007 and expiring October 15, 2012. Since the warrants underlying theoption are the same as the units sold in the Public Offering and expire October 15,2011, if the option is exercised after such date, the holders of the optionwill only receive the common stock component of the units. The estimated fairvalue of this unit purchase option on the grant date was determined to beapproximately $7,689,369 ($3.08 per unit) using a Black-Scholes option-pricingmodel with the following assumptions:  (1) expected volatility of45.3%, (2) risk-free interest rate of 4.2%, (3) expected life of 5years, and (4) dividend rate of zero. The Company accounted for the fairvalue of the unit purchase option as a cost of the Public Offering, resultingin a charge directly to additional paid-in capital, offset by an equal amountcredited directly to additional paid-in capital. As a result, the net increasein shareholders’ equity from the issuance of the unit purchase option was the$100 cash payment received by the Company. The option and warrants could expireworthless if there is no effective registration statement.

 

On October 19,2007, the closing date of the Offerings, $236,815,000 of the proceeds of theOfferings, including $8,400,000 of contingent underwriting compensation whichwill be paid to Morgan if a business combination is consummated, but which willbe forfeited in part if the public stockholders elect to have their shares redeemedfor cash and in full if a business combination is not consummated, was placedin a trust account (the “Trust Account”) at Citi Smith Barney maintained byContinental Stock Transfer & Trust Company, and invested until theearlier of (i) the consummation of the Company’s first businesscombination or (ii) the liquidation of the Company. However, up to$3,300,000 of the interest earned on the Trust Account is permitted to bereleased to the Company to fund working capital requirements as set forth inthe Investment Management Trust Agreement. Therefore, unless and until abusiness combination is consummated, the proceeds held in the Trust Account(other than up to $3,300,000 of the interest earned and amounts necessary topay taxes) will not be available for the Company’s use for any expenses relatedto the Offerings or expenses which may be incurred related to the investigationand selection of a target business and the negotiation of an agreement toacquire a target business.

 

On October 30,2007, the underwriters of the Public Offering exercised their option topurchase an additional 2,970,300 units to cover over-allotments. In connectionwith the exercise of the over-allotment option, the underwriters received anunderwriting discount of 3.5% of the gross proceeds and upon the consummationof a business combination the underwriters will receive an additionalunderwriting discount equal to 3.5% of the gross proceeds. Consequently, on October 30,2007, the closing date of the overallotment exercise, an additional $22,930,716of the proceeds from the exercise, including $831,684 of contingentunderwriting compensation which will be paid to Morgan if a businesscombination is consummated, but which will be forfeited in part if the publicstockholders elect to have their shares redeemed for cash and in full if abusiness combination is not consummated, was placed in the Trust Account. Thecommon stock and warrants included in the units began to trade separately on November 7,2007, and trading in the units ceased on that date.

 

On October 19,2007, prior to the consummation of the Public Offering, the Company’s foundingstockholders (the “Founding Stockholders”) purchased from the Company anaggregate of 6,200,000 warrants (the “Founder Warrants”) at $1.00 per warrantin a Private Placement. All Founder Warrants issued in the Private Placementwere substantially identical to the warrants in the units sold in the PublicOffering, except that:  (i) subject to certain limited exceptions,none of the Founder Warrants were transferable or salable until after theCompany completes a business combination; and (ii) the Founder Warrantsare not subject to redemption and are not exercisable on a cashless basis ifheld by the initial holders thereof. The $6,200,000 of proceeds from the saleof the Founder Warrants were added to the portion of the proceeds from thePublic Offering held in the Trust Account pending completion of the Company’sinitial business combination. The Company determined, based on a review of thetrading price of the 

 

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public warrants of otherblank check companies similar to the Company, that the purchase price of $1.00per Founder Warrant was not less than the approximate fair value of suchwarrants on the date of issuance. Therefore, the Company did not recordcompensation expense upon the sale of the Founder Warrants.

 

After the Companysigns a definitive agreement for the acquisition of a target business, it willsubmit such transaction for stockholder approval. In the event that holders ofthe shares sold in the Public Offering (the “Public Stockholders”) owning 30%or more of the outstanding stock sold in the Public Offering vote against thebusiness combination and elect to have the Company redeem their shares forcash, the business combination will not be consummated. The FoundingStockholders have agreed to vote their 8,625,000 founding shares of common stockin accordance with the vote of the majority of shares purchased in the PublicOffering with respect to any business combination and to vote any shares theyacquire in the Public Offering, or in the aftermarket, in favor of the businesscombination. After consummation of the Company’s first business combination,all of these voting safeguards will no longer be applicable.

 

With respect tothe first business combination which is approved and consummated, any PublicStockholders who vote against the business combination may demand that theCompany redeem their shares for a pro rata share of the Trust Account(inclusive of a pro rata portion of the contingent underwriting compensation of$0.28 per share). Accordingly, Public Stockholders holding one share less than30% of the aggregate number of shares sold in the offerings may seek redemptionof their shares in the event of a business combination.

 

If no businesscombination occurs, the Company’s Amended and Restated Certificate ofIncorporation provides for mandatory liquidation of the Company on October 15,2009, 24 months from the effective date of the Public Offering, withoutstockholder approval of a plan of dissolution.

