**Table of Contents**

 

** **

 

**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, 2008.**                                                |

 

**  or**

 

| **o**      | ** ** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                                                                                                                                          |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | **For  the transition period from                               to                               .** |

** **

**CommissionFile Number: 000-52857**

** **

**STONE TAN CHINA ACQUISITION CORP.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                     | ** ** | **20-8387484**       |
|----------------------------------|------------|----------------------|
| (State or Other  Jurisdiction of |       | (I.R.S. Employer     |
| Incorporation or  Organization)  |       | Identification  No.) |

 

**Suite 1A, 11th Floor**

**Tower 1 China Hong Kong City**

**33 Canton Road Kowloon, Hong Kong**

(Address of Principal Executive Officesincluding Zip Code)

 

**852-27355493**

(Registrant’s Telephone Number, IncludingArea Code)

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x   No o

 

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

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes x            No  ̈

 

There were 41,212,875shares of the Registrant’s common stock issued and outstanding as of July 29,2008.

 

 

 

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**Stone TanChina Acquisition Corp.Index to Form 10-Q**

 
| **Part I.**  | **Financial Information**                                                                            |
|-------------------|------------------------------------------------------------------------------------------------------|
|              |                                                                                                 |
|              | Item  1. Financial Statements (unaudited)                                                            |
|              |                                                                                                 |
|              | Balance Sheets                                                                                       |
|              |                                                                                                 |
|              | Statements of Operations                                                                             |
|              |                                                                                                 |
|              | Statement of Stockholders’  Equity                                                              |
|              |                                                                                                 |
|              | Statements  of Cash Flows                                                                            |
|              |                                                                                                 |
|              | Notes to  Financial Statements                                                                       |
|              |                                                                                                 |
|              | Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |
|              |                                                                                                 |
|              | Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                  |
|              |                                                                                                 |
|              | Item 4T.  Controls and Procedures                                                                    |
|              |                                                                                                 |
| **Part II.** | **Other Information**                                                                                |
|              |                                                                                                 |
|              | Item 1. Legal  Proceedings                                                                           |
|              |                                                                                                 |
|              | Item  1A. Risk Factors                                                                               |
|              |                                                                                                 |
|              | Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 |
|              |                                                                                                 |
|              | Item 3.  Defaults Upon Senior Securities                                                             |
|              |                                                                                                 |
|              | Item 4.  Submission of Matters to a Vote of Security Holders                                         |
|              |                                                                                                 |
|              | Item 5. Other  Information                                                                           |
|              |                                                                                                 |
|              | Item  6. Exhibits                                                                                    |
|              |                                                                                                 |
| SIGNATURES        |                                                                                                 |

 

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**PART I - FINANCIAL INFORMATION**

** **

**ITEM1 – FINANCIAL STATEMENTS (UNAUDITED)**

** **

****STONE TAN CHINA ACQUISITION CORP.****

(a corporation in the development stage)

 

**CONDENSED BALANCE SHEETS**

 
| ** **                                                                                                                                                                   | ** ** | **June 30,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2008**          | ** **  | **2007**              | ** ** |
| ** **                                                                                                                                                                   | ** ** | **(Unaudited)**   | ** **  | ** **            | ** ** |
|                                                                                                                                                                         |       |              |        |                  |       |
| **ASSETS**                                                                                                                                                                   |       |              |        |                  |       |
| Current assets:                                                                                                                                                              |       |              |        |                  |       |
| Cash and cash equivalents                                                                                                                                                    |       | $                 | 2,568,498   |                  | $          | 1,214,280 |   |
| Money market funds - held in trust                                                                                                                                           |       | 260,924,467       |        | 260,800,695           |       |
| Prepaid expenses                                                                                                                                                             |       | 125,576           |        | 203,186               |       |
| Income tax refundable                                                                                                                                                        |       | 319,732           |        | —                |       |
| Total current assets                                                                                                                                                         |       | $                 | 263,938,273 |                  | $          | 262,218,161 |   |
|                                                                                                                                                                         |       |              |        |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                |       |              |        |                  |       |
| Current liabilities:                                                                                                                                                         |       |              |        |                  |       |
| Accounts payable and accrued expenses                                                                                                                                        |       | $                 | 96,339      |                  | $          | 109,459 |   |
| Deferred underwriting fees payable                                                                                                                                           |       | 9,231,684         |        | 9,231,684             |       |
| Deferred interest on funds held in trust                                                                                                                                     |       | 456,373           |        | —                |       |
| Income tax payable                                                                                                                                                           |       | —            |        | 881,000               |       |
| Total current liabilities                                                                                                                                                    |       | 9,784,396         |        | 10,222,143            |       |
|                                                                                                                                                                         |       |              |        |                  |       |
| 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                                                                                                                                                            |       | 3,700,763         |        | 1,542,904             |       |
| Total stockholders’ equity                                                                                                                                              |       | 178,845,104       |        | 176,687,245           |       |
| Total liabilities and stockholders’ equity                                                                                                                              |       | $                 | 263,938,273 |                  | $          | 262,218,161 |   |

 

**See accompanying notes to condensed financialstatements.**

 