 

Information with respect to a pending transaction isprovided at Note 13.

 

**5. MoneyMarket Funds — Held In Trust**

 

Money market fundsheld in trust at June 30, 2009 and December 31, 2008 consist of aninvestment in Citi Institutional US Treasury Reserves Class A Funds with amarket value of $263,139,930 and $263,192,125, respectively, and annualizedtaxable yields of 0.12% and 0.56%, respectively.  The money market fundinvests solely in U.S. treasuries.

 

As of June 30,2009, the trust account was due $27,196 from the Company’s non-trust fundsresulting primarily from income tax refunds receivable generated by income taxbenefits realized during the three months ended June 30,  2009.

 

**6. Money Market Funds — Fair Value**

 

The Companyadopted SFAS No. 157 on January 1, 2008, delaying, as permitted,application for non-financial assets and non-financial liabilities.  SFAS No. 157establishes a framework for measuring fair value, and expands disclosures aboutfair value measurements.  SFAS No. 157 establishes a fair valuehierarchy that prioritizes the inputs to valuation techniques used to measurefair value into three levels, and requires that assets and liabilities carriedat fair value are classified and disclosed in one of the following threecategories:

 

Level 1: quoted prices (unadjusted) in active markets for an identical asset or liabilitythat the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs includeactive-exchange traded securities and exchange-based derivatives.

 

Level 2: inputs other than quoted prices included within Level 1 that are directlyobservable for the asset or liability or indirectly observable throughcorroboration with observable market data.  Financial assets andliabilities utilizing Level 2 inputs include fixed income securities, non-exchangebased derivatives, mutual funds, and fair-value hedges.

 

Level 3: unobservable inputs for the asset or liability are only used when there islittle, if any, market activity for the asset or liability at the measurementdate.  Financial assets and liabilities utilizing Level 3 inputs includeinfrequently-traded non-exchange-based derivatives and commingled investmentfunds, and are measured using present value pricing models.

 

In accordance withSFAS No. 157, the Company determines the level in the fair value hierarchywithin which each fair value measurement falls in its entirety, based on thelowest level input that is significant to the fair value measurement in itsentirety.  In determining the appropriate levels, the Company performs ananalysis of the assets and liabilities that are subject to SFAS No. 157 ateach reporting period end.

 

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Money market fundsare the only financial instrument that is measured and recorded at fair valueon the Company’s balance sheet on a recurring basis.  The following tablespresent money market funds at their level within the fair value hierarchy at June 30,2009 and December 31, 2008, respectively.

 
| ** **                                                        | ** ** | **Total** | ** **  | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-------------------------------------------------------------------|------------|-----------|-------------|------------------|------------|------------------|------------|------------------|------------|
|                                                              |       |      |        |             |       |             |       |             |       |
| **June 30, 2009:**                                           |       |      |        |             |       |             |       |             |       |
| Money  Market Funds — presented as cash and cash equivalents |       | $         | 989,641     |             | $          | 989,641          |       | $                | —     |   | $ | — |   |
| Money  Market Funds — Held in Trust                          |       | $         | 263,139,930 |             | $          | 263,139,930      |       | $                | —     |   | $ | — |   |
|                                                              |       |      |        |             |       |             |       |             |       |
| **December 31, 2008:**                                       |       |      |        |             |       |             |       |             |       |
| Money  Market Funds — presented as cash and cash equivalents |       | $         | 1,473,753   |             | $          | 1,473,753        |       | $                | —     |   | $ | — |   |
| Money  Market Funds — Held in Trust                          |       | $         | 263,192,125 |             | $          | 263,192,125      |       | $                | —     |   | $ | — |   |

 

**7.Related Party Transactions**

 

***Note Payable to Stockholder***

 

On February 27,2007, the Company issued an unsecured promissory note of $500,000 to one of itsFounding Stockholders. The note bore interest at the rate of 4% per annum andwas due and payable at the earlier of:  (i) February 26, 2008;or (ii) the date on which the Company consummated an initial publicoffering of its securities. The note, including related accrued interest of$12,821, was paid in full on October 19, 2007.

 

***Management Fees and Other Costs***

 

The Company hasagreed to pay Pacific Millennium Investment Corporation (“Pacific Millennium”),an affiliate of the Company’s Chief Executive Officer, $7,500 per month for 24months, for office space and reimbursement of general and administrativeexpenses pursuant to a letter agreement, commencing on the date of the PublicOffering and terminating upon the date the Company consummates a businesscombination or liquidates. During the three months and six months ended June 30,2009 and 2008, the Company incurred $22,500, $22,500, $45,000 and $45,000 ofcosts, respectively, under this agreement. For the period from January 24,2007 (inception) to June 30, 2009, the Company incurred $150,000 of costsunder this agreement.

 

From time to time,Pacific Millennium makes payments on the Company’s behalf to third parties forexpenses incurred in the pursuit of a potential business combination for whichit is reimbursed by the Company.  Such reimbursements amounted to$117,774, $144,084, $163,126 and $170,522 during the three months and six monthsended June 30, 2009 and 2008, respectively. Reimbursements for the periodfrom January 24, 2007 (inception) to June 30, 2009, were$550,524.  Pacific Millennium does not receive any benefit from thesetransactions.