 

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****STONE TAN CHINA ACQUISITION CORP.****

(a corporation in the development stage)

 

**CONDENSED STATEMENTS OF OPERATIONS(Unaudited)**

 
| ** **                                                                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six   Months  Ended  June 30,** | ** ** | **Period from   January 24, 2007   (Inception) to   June 30,** | ** ** | **Period from   January 24, 2007   (Inception) to  June 30,    2008** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2008**                                        | ** ** | **2007**                               | ** ** | **2008**                                                                                | ** ** | **  2007**                                                                                               | ** ** | **(Cumulative)** | ** ** |
|                                                                                          |       |                                            |       |                                   |       |                                                                                    |       |                                                                                                               |       |   |   |
| Revenue                                                                                       |       | $                                               | —     |                                   | $          | —                                                                                  |       | $                                                                                                                  | —     |   | $ | — |   | $ | — |   |
| Operating expenses                                                                            |       | 320,788                                         |       | —                                 |       | 532,050                                                                                 |       | 15,019                                                                                                             |       | 737,790 |   |
| Operating loss                                                                                |       | (320,788                                        | )          | —                                 |       | (532,050                                                                                | )          | (15,019                                                                                                            | )          | (737,790 | ) |
| Interest income                                                                               |       | 1,924,507                                       |       | 3,905                                  |       | 4,595,282                                                                               |       | 5,726                                                                                                              |       | 7,237,912 |   |
| Interest expense – stockholder                                                           |       | —                                          |       | (4,986                                 | )          | —                                                                                  |       | (6,904                                                                                                             | )          | (12,986 | ) |
| Income (loss) before provision for income  tax                                                |       | 1,603,719                                       |       | (1,081                                 | )          | 4,063,232                                                                               |       | (16,197                                                                                                            | )          | 6,487,136 |   |
| Provision for income tax                                                                      |       | 553,000                                         |       | —                                 |       | 1,449,000                                                                               |       | —                                                                                                             |       | 2,330,000 |   |
| Income (loss) before allocation of trust  account interest                                    |       | 1,050,719                                       |       | (1,081                                 | )          | 2,614,232                                                                               |       | (16,197                                                                                                            | )          | 4,157,136 |   |
| Allocation of trust account interest  relating to common stock subject to possible redemption |       | (407,705                                        | )          | —                                 |       | (456,373                                                                                | )          | —                                                                                                             |       | (456,373 | ) |
| Net income (loss) available to common  stockholders                                           |       | $                                               | 643,014    |                                   | $          | (1,081                                                                                  | )          | $                                                                                                                  | 2,157,859  |   | $ | (16,197 | ) | $ | 3,700,763 |   |
|                                                                                          |       |                                            |       |                                   |       |                                                                                    |       |                                                                                                               |       |   |   |
| Net income (loss) per common share —                                                     |       |                                            |       |                                   |       |                                                                                    |       |                                                                                                               |       |   |   |
| Basic                                                                                         |       | $                                               | 0.02       |                                   | $          | (0.00                                                                                   | )          | $                                                                                                                  | 0.05       |   | $ | (0.00 | ) |   |   |
| Diluted                                                                                       |       | $                                               | 0.01       |                                   | $          | (0.00                                                                                   | )          | $                                                                                                                  | 0.04       |   | $ | (0.00 | ) |   |   |
| Weighted average common shares outstanding  —                                            |       |                                            |       |                                   |       |                                                                                    |       |                                                                                                               |       |   |   |
| Basic                                                                                         |       | 41,212,875                                      |       | 8,625,000                              |       | 41,212,875                                                                              |       | 8,625,000                                                                                                          |       |   |   |
| Diluted                                                                                       |       | 51,104,642                                      |       | 8,625,000                              |       | 51,017,696                                                                              |       | 8,625,000                                                                                                          |       |   |   |

 

**See accompanying notes to condensed financialstatements.**

 

 

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****STONE TAN CHINA ACQUISITION CORP.****

(a corporation in the development stage)

 

**CONDENSED STATEMENT OF STOCKHOLDERS’EQUITY**

 
| ** **                                                                                                                    | ** ** | **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 six months ended June 30, 2008 (unaudited)                          |       | —                |       | —                  |       | —       |       | 2,157,859                     |       | 2,157,859 |   |
| Balance, June 30, 2008 (unaudited)                                                                                       |       | 41,212,875            |       | $                       | 4,121      |         | $          | 175,140,220                   |       | $ | 3,700,763 |   | $ | 178,845,104 |   |

 

**See accompanying notes to condensed financialstatements**.

 

 

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****STONE TAN CHINA ACQUISITION CORP.****

(a corporation in the development stage)

 