 

**8.Common Stock**

 

The Company was initiallyauthorized to issue 39,000,000 shares of its common stock with a par value$0.0001 per share. On October 15, 2007, the authorized common shares wereincreased to 139,000,000 shares.

 

In February 2007,the Company’s Founding Stockholders subscribed to 1,562,500 shares of commonstock for a total of $25,000. In April 2007, the Company effected atwo-for-one stock split in the form of a stock distribution, which resulted inthe issuance of an additional 1,562,500 shares to its Founding Stockholders. InMay 2007, the Company effected a 1.15-for-one stock split in the form of astock distribution, which resulted in the issuance of an additional 468,750shares to its Founding Stockholders. In July 2007, the Company effected athree-for-one stock split in the form of a stock distribution, which resultedin the issuance of an additional 7,187,500 shares to its Founding Stockholders.In October 2007, the Company effected a two-for-three reverse stock split,which resulted in the reduction of 3,593,750 shares held by its FoundingStockholders. Also in October 2007, the Company effected a 1.2-for-onestock split in the form of a stock distribution, which resulted in the issuanceof an additional 1,437,500 shares to its Founding Stockholders. The Company’sfinancial statements give retroactive effect to such stock splits.

 

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On December 3,2007, the Founding Stockholders surrendered for cancellation, for noconsideration, 382,425 shares of common stock so as to ensure that the numberof shares they held prior to the Public Offering, exclusive of sharesunderlying the Founder Warrants, equaled 20% of the outstanding shares ofcommon stock after the Public Offering and the exercise of the underwriters’over-allotment option.

 

In the event thatholders of more than 20% of the shares of common stock sold in the PublicOffering elect to redeem their shares, the Founding Stockholders have agreed toforfeit that number of shares (up to a maximum of 937,500 shares) that willresult in them owning collectively no more than 23.81% of the Company’soutstanding common stock immediately prior to the consummation of such businesscombination after giving effect to the redemption (but without giving effect toshares they might purchase in the open market or in private transactions fromPublic Stockholders).

 

**9.Preferred Stock**

 

The Company isauthorized to issue 1,000,000 shares of preferred stock with a par value$0.0001 per share, with such designations, voting and other rights andpreferences, as may be determined from time to time by the Company’s board ofdirectors.

 

**10.Income Taxes**

 

The provision forincome tax for the three months and six months ended June 30, 2008consists of U.S. federal income tax currently payable. The Company had a taxbenefit for the three months and six months ended June 30, 2009.  TheCompany has its executive office in Hong Kong and accordingly is not subject tostate income tax.

 

The Company’seffective income tax rate was lower than would be expected if the federalstatutory rate were applied to loss from operations primarily because of achange in the valuation allowance.

 

Deferred incometaxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes. The Company’s deferred tax assets as of June 30,2009 and December 31, 2008 consist of start-up and organizationcosts.  Start-up costs must be deferred until the Company activelycommences business operations, at which time they may be written off over a180-month period.  Organization costs must be deferred and written offover a 180-month period starting with the date that the Company isformed.  Because of the uncertainty associated with the realization of theCompany’s deferred tax assets, a 100% valuation allowance has been recorded.

 

**11.Commitments and Contingencies**

 

The Company will notproceed with a business combination if Public Stockholders owning 30% or moreof the shares sold in the Public Offering vote against the business combinationand exercise their redemption rights. Accordingly, the Company may effect abusiness combination if Public Stockholders owning up to one share less than30% of the aggregate shares sold in the Public Offering exercise theirredemption rights. If this occurred, the Company would be required to redeemfor cash up to one share less than 30% of the 32,970,300 shares of common stockincluded in the units, or 9,891,089 shares of common stock, at an expected pershare redemption price of $7.98 (at June 30, 2009). However, the abilityof stockholders to receive $7.98 per unit is subject to any valid claims by theCompany’s creditors which are not covered by amounts held in the Trust Accountor the indemnities provided by the Company’s officers and directors. Theexpected redemption price per share is greater than each stockholder’s initialpro rata share of the Trust Account of approximately $7.60 per share. Of theexcess redemption price, approximately $0.28 per share represents a portion ofthe underwriters’ contingent fee, which they have agreed to forego for eachshare that is redeemed. Accordingly, the total deferred underwritingcompensation payable to the underwriters in the event of a business combinationwill be reduced by approximately $0.28 for each share that is redeemed. Thebalance will be paid from proceeds held in the Trust Account, which are payableto the Company upon consummation of a business combination.

 

The Company’s Founding Stockholders have entered into an agreement with Morgan pursuantto which they will place limit orders to purchase up to an aggregate of$10,000,000 of the Company’s common stock in the open market commencing 10business days after the Company files its Current Report on Form 8-Kannouncing the execution of a definitive agreement for a business combinationand ending on the business day immediately preceding the date of the meeting ofstockholders at which a business combination is to be approved. Such openmarket purchases will be made in accordance with Rules 10b-18 and 10b5-1under the Securities Exchange Act of 1934, as amended, at a price per share ofnot more than the per share amount held in the Trust Account (less taxespayable) as reported in such Form 8-K and will be made by a broker-dealermutually agreed upon by the Company’s 

 

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Founding Stockholders andMorgan in such amounts and at such times as such broker-dealer may determine,in its sole discretion, so long as the purchase price does not exceed theabove-referenced per share purchase price. The Company’s Founding Stockholdershave agreed to vote any such shares of common stock purchased in the openmarket in favor of the Company’s initial business combination, representing apossible maximum aggregate of 4.2% of the public shares entitled to vote on thebusiness combination. They have agreed not to sell such shares unless abusiness combination is approved by the Company’s stockholders; however, theywill be entitled to participate in any liquidating distributions with respectto the shares purchased in the open market if the business combination is notcompleted and the Company dissolves.

 

In the event purchases of $10,000,000 of the Company’scommon stock cannot be completed through the open market purchases describedabove, the Company’s Founding Stockholders have agreed to purchase from theCompany, in a private placement, units identical to the units offered hereby ata purchase price of $8.00 per unit until they have spent an aggregate of$10,000,000 in the open market purchases described above and this privatepurchase. The purchase of co-investment units will occur immediately prior tothe Company’s consummation of a business combination, which will not occuruntil after the signing of a definitive business combination agreement and theapproval of that business combination by a majority of the Company’s Public Stockholders. The warrants included in theco-investment units will be exercisable on a cashless basis.

 

On July 9,2009, a former potential target with which the Company had engaged inpreliminary discussions and due diligence filed an application before theShanghai Arbitration Commission seeking liquidated damages of $600,000, plusarbitration costs and attorney’s fees, for claims arising from the terminatednegotiations.  The Company believes thatsuch claim is without merit and that the Company has substantial defenses.  Richard Tan, the Company’s Chief ExecutiveOfficer, has agreed to indemnify and hold the Company harmless from any lossesor damages arising out of the arbitration proceeding or the costs of settlingthis matter.  The Company does notbelieve that it is probable that a loss contingency has been incurred, and hastherefore not recognized any related cost in its financial statements at June 30,2009.

 

**12.Registration Rights**

 

The holders of8,242,575 shares of common stock issued prior to the completion of the PublicOffering, the holders of the warrants to purchase 6,200,000 shares of commonstock underlying the Founder Warrants sold in the Private Placement, and theholders of co-investment units are entitled to registration rights covering theresale of their shares and the resale of their warrants and shares acquiredupon exercise of their warrants. The holders of the majority of these sharesare entitled to make up to two demands that the Company register their shares,warrants and shares that they are entitled to acquire upon the exercise ofwarrants. The holders of the majority of these shares can elect to exercisethese registration rights at any time after one year from the date of theconsummation of the Company’s initial business combination, subject to thetransfer restrictions imposed by the lock-up agreements. The holders of theFounder Warrants are also entitled to require the Company to register forresale the shares underlying the Founder Warrants when such warrants becomeexercisable by their terms. In addition, these stockholders have certain “piggy-back”registration rights on registration statements filed subsequent to the date onwhich these securities are released from the restrictions imposed by thelock-up agreements. The Company will bear the expenses incurred in connectionwith the filing of any such registration statements.

 

In the event thata registration statement is not effective at the time of exercise, the holderof such warrant shall not be entitled to exercise such warrant and in no eventwill the Company be required to net cash settle the warrant exercise.Consequently, the warrants may expire unexercised.

 

The unit purchaseoption and its underlying securities have been registered in the registrationstatement for the Public Offering; however, the option also grants holdersdemand and “piggy back” registration rights for periods of five and sevenyears, respectively, from the date of the Public Offering. These rights applyto all of the securities directly and indirectly issuable upon exercise of theunit purchase option. The Company will bear all fees and expenses attendant toregistering the securities issuable on exercise of the unit purchase option,other than underwriting commissions incurred and payable by the holders.

 

**13.Pending Transaction**

 

On June 1,2009, the Company, through its wholly-owned subsidiary, entered into aframework agreement with the government of Chongqing City in the People’sRepublic of China, or PRC, pursuant to which the Company was invited to makecontrolling investments in the ownership of up to three separate, newly-formedbusiness entities, each of which has been granted a business license to operatein the non-bank financial services industry targeting the needs of small andmedium sized enterprises, or SMEs, in the PRC. The framework agreement enablesthe Company to make the following investments: $85 million for an 

 

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approximately 85%interest in Chongqing Stone Tan Credit Guarantee Company, or CGC; $60 millionfor a 95% interest in Chongqing Stone Tan Financial Leasing Co., Ltd., or FLC;and $60 million for a 100% interest in Chongqing Stone Tan Small Business LoansCo., Ltd., or SLC.  The Company’s jointventure partner in both CGC and FLC will be Chongqing Yufu Assets Operation andManagement Co., Ltd., or Yufu, an investment firm formed by the Chongqinggovernment in 2004.  The Company intendsto fund its investments from proceeds remaining available from the trustaccount (after payment of expenses and redemption payments and other direct orindirect payments to purchase IPO shares from Public Stockholders who have indicated their intention tovote against the acquisition and seek redemption of their shares), as well asfrom proceeds of a contemplated private placement of the Company’s securitiesthat the Company hopes to consummate prior to the date of the special meetingof stockholders to approve such transaction. On****June 30, 2009, the Chongqing government granted an extension of theapplication deadline to fund the investment in the entities that hold thelicenses until October 15, 2009.****