**CONDENSED STATEMENTS OF CASH FLOWS(Unaudited)**

 
| ** **                                                                                          | ** ** | **Six   Months   Ended   June 30,   2008** | ** ** | **Period from   January 24, 2007  (Inception) to   June 30,    2007** | ** ** | **Period from   January 24, 2007   (Inception) to   June 30, 2008   (Cumulative)** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Cash flows from operating activities                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Net income (loss)                                                                                   |       | $                                                                   | 2,157,859  |                                                                                                               | $          | (16,197                                                                                                                              | )          | $ | 3,700,763 |   |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities: |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Changes in operating assets and liabilities:                                                        |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| (Increase) decrease in -                                                                            |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Prepaid expenses                                                                                    |       | 77,610                                                              |       | (5,000                                                                                                             | )          | (125,576                                                                                                                             | )          |
| Income tax refundable                                                                               |       | (319,732                                                            | )          | —                                                                                                             |       | (319,732                                                                                                                             | )          |
| Increase (decrease) in -                                                                            |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Accounts payable and accrued expenses                                                               |       | (13,120                                                             | )          | —                                                                                                             |       | 96,339                                                                                                                               |       |
| Income tax payable                                                                                  |       | (881,000                                                            | )          | —                                                                                                             |       | —                                                                                                                               |       |
| Accrued interest payable to stockholder                                                             |       | —                                                              |       | 6,904                                                                                                              |       | —                                                                                                                               |       |
| Net cash provided by (used in) operating activities                                                 |       | 1,021,617                                                           |       | (14,293                                                                                                            | )          | 3,351,794                                                                                                                            |       |
|                                                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Cash flows from investing activities                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Increase in trust account from interest earned on funds held in trust                               |       | (4,092,346                                                          | )          | —                                                                                                             |       | (6,722,512                                                                                                                           | )          |
| Funds placed in trust account from offerings                                                        |       | —                                                              |       | —                                                                                                             |       | (259,745,716                                                                                                                         | )          |
| Withdrawals from trust account                                                                      |       | 4,424,947                                                           |       | —                                                                                                             |       | 6,000,134                                                                                                                            |       |
| Net cash provided by (used in) investing activities                                                 |       | 332,601                                                             |       | —                                                                                                             |       | (260,468,094                                                                                                                         | )          |
|                                                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Cash flows from financing activities                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Proceeds from initial sale of common stock                                                          |       | —                                                              |       | 25,000                                                                                                             |       | 25,000                                                                                                                               |       |
| Gross proceeds from private placement                                                               |       | —                                                              |       | —                                                                                                             |       | 6,200,000                                                                                                                            |       |
| Gross proceeds from public offering                                                                 |       | —                                                              |       | —                                                                                                             |       | 263,762,399                                                                                                                          |       |
| Payments of offering costs                                                                          |       | —                                                              |       | (237,488                                                                                                           | )          | (10,302,701                                                                                                                          | )          |
| Proceeds from underwriter’s purchase option                                                    |       | —                                                              |       | —                                                                                                             |       | 100                                                                                                                                  |       |
| Proceeds from stockholder loans                                                                     |       | —                                                              |       | 500,000                                                                                                            |       | 500,000                                                                                                                              |       |
| Repayment of stockholder loans                                                                      |       | —                                                              |       | —                                                                                                             |       | (500,000                                                                                                                             | )          |
| Net cash provided by financing activities                                                           |       | —                                                              |       | 287,512                                                                                                            |       | 259,684,798                                                                                                                          |       |
|                                                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Net increase in cash and cash equivalents                                                           |       | 1,354,218                                                           |       | 273,219                                                                                                            |       | 2,568,498                                                                                                                            |       |
| Balance at beginning of period                                                                      |       | 1,214,280                                                           |       | —                                                                                                             |       | —                                                                                                                               |       |
| Balance at end of period                                                                            |       | $                                                                   | 2,568,498  |                                                                                                               | $          | 273,219                                                                                                                              |       | $ | 2,568,498 |   |
|                                                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Cash paid for:                                                                                      |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| Interest                                                                                            |       | $                                                                   | 165        |                                                                                                               | $          | —                                                                                                                               |       | $ | 12,986 |   |
| Income taxes                                                                                        |       | $                                                                   | 2,649,732  |                                                                                                               | $          | —                                                                                                                               |       | $ | 2,649,732 |   |
|                                                                                                |       |                                                                |       |                                                                                                               |       |                                                                                                                                 |       |
| 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 |   |
| Fair value of unit purchase option issued to underwriters                                           |       | $                                                                   | —     |                                                                                                               | $          | —                                                                                                                               |       | $ | 7,689,369 |   |

 

**See accompanyingnotes to condensed financial statements.**

 

 

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**STONE TANCHINA ACQUISITION CORP.**

**(acorporation in the development stage)**

 

**NOTES TO CONDENSED FINANCIAL STATEMENTS(Unaudited)**

 

Three Months EndedJune 30, 2008 and 2007,Six Months Ended June 30, 2008 and the Period fromJanuary 24, 2007 (Inception) through June 30, 2007

 

**1. Basis of Presentation**

 

The financial statementsof Stone Tan China Acquisition Corp. (the “Company”) at June 30, 2008, forthe three months ended June 30, 2008 and 2007, for the six months ended June 30,2008, for the period from January 24, 2007 (inception) to June 30,2007, and for the period from January 24, 2007 (inception) to June 30,2008 (cumulative), are unaudited. In the opinion of management, all adjustments(including normal recurring adjustments) have been made that are necessary topresent fairly the financial position of the Company as of June 30, 2008,the results of its operations for the three months ended June 30, 2008 and2007, for the six months ended June 30, 2008, for the period from January 24,2007 (inception) to June 30, 2007, and for the period from January 24,2007 (inception) to June 30, 2008 (cumulative), and its cash flows for thesix months ended June 30, 2008, the period from January 24, 2007(inception) to June 30, 2007, and for the period from January 24,2007 (inception) to June 30, 2008 (cumulative). Operating results for theinterim periods presented are not necessarily indicative of the results to beexpected for a full fiscal year. The condensed balance sheet at December 31,2007 has been derived from the audited financial statements.