 

If the Company’s security holders approve the proposals required tocomplete the acquisition and a minimum of $85 million of trust account andprivate placement funds are available, the Company will use all of such fundsto invest in CGC upon the initial closing, which initial closing must occurprior to October 15, 2009, the date on which the Company’s corporateexistence will cease if it fails to complete a business combination (the “Closing Deadline”). If at least $145 million of funds are available by the Closing Deadline, the Company will fund itsinterests in both CGC and FLC.  If atleast $205 million of funds are available by the Closing Deadline, the Company will also fundSLC.  In the event that the initialclosing of the transaction involves the funding of interests in less than allthree of the entities, the Company will continue its efforts to seek funding toenable it to complete the remaining investments within the time frames provided for inthe applicable agreements; however, it is possible that the Company will not beable to fund the purchase of interests in any additional entity following theinitial closing.  In such event, the Companywould seek to renegotiate the terms of its investment in the unfunded entity orentities with the Chongqing government; however, there can be no assurancesthat any such efforts would be successful.

 

The Company is also proposing that warrant holders approve an amendmentto certain terms of the warrants included in the units issued in the Company’sPublic Offering to provide for the warrants to become exercisable on theinitial closing, to increase the exercise price of the warrants from $5.50 pershare to $9.40 per share, and to extend the expiration date of the warrantsfrom October 15, 2011 to October 15, 2013. The approval of the warrant amendment by warrant holders is a conditionto the consummation of the transaction described above.

 

The transactionsresulting from the approval of the acquisition proposal will be accounted forunder U.S. GAAP and the financial statements will be presented in U.S.dollars.  Upon funding, the Company willconsolidate each such entity with its financial statements commencing on theclosing date and will also recognize noncontrolling interests in its financialstatements as appropriate.  All directcosts of these transactions will be charged to operations in the period thatsuch costs are incurred.

 

The transactionsdescribed above are subject to substantial risks, contingencies anduncertainties, including, among others, approval by the Company’s stockholdersand warrant holders of various proposals necessary to authorize and implementthe transactions described herein, all of which must be accomplished by the ClosingDeadline, compliancewith federal securities laws and regulations in the United States, compliancewith various laws and regulations in the PRC, and the availability ofsufficient funds.    Accordingly, therecan be no assurances that such transactions ultimately will occur, or that ifthese transaction do occur, that the contemplated business operations will besuccessful.

 

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**ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-LookingStatements**

 

ThisQuarterly Report on Form 10-Q includes forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended(the “Exchange Act”). We have based these forward-looking statements onour current expectations and projections about future events. These forward-lookingstatements are subject to known and unknown risks, uncertainties andassumptions about us that may cause our actual results, levels of activity,performance or achievements to be materially different from any future results,levels of activity, performance or achievements expressed or implied by suchforward-looking statements. In some cases, you can identify forward-lookingstatements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,”“anticipate,” “believe,” “estimate,” “continue,” or the negative of such termsor other similar expressions. Factors that might cause or contribute to such adiscrepancy include, but are not limited to, those described in our otherSecurities and Exchange Commission (“SEC”)filings.  References to “we”, “us”,“our” or the “Company” include Stone Tan China Acquisition Corp. and itswholly-owned subsidiary, Stone Tan China Acquisition (Hong Kong) CompanyLimited, except where the context requires otherwise.  The following discussion should be read inconjunction with our consolidated financial statements and related notesthereto included elsewhere in this report.

 

**Overview**

 

We were formed on January 24,2007 to serve as a vehicle to effect a merger, asset acquisition, stockexchange or other similar business combination, or control through contractualarrangements, an operating business having its primary operations in the People’sRepublic of China. Our initial business combination must be with a targetbusiness or businesses whose fair market value is at least equal to 80% of ournet assets at the time of such acquisition. Since our initial public offering,or IPO, in October 2007, we have been actively searching for a suitablebusiness combination candidate.

 

On June 1,2009, the Company, through its wholly-owned subsidiary, entered into aframework agreement with the government of Chongqing City in the People’sRepublic of China, or PRC, pursuant to which the Company was invited to makecontrolling investments in the ownership of up to three separate, newly-formedbusiness entities, each of which has been granted a business license to operatein the non-bank financial services industry targeting the needs of small andmedium sized enterprises, or SMEs, in the PRC. The framework agreement enablesthe Company to make the following investments: $85 million for an approximately 85% interest in Chongqing Stone TanCredit Guarantee Company, or CGC; $60 million for a 95% interest in ChongqingStone Tan Financial Leasing Co., Ltd., or FLC; and $60 million for a 100%interest in Chongqing Stone Tan Small Business Loans Co., Ltd., or SLC.  The Company’s joint venture partner in bothCGC and FLC will be Chongqing Yufu Assets Operation and Management Co., Ltd.,or Yufu, an investment firm formed by the Chongqing government in 2004.  The Company intends to fund its investmentsfrom proceeds remaining available from the trust account (after payment ofexpenses and redemption payments and other direct or indirect payments to purchaseIPO shares from holders who have indicated their intention to vote against theacquisition and seek redemption of their shares), as well as from proceeds of acontemplated private placement of the Company’s securities that the Companyhopes to consummate prior to the date of the special meeting of stockholders toapprove such transaction.  On June 30,2009, the Chongqing government granted an extension of the application deadlineto fund the investment in the entities that hold the licenses until October 15,2009.