 

The statements andrelated notes have been prepared pursuant to the rules and regulations ofthe Securities and Exchange Commission. Accordingly, certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been omittedpursuant to such rules and regulations. These financial statements shouldbe read in conjunction with the financial statements and other informationincluded in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2007, as filed with Securities and Exchange Commission.

 

**2.****Organization and ProposedBusiness Operations**

 

The Company wasincorporated in Delaware on January 24, 2007 as a blank check companyformed for the purpose of acquiring, through a merger, stock exchange, assetacquisition or other similar business combination, or control throughcontractual arrangements, an operating business having its primary operationsin the People’s Republic of China.

 

At June 30, 2008,the Company had not yet commenced any business operations and is thereforeconsidered a “corporation in the development stage.”  All activity through June 30, 2008 isrelated to the Company’s formation, capital raising efforts (as describedbelow), and efforts to acquire a business. The Company is subject to the risksassociated with development stage companies. The Company has selected December 31as its fiscal year-end.

 

The Company’s ability toacquire an operating business was contingent upon obtaining adequate financialresources through a private placement in accordance with Regulation D under theSecurities Act of 1933, as amended (the “Private Placement”), and an initialpublic 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 “targetbusiness” 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.

 

**3. Summary of SignificantAccounting Policies**

 

***Cashand Cash Equivalents***

 

The Company considers allhighly liquid investments with an original maturity of three months or lesswhen purchased to be cash equivalents. Such cash and equivalents, at times, mayexceed federally insured limits. The Company maintains its accounts withfinancial institutions with high credit ratings.

 

 

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***IncomeTaxes***

 

The Company accounts forincome taxes pursuant to Statement of Financial Accounting Standards No. 109,“Accounting for Income Taxes” (“SFAS No. 109”), which establishesfinancial accounting and reporting standards for the effects of income taxesthat result from an enterprise’s activities during the current and precedingyears. SFAS No. 109 requires an asset and liability approach for financialaccounting and reporting for income taxes.

 

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109” (“FIN 48”), which provides criteria for therecognition, measurement, presentation and disclosure of uncertain taxpositions. A tax benefit from an uncertain position may be recognized only ifit is “more likely than not” that the position is sustainable based on itstechnical merits. The Company adopted the provisions of FIN 48 on January 24,2007 (inception).

 

***EarningsPer Common Share***

 

The Company computesearnings (loss) per common share (“EPS”) in accordance with SFAS No. 128, “Earningsper Share” and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS No. 128 requires companies withcomplex capital structures to present basic and diluted EPS.  Basic EPS is measured as the income (loss)available to common shareholders divided by the weighted average common sharesoutstanding for the period.  Diluted EPSis similar to basic EPS but presents the dilutive effect on a per share basisof potential common shares (e.g., convertible securities, options and warrants)as if they had been converted at the beginning of the periods presented, orissuance 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.

 

At June 30, 2008,potentially dilutive securities consisted of outstanding warrants and optionsto acquire an aggregate of 44,170,300 shares of common stock, as follows, ofwhich options to acquire 2,500,000 shares were anti-dilutive at such date.

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

 

Diluted weighted averagecommon shares outstanding utilizes the treasury stock method, and is based onthe average of the closing price of the Company’s common stock, as quoted onthe OTC Bulletin Board for the applicable period.

 

***Useof 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.

 

***FairValue of Financial Instruments***

 

The carrying amounts ofcash and cash equivalents, money market funds - held in trust, prepaidexpenses, accounts payable and accrued expenses, deferred underwriting feespayable, and income tax payable approximate their respective fair values, dueto the short-term nature of these items.

 

***Share-BasedPayments***

 

The Company accounts forshare-based payments pursuant to Statement of Financial Accounting Standards No. 123R,“Share-Based Payments” (“SFAS No. 123R”). SFAS No. 123R requires allshare-based payments, including grants of employee stock options to employees,to be recognized in the financial statements based on their fair values. TheCompany adopted SFAS No. 123R on January 24, 2007 (inception). TheCompany expects that SFAS No. 123R could have a material impact on theCompany’s financial statements to the extent that the Company grantsstock-based compensation in future periods.

 

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***DeferredInterest on Funds Held in Trust***

 

Deferred interest onfunds held in trust consists of the 30% less one share portion of the interestearned on the funds held in trust, reduced by certain permitted withdrawals,including income taxes, by the Company, which is the maximum amount that theCompany would be obligated to pay to stockholders who elect to have their stockredeemed by the Company without resulting in a rejection of a businesscombination.