 

If the Company’s securityholders approve the proposals required tocomplete the acquisition and a minimum of $85 million of trust account andprivate placement funds are available, the Company will use all of such fundsto invest in CGC upon the initial closing, which initial closing must occurprior to October 15, 2009, the date on which the Company’s corporateexistence will cease if it fails to complete a business combination.  This date is referred to as the initialclosing deadline.  If at least $145million of funds are available by the initial closing deadline, the Companywill fund its interests in both CGC and FLC. If at least $205 million of funds are available by the initial closingdeadline, the Company will also fund SLC. In the event that the initial closing of the transaction involves thefunding of interests in less than all three of the entities, the Company willcontinue its efforts to seek funding to enable it to complete the remainingacquisitions within the time frames provided for in the applicable agreements;however, it is possible that the Company will not be able to fund the purchaseof interests in any additional entity following the initial closing.  In such event, the Company would seek torenegotiate the terms of its investment in the unfunded entity or entities withthe Chongqing government; however, there can be no assurances that any suchefforts would be successful.

 

The Company is also proposing that warrant holdersapprove an amendment to certain terms of the warrants included in the unitsissued in the IPO to provide for the warrants to become exercisable on theinitial closing, to increase the exercise price of the warrants from $5.50 pershare to $9.40 per share, and to extend the expiration date of the warrantsfrom October 15, 2011 to October 15, 2013. The approval of the warrant amendment by warrant holders is a conditionto the consummation of the transaction described above.

 

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We are notpresently engaged in, and will not engage in, any substantive commercialbusiness until we consummate an initial transaction. We intend to utilize cashderived from the proceeds of our private placement and initial public offering,our capital stock, debt or a combination of cash, capital stock and debt, ineffecting a business combination.

 

**GoingConcern**

 

Our financialstatements have been prepared assuming that we will continue as a goingconcern.  Our amended and restatedcertificate of incorporation provides that if we are not able to complete abusiness combination by October 15, 2009, our corporate existence willcease, except for the process of winding up and liquidating.  We cannot assure our investors that we willbe able to consummate the proposed business combination by October 15,2009.  Our independent registered publicaccounting firm, in their report on our 2008 consolidated financial statements,have raised substantial doubt about our ability to continue as a goingconcern.  The condensed consolidatedfinancial statements as of and for the three months and six months ended June 30,2009 do not include any adjustments that might result from the outcome of thisuncertainty.

 

**CriticalAccounting Policies**

 

Management’sdiscussion and analysis of its financial condition and results of operationsare based upon our condensed consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States of America. Our financial statements reflect the selection andapplication of accounting policies, which require management to make estimatesand assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and the reported amounts of expensesduring the reporting period. See Note 3 to our condensed consolidated financialstatements, “Summary of Significant Accounting Policies,” for a detaileddiscussion of the critical accounting policies that currently affect ourfinancial condition and results of operations. Management bases its estimateson historical experience and on various other assumptions that are believed tobe reasonable under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions.

 

**Resultsof Operations for the Three Months Ended June 30, 2009 and 2008**

 

For the threemonths ended June 30, 2009, we had a net loss of approximately $459,000,comprised of interest income of approximately $103,700, less operating expensesof approximately $584,100, interest allocable to common shares subject topossible redemption of approximately $23,600, and an income tax benefit of$45,000. Operating expenses consisted of approximately $361,700 forprofessional fees, $52,700 for travel expenses, $31,900 for insurance, $96,500for other operating costs, and $41,300 for capital based taxes.

 

For the threemonths ended June 30, 2008, we had net income available to commonstockholders of approximately $643,000, comprised of interest income ofapproximately $1,924,500, less operating expenses of approximately $320,800,income tax expense of approximately $553,000, and interest allocable to commonshares subject to possible redemption of approximately $407,700. Operatingexpenses consisted of approximately $82,500 for professional fees, $100,000 fortravel expenses, $33,100 for insurance, $63,900 for other operating costs, and$41,300 for capital based taxes.

 

Commencing on October 15,2007 and ending upon the acquisition of a target business, we began incurring afee of $7,500 per month for office space and certain other additional servicesfrom Pacific Millennium, an affiliate of Mr. Tan, our Chief ExecutiveOfficer.  During each of the three monthsended June 30, 2009 and 2008, we incurred $22,500 of costs under thisagreement.

 

From time to timePacific Millennium makes payments on our behalf to third parties for expensesincurred by us in the pursuit of a potential business combination for which wereimburse Pacific Millennium.  Suchreimbursements amounted to approximately $117,800 and $144,100 during the threemonths ended June 30, 2009 and 2008, respectively.  Pacific Millennium does not receive anybenefit from these transactions.