 

***Adoptionof New Accounting Policies***

 

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157, “FairValue Measurements” (“SFAS No. 157”), which establishes a formal frameworkfor measuring fair value under Generally Accepted Accounting Principles (“GAAP”).SFAS No. 157 defines and codifies the many definitions of fair valueincluded among various other authoritative literature, clarifies and, in someinstances, expands on the guidance for implementing fair value measurements,and increases the level of disclosure required for fair valuemeasurements.  SFAS No. 157 appliesto all other accounting pronouncements requiring or permitting fair valuemeasurements, except for: SFAS No. 123R, share-based payment and relatedpronouncements, the practicability exceptions to fair value determinationsallowed by various other authoritative pronouncements, and AICPA Statements ofPosition 97-2 and 98-9 that deal with software revenue recognition.  The Company adopted SFAS No. 157 on January 1,2008.

 

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. Generallyaccepted accounting principles have required different measurement attributesfor different assets and liabilities that can create artificial volatility inearnings. SFAS No. 159 helps to mitigate this type of accounting-inducedvolatility by enabling companies to report related assets and liabilities atfair value, which would likely reduce the need for companies to comply withdetailed rules for hedge accounting. SFAS No. 159 also establishespresentation and disclosure requirements designed to facilitate comparisonsbetween companies that choose different measurement attributes for similartypes of assets and liabilities. SFAS No. 159 requires companies toprovide 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 requirescompanies to display the fair value of those assets and liabilities for whichthe Company has chosen to use fair value on the face of the balance sheet. SFASNo. 159 does not eliminate disclosure requirements included in otheraccounting standards, including requirements for disclosures about fair valuemeasurements included in SFAS No. 157 and SFAS No. 107.  The Company adopted SFAS No. 159 on January 1,2008.

 

The adoption of SFAS No. 157and SFAS No. 159 on January 1, 2008 did not have any effect on theCompany’s financial statement presentation or disclosures.

 

***RecentAccounting Pronouncements***

 

In December 2007,the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”),which requires an acquirer to recognize in its financial statements as of theacquisition date (i) the identifiable assets acquired, the liabilitiesassumed, and any noncontrolling interest in the acquiree, measured at theirfair values on the acquisition date, and (ii) goodwill as the excess ofthe consideration transferred plus the fair value of any noncontrollinginterest in the acquiree at the acquisition date over the fair values of theidentifiable net assets acquired. Acquisition-related costs, which are thecosts an acquirer incurs to effect a business combination, will be accountedfor as expenses in the periods in which the costs are incurred and the servicesare received, except that costs to issue debt or equity securities will berecognized in accordance with other applicable GAAP. SFAS No. 141(R) makessignificant amendments to other Statements and other authoritative guidance toprovide additional guidance or to conform the guidance in that literature tothat provided in SFAS No. 141(R). SFAS No. 141(R) also providesguidance as to what information is to be disclosed to enable users of financialstatements 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. Earlyadoption is prohibited. The adoption of SFAS No. 141(R) will affecthow the Company accounts for a business combination concluded after December 31,2008.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements — an amendment of ARB No. 51” (“SFAS No. 160”),which requires that ownership interests in subsidiaries held by parties otherthan the parent, and the amount of consolidated net income, be clearlyidentified, labeled and presented in the consolidated financialstatements.  SFAS No. 160 alsorequires that once a subsidiary is deconsolidated, any retained noncontrollingequity investment in the 

 

 

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former subsidiary beinitially measured at fair value. Sufficient disclosures are required to clearly identify and distinguishbetween the interests of the parent and the interests of the noncontrollingowners.  SFAS No. 160 amends FASB No. 128to provide that the calculation of earnings per share amounts in theconsolidated financial statements will continue to be based on the amountsattributable to the parent. SFAS No. 160 is effective for financialstatements issued for fiscal years, and interim periods within those fiscalyears, beginning on or after December 15, 2008, and requires retroactiveadoption of the presentation and disclosure requirements for existing minorityinterests.  All other requirements areapplied prospectively.  Early adoption isprohibited.  The Company does notcurrently anticipate that the adoption of SFAS No. 160 will have anyimpact on its financial statement presentation or disclosures.

 

In March 2008, theFASB issued SFAS No. 161, “Disclosures about Derivative Instruments andHedging Activities — an amendment of FASB Statement No. 133” (“SFAS No. 161”).  SFAS No. 161 amends and expands thedisclosure requirements of SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities” (“SFAS No. 133”). The objective ofSFAS No. 161 is to provide users of financial statements with an enhancedunderstanding of how and why an entity uses derivative instruments, howderivative instruments and related hedged items are accounted for under SFAS No. 133and its related interpretations, and how derivative instruments and relatedhedged items affect an entity’s financial position, financial performance, andcash 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. 161applies to all derivative financial instruments, including bifurcatedderivative instruments (and nonderivative instruments that are designed andqualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS No. 133)and related hedged items accounted for under SFAS No. 133 and its relatedinterpretations.  SFAS No. 161 alsoamends certain provisions of SFAS No. 131. SFAS No. 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early application encouraged.  SFAS No. 161 encourages, but does notrequire, comparative disclosures for earlier periods at initial adoption.  The Company does not currently anticipatethat the adoption of SFAS No. 161 will have any impact on its financialstatement presentation or disclosures.

 

**4. Private Placement and PublicOffering**

 

On October 19, 2007,the Company completed its Public Offering of 30,000,000 units at a price of$8.00 per unit. Each unit consisted of one share of the Company’s common stock,$0.0001 par value, and one redeemable common stock purchase warrant. Eachwarrant entitles the holder to purchase from the Company one share of commonstock at an exercise price of $5.50 per share commencing the later of thecompletion 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 paid theunderwriters 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) expectedvolatility of 45.3%, (2) risk-free interest rate of 4.2%, (3) expectedlife of 5 years, and (4) dividend rate of zero. The Company accounted forthe fair value of the unit purchase option as a cost of the Public Offering,resulting in a charge directly to additional paid-in capital, offset by anequal amount credited directly to additional paid-in capital. As a result, thenet increase in shareholders’ equity from the issuance of the unit purchase optionwas the $100 cash payment received by the Company. The option and warrantscould expire worthless 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 sharesredeemed for cash and in full if a business combination is not consummated, wasplaced in a trust account (the “Trust Account”) at Citi Smith Barney maintainedby Continental Stock Transfer & Trust Company, and invested until theearlier of (i) the consummation of the Company’s first businesscombination or (ii) the 

 

 

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liquidation of theCompany. However, up to $3,300,000 of the interest earned on the Trust Accountwill be released to the Company to fund working capital requirements as setforth in the Investment Management Trust Agreement. Therefore, unless and untila business 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 to purchase anadditional 2,970,300 units to cover over-allotments. In connection with theexercise 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.

 

The common stock andwarrants 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 purchased from the Company an aggregate of 6,200,000 warrants (the“Founder Warrants”) at $1.00 per warrant in a Private Placement. All FounderWarrants issued in the Private Placement were substantially identical to thewarrants in the units sold in the Public Offering, except that:  (i) subject to certain limitedexceptions, none of the Founder Warrants were transferable or salable untilafter the Company completes a business combination; and (ii) the FounderWarrants are not subject to redemption and are not exercisable on a cashlessbasis if held by the initial holders thereof. The $6,200,000 of proceeds fromthe sale of the Founder Warrants were added to the portion of the proceeds fromthe Public 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 public warrants of other blank check companies similar tothe Company, that the purchase price of $1.00 per Founder Warrant was not lessthan the approximate fair value of such warrants on the date of issuance.Therefore, the Company did not record compensation expense upon the sale of theFounder Warrants.

 

After the Company signs adefinitive agreement for the acquisition of a target business, it will submitsuch transaction for stockholder approval. In the event that holders of theshares sold in the Public Offering (the “Public Stockholders”) owning 30% ormore 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. All of the Company’sstockholders prior to the Offerings, including the officer and directors of theCompany (the “Initial Stockholders”), have agreed to vote their 8,625,000founding shares of common stock in accordance with the vote of the majority ofshares purchased in the Public Offering with respect to any businesscombination and to vote any shares they acquire in the Public Offering, or inthe aftermarket, in favor of the business combination. After consummation ofthe Company’s first business combination, all of these voting safeguards willno longer be applicable.

 

With respect to the firstbusiness combination which is approved and consummated, any Public Stockholderswho voted against the business combination may demand that the Company redeemtheir shares for a pro rata share of the Trust Account (inclusive of a pro rataportion of the contingent underwriting compensation of $0.28 per share).Accordingly, Public Stockholders holding one share less than 30% of theaggregate number of shares sold in the offerings may seek redemption of theirshares 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, twenty-four months from the effective date of the Public Offering,without stockholder approval, unless the duration is extended or made permanentby an amendment to the Certificate of Incorporation authorized by the vote ofholders of a majority of all outstanding shares entitled to vote.

 

**5. Money Market Funds — Held InTrust**

 

Money market funds – heldin trust at June 30, 2008 and December 31, 2007, consist of aninvestment in Citi Institutional Liquid Reserves Class A Funds with marketvalues of $260,924,467 and $260,800,695, respectively, and annualized taxableyields of 

 

 

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2.73% and 4.94%,respectively.  The money market fundinvests only in high quality, short-term money market instruments denominatedin United States dollars.  Theseinvestments may include obligations of United States and non-United Statesbanks; commercial paper and asset-backed securities; short-term obligations ofthe United States government and its agencies and instrumentalities, andrepurchase agreements for these obligations; and obligations issued orguaranteed by the governments of Western Europe, Australia, Japan andCanada.  Certain portions of thisinvestment fund may not be covered by insurance.

 

**6. Note Payable to Stockholder**

 

On February 27,2007, the Company issued an unsecured promissory note of $500,000 to one of itsInitial 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.