 

**Resultsof Operations for the Six Month Period ended June 30, 2009 and 2008**

 

For the six monthsended June 30, 2009, we had a net loss of approximately $622,300,comprised of interest income of approximately $259,500, less operating expensesof approximately $933,200, interest allocable to common shares subject topossible redemption of approximately $43,600, and an income tax benefit of$95,000. Operating expenses consisted of approximately

 

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$562,200 for professionalfees, $72,200 for travel expenses, $65,000 for insurance, $151,300 for otheroperating costs, and $82,500 for capital based taxes.

 

For the six monthsended June 30, 2008, we had net income available to common stockholders ofapproximately $2,157,900, comprised of interest income of approximately$4,595,300, less operating expenses of approximately $532,000, income taxexpense of approximately $1,449,000, and interest allocable to common sharessubject to possible redemption of approximately $456,400. Operating expensesconsisted of approximately $169,300 for professional fees, $113,100 for travelexpenses, $66,300 for insurance, $104,800 for other operating costs, and$78,500 for capital based taxes.

 

Commencing on October 15,2007 and ending upon the acquisition of a target business, we began incurring afee of $7,500 per month for office space and certain other additional servicesfrom Pacific Millennium, an affiliate of Mr. Tan, our Chief ExecutiveOfficer.  During each of the six monthsended June 30, 2009 and 2008, we incurred $45,000 of costs under thisagreement.

 

From time to timePacific Millennium makes payments on our behalf to third parties for expensesincurred by us in the pursuit of a potential business combination for which wereimburse Pacific Millennium.  Suchreimbursements amounted to approximately $163,100 and $170,500 during the sixmonths ended June 30, 2009 and 2008, respectively.  Pacific Millennium does not receive anybenefit from these transactions.

 

**Liquidityand Capital Resources**

 

In October 2007,we consummated the IPO which result in net proceeds including the underwriters’over-allotment option and the private placement orFounder Warrants,after deducting certain offering expenses of approximately $9,592,000,including underwriting discounts of approximately $9,232,000, and the repaymentof the note payable to a stockholder of approximately $513,000, including accruedinterest, were approximately $259,857,000, of which approximately $259,746,000was deposited into the trust account. The remaining proceeds were depositedinto the Company’s operating account, which along with up to $3,300,000 ininterest earned on the funds in the trust account, have been available to be used by us to provide forbusiness, legal and accounting due diligence on prospective acquisitions andcontinuing general and administrative expenses.

 

As of June 30,2009, we had $989,641 available to us outside of the trust account, of whichthe trust account was due $27,196 resulting primarily from income tax refundsreceivable generated by income tax benefits realized during the three monthsended June 30,  2009, to fund ourworking capital requirements. However, we may not have sufficient fundsavailable to complete the proposed investment in the PRC entities (the “ProposedTransaction”). Insuch event, we would need to borrow funds from our insiders or others or seekfavorable payment terms with our professionals and we may not be successful inthese efforts.

 

We may use all orsubstantially all of the proceeds held in trust other than the deferred portionof the underwriter’s fee to fund the Proposed Transaction. In that event the proceeds held in thetrust account, as well as any other available funds exceed theamount invested in one or more of the PRC entities, they will be used to finance the operationsof the target business or businesses.

 

If we are unableto consummate the Proposed Transaction by October 15, 2009, we will be forced toliquidate. If we are forced to liquidate, the per share liquidation amount maybe less than the initial per unit offering price because of the underwritingcommissions and expenses related to our offering and because of the value ofthe warrants in the per unit offering price. Additionally, if third partiesmake claims against us, the offering proceeds held in the trust account couldbe subject to those claims, resulting in a further reduction to the per shareliquidation price. Under Delaware law, our stockholders who have receiveddistributions from us may be held liable for claims by third parties to theextent such claims are not been paid by us. Furthermore, our warrants willexpire worthless if we liquidate before the completion of a businesscombination.

 

**OffBalance-Sheet Arrangements**

 

We do not have anyoff-balance sheet arrangements.

 

**ContractualObligations**

 

We do not have anylong term debt, capital lease obligations, operating lease obligations, purchaseobligations or other long term liabilities.

 

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**ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

Market risk is thesensitivity of income to changes in interest rates (with respect to bothinterest income on the trust funds and interest expense on any future debtobligations), foreign exchange rates, commodity prices, equity prices, and othermarket-driven rates or prices.

 

We are not presentlyengaged in and, if we do not consummate a business combination prior to the initialclosing deadline,we may not engage in, any substantive commercial business.  We do not currently have any interest-bearingdebt.  Accordingly, we are not and, untilsuch time as we consummate a business combination that involves a debtcomponent, we will not be, exposed to risks associated with interest rates ondebt obligations, foreign exchange rates, commodity prices, equity prices, orother market-driven rates or prices.

 

The net proceeds of theIPO held in the trust account have been invested only in money market funds meetingcertain conditions under Rule 2a-7 promulgated under the InvestmentCompany Act of 1940. Although we believe that our risk is limited with respectto our exposure to money market funds, reductions in interest rates coulddecrease the amount of interest earned on the trust funds and thus negativelyimpact future earnings.  Fluctuations ininterest rates could be exacerbated in future periods as a result of thecurrent worldwide instability in the banking and credit markets.