 

**7. 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 Initial 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 Initial Stockholders. In May 2007,the Company effected a 1.15-for-one stock split in the form of a stockdistribution, which resulted in the issuance of an additional 468,750 shares toits Initial 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 Initial 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 InitialStockholders. 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 Initial Stockholders. The Company’sfinancial statements give retroactive effect to such stock splits.

 

On December 3, 2007,the Initial Stockholders surrendered for cancellation, for no consideration,382,425 shares of common stock so as to ensure that the number of shares theyheld prior to the Public Offering, exclusive of shares underlying the FounderWarrants, equaled 20% of the outstanding shares of common stock after thePublic Offering and the exercise of the underwriters’ over-allotment option.

 

In the event that holdersof more than 20% of the shares of common stock sold in the Public Offeringelect to redeem their shares, the Company’s Initial 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 (without regard to any openmarket or co-investment unit purchases by the Company’s Initial Stockholders asdescribed in Note 10).

 

**8. Preferred Stock**

 

The Company is authorizedto issue 1,000,000 shares of preferred stock with a par value $0.0001 pershare, with such designations, voting and other rights and preferences, as maybe determined from time to time by the Board of Directors.

 

**9. Income Taxes**

 

The provision for incometax consists of U.S. federal income tax currently payable. The Company has itsexecutive office in Hong Kong and accordingly is not subject to state incometax.

 

Deferred income taxesreflect 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 30,2008 and December 31, 2007 consist of start-up and organizationcosts.  Start-up costs must be deferreduntil the Company actively commences business operations, at which time theymay be written off over a 180-month period. Organization costs must be deferred and written off over a 180-month periodstarting with the date that the Company is formed.  Because of the uncertainty associated withthe realization of the Company’s deferred tax assets, a 100% valuationallowance has been recorded.

 

 

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**10.Commitments and Contingencies**

 

TheCompany will not proceed with a business combination if Public Stockholdersowning 30% or more of the shares sold in the Public Offering vote against thebusiness combination and exercise their redemption rights. Accordingly, theCompany may effect a business combination if Public Stockholders owning up toone share less than 30% of the aggregate shares sold in the Public Offeringexercise their redemption rights. If this occurred, the Company would berequired to redeem for cash up to one share less than 30% of the 32,970,300shares of common stock included in the units, or 9,891,089 shares of commonstock, at an expected initial per share redemption price of $7.88. However, theability of stockholders to receive $7.88 per unit is subject to any validclaims by the Company’s creditors which are not covered by amounts held in theTrust Account or the indemnities provided by the Company’s officers anddirectors. The expected redemption price per share is greater than eachstockholder’s initial pro rata share of the Trust Account of approximately$7.60 per share. Of the excess redemption price, approximately $0.28 per sharerepresents a portion of the underwriters’ contingent fee, which they haveagreed to forego for each share that is redeemed. Accordingly, the totaldeferred underwriting compensation payable to the underwriters in the event ofa business combination will be reduced by approximately $0.28 for each sharethat is redeemed. The balance will be paid from proceeds held in the TrustAccount, which are payable to the Company upon consummation of a businesscombination. Even if less than 30% of the stockholders exercise theirredemption rights, the Company may be unable to consummate a businesscombination if such redemption leaves the Company with funds insufficient toacquire or merge with a business with a fair market value greater than 80% ofthe Company’s net assets at the time of such acquisition, which would be inviolation of a condition to the consummation of the Company’s initial businesscombination, and as a consequence, the Company may be forced to find additionalfinancing to consummate such a business combination, consummate a differentbusiness combination or liquidate.

 

TheCompany’s Initial Stockholders will enter into an agreement with Morganpursuant to which they will place limit orders to purchase up to an aggregateof $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 Initial Stockholders and Morgan in suchamounts and at such times as such broker-dealer may determine, in its solediscretion, so long as the purchase price does not exceed the above-referencedper share purchase price. The Company’s Initial Stockholders have agreed tovote any such shares of common stock purchased in the open market in favor ofthe Company’s initial business combination, representing a possible maximumaggregate of 4.2% of the public shares entitled to vote on the businesscombination. They have agreed not to sell such shares unless a businesscombination is approved by the Company’s stockholders; however, they will beentitled to participate in any liquidating distributions with respect to theshares purchased in the open market if the business combination is notcompleted and the Company dissolves.

 

Inthe event purchases of $10,000,000 of the Company’s common stock cannot becompleted through the open market purchases described above, the Company’sInitial Stockholders have agreed to purchase from the Company, in a privateplacement, units identical to the units offered hereby at a purchase price of$8.00 per unit until they have spent an aggregate of $10,000,000 in the openmarket purchases described above and this private purchase. The purchase ofco-investment units will occur immediately prior to the Company’s consummationof a business combination, which will not occur until after the signing of adefinitive business combination agreement and the approval of that businesscombination by a majority of the Company’s public stockholders. The warrantsincluded in the co-investment units will be exercisable on a cashless basis.

 

TheCompany has agreed to pay Pacific Millennium Investment Corporation, anaffiliate 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.

 

**11.Registration Rights**

 

Theholders of 8,242,575 shares 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 

 

 

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theseshares can elect to exercise these registration rights at any time after oneyear from the date of the consummation of the Company’s initial businesscombination, subject to the transfer restrictions imposed by the lock-upagreements. The holders of the Founder Warrants are also entitled to requirethe Company to register for resale the shares underlying the Founder Warrantswhen such warrants become exercisable by their terms. In addition, thesestockholders have certain “piggy-back” registration rights on registrationstatements filed subsequent to the date on which these securities are releasedfrom the restrictions imposed by the lock-up agreements. The Company will bearthe expenses incurred in connection with the filing of any such registrationstatements.

 

Inthe event that a registration statement is not effective at the time ofexercise, the holder of such warrant shall not be entitled to exercise suchwarrant and in no event will the Company be required to net cash settle thewarrant exercise. Consequently, the warrants may expire unexercised.

 

Theunit purchase option and its underlying securities have been registered in theregistration statement for the Public Offering; however, the option also grantsholders demand and “piggy back” registration rights for periods of five andseven years, respectively, from the date of the Public Offering. These rightsapply to all of the securities directly and indirectly issuable upon exerciseof the option. The Company will bear all fees and expenses attendant toregistering the securities issuable on exercise of the option, other thanunderwriting commissions incurred and payable by the holders.

 

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**ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

** **

**ForwardLooking Statements**

 

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. We have based theseforward-looking statements on our current expectations and projections aboutfuture events. These forward-looking statements are subject to known andunknown risks, uncertainties and assumptions about us that may cause our actualresults, levels of activity, performance or achievements to be materially differentfrom any future results, levels of activity, performance or achievementsexpressed or implied by such forward-looking statements. In some cases, you canidentify forward-looking statements by terminology such as “may,” “should,” “could,”“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” orthe negative of such terms or other similar expressions. Factors that mightcause or contribute to such a discrepancy include, but are not limited to,those described in our other Securities and Exchange Commission filings. Thefollowing discussion should be read in conjunction with our FinancialStatements and related Notes thereto included elsewhere in this report.

 

**Overview**

 

We were formed on January 24, 2007 to serve as a vehicle to effecta merger, asset acquisition, stock exchange or other similar businesscombination, or control through contractual arrangements, an operating businesshaving its primary operations in the People’s Republic of China. Our initialbusiness combination must be with a target business or businesses whose fairmarket value is at least equal to 80% of our net assets at the time of suchacquisition. Since our offering, we have been actively searching for a suitablebusiness combination candidate. We currently have not entered into anydefinitive agreement with any potential target businesses. We are not presentlyengaged in, and will not engage in, any substantive commercial business untilwe consummate an initial transaction. We intend to utilize cash derived from theproceeds of our recently completed private placement and initial publicoffering, our capital stock, debt or a combination of cash, capital stock anddebt, in effecting a business combination.

 

We cannot assure investors that we will find a suitable businesscombination in the allotted time.

 

**CriticalAccounting Policies**

 

Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofexpenses during the reporting period. Actual results could differ from thoseestimates.

 

*Share-Based Payments*

 

Weaccount for share-based payments pursuant to Statement of Financial AccountingStandards No. 123R, “Share-Based Payments” (“SFAS No. 123R”). SFAS123R requires all share-based payments, including grants of stock options toemployees, to be recognized in the financial statements based on their fairvalues. We adopted SFAS 123R on January 24, 2007 (inception) and expectthat it could have a material impact on our financial statements to the extentwe grant stock-based compensation in future periods.

 

*Deferred Interest on Funds Held in Trust*

 

Deferredinterest on funds held in the trust account consists of the 30% less one shareportion of the interest earned on the funds held in trust reduced by certainpermitted withdrawals, including income taxes, by us, which is the maximumamount that we would be obligated to pay to stockholders who elect to havetheir stock redeemed by us without resulting in a rejection of a businesscombination.

 

*Income Taxes*

 

Weaccount for income taxes pursuant to Statement of Financial Accounting StandardsNo. 109, “Accounting for Income Taxes (“SFAS 109”), which establishesfinancial accounting and reporting standards for the effects of income taxesthat result from an 

 

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enterprise’sactivities during the current and preceding years. SFAS 109 requires an assetand liability approach for financial accounting and reporting for income taxes.

 

InJuly 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109” (“FIN 48”), which providescriteria for the recognition, management, presentation and disclosure ofuncertain tax positions. A tax benefit from an uncertain position may berecognized only if it is “more likely than not” that the position issustainable based on its technical merits. We adopted the provisions of FIN 48 onJanuary 24, 2007 (inception).

 

**RecentAccounting Pronouncements**

 

InDecember 2007, the FASB issued SFAS No. 141(R), “BusinessCombinations” (“SFAS No. 141(R)”), which requires an acquirer to recognizein its financial statements as of the acquisition date (i) theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree, measured at their fair values on the acquisitiondate, and (ii) goodwill as the excess of the consideration transferredplus the fair value of any noncontrolling interest in the acquiree at theacquisition date over the fair values of the identifiable net assets acquired.Acquisition-related costs, which are the costs an acquirer incurs to effect abusiness combination, will be accounted for as expenses in the periods in whichthe costs are incurred and the services are received, except that costs toissue