 

**ITEM 4. CONTROLS ANDPROCEDURES**

** **

**Disclosurecontrols and procedures**

 

Asof June 30, 2009, our chief executive and principal financial officer hasevaluated the effectiveness of our disclosure controls and procedures asdefined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act andhas concluded that our disclosure controls and procedures were effective toensure that the information required to be disclosed by us in reports we fileor submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the rules and forms of theSEC, and that such information is accumulated and communicated to our chiefexecutive and principal financial officer as appropriate to allow timelydecisions regarding required disclosure.

 

**Changesin internal control over financial reporting**

 

Duringthe most recently completed fiscal quarter, there has been no change in ourinternal control over financial reporting that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II - OTHERINFORMATION**

** **

**ITEM 1. LEGAL PROCEEDINGS**

** **

On July 9,2009, a former potential target with which the Company had engaged inpreliminary discussions and due diligence filed an application before theShanghai Arbitration Commission seeking liquidated damages of $600,000, plusarbitration costs and attorney’s fees, for claims arising from the terminatednegotiations.  The Company believes thatsuch claim is without merit and that the Company has substantial defenses.  Richard Tan, the Company’s Chief ExecutiveOfficer, has agreed to indemnify and hold the Company harmless from any lossesor damages arising out of the arbitration proceeding or the costs of settlingthis matter.  The Company does notbelieve that it is probable that a loss contingency has been incurred, and hastherefore not recognized any related cost in its financial statements at June 30,2009.

 

**ITEM 1A. RISK FACTORS**

** **

There have been no material changes in the riskfactors the Company is exposed to from those risk factors which were previouslydisclosed in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008, as filed with the SEC.

 

**ITEM 2. UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

** **

**Recent Sales of UnregisteredSecurities**

 

We did not engage in thesale of any unregistered securities during the three months ended June 30,2009.

 

**Use of Proceeds**

 

On October 19, 2007,we consummated our initial public offering of 30,000,000 units. Each unitconsisted of one share of common stock, $.0001 par value per share, and onewarrant to purchase one share of common stock. On October 30, 2007, theunderwriters of the IPO exercised their over-allotment option to sell an additional2,970,300 units. We received aggregate gross proceeds of $240,000,000 from thesale of the units. The offering was registered under the Securities Act of1933, as amended, pursuant to a registration statement on Form S-1 (File No. 333-142729),which was declared effective by the SEC on October 15, 2007.

 

The underwriters of theIPO were Morgan Joseph & Co. Inc., Southwest Securities, Inc.,Maxim Group LLC, Brean Murray, Carret & Co., LLC, GunnAllen Financial, Inc.and Legend Merchant Group. Each of our units commenced trading its componentshare of common stock and warrant separately on November 7, 2007.

 

Immediately prior to theconsummation of the IPO, we sold 6,200,000 warrants, or Founder Warrants, to ourfounding stockholders for $1.00 per warrant foraggregate gross proceeds of $6,200,000.

 

The net proceeds from thesale of our units (including the underwriters’ over-allotment option) and the Founder Warrants, after deducting certain offeringexpenses of approximately $9,592,000, including underwriting discounts ofapproximately $9,232,000, and the repayment of the note payable to astockholder of approximately $513,000, including accrued interest, wereapproximately $259,857,000. Of this amount, approximately $259,746,000 is beingheld in the trust account and the remaining proceeds are being held outside ofthe trust account. The remaining proceeds, along with up to $3,300,000 ininterest earned on the funds in the trust account, have been available to be used by us to provide forbusiness, legal and accounting due diligence on prospective acquisitions andcontinuing general and administrative expenses.

 

No expenses of theoffering were paid to our officer and directors or any of their respectiveaffiliates. We did, however, repay an affiliate of our officer for a loan inthe principal amount of $500,000 made to us prior to the consummation of the IPO,together with interest at the rate of 4%.

 

On September 29,2008, all the funds held in the trust account were transferred into a moneymarket fund that is invested solely in U.S. treasuries.

 

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**Repurchases of Equity Securities**

 

None.

 

**ITEM 3. DEFAULTS UPONSENIOR SECURITIES**

** **

None.

 

**ITEM 4. SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

** **

None.

 

**ITEM 5. OTHER INFORMATION**

** **

None.

 

**ITEM 6. EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                   |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                              |
| 31.1                 |       | Certification  of the Principal Executive and Principal Accounting and Financial Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended.               |
| 32.1                 |       | Certification  of the Principal Executive and Principal Accounting and Financial Officer  pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002. |

 

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**Table of Contents**

 

**SIGNATURES**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 

 
|                  | STONE  TAN CHINA ACQUISITION CORP. |
|-----------------------|------------------------------------|
|                  |                               |   |
|                  |                               |   |
| August 10,  2009 | By:                                | /s/  Richard Tan |
|                  |                               | Richard  Tan |
|                  |                               | Chief  Executive Officer, President and Director |
|                  |                               | (Principal  Executive, Accounting and Financial Officer) |

 

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**Exhibit Index**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                   |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                              |
| 31.1                 |       | Certification  of the Principal Executive and Principal Accounting and Financial Officer  pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,  as amended.               |
| 32.1                 |       | Certification  of the Principal Executive and Principal Accounting and Financial Officer  pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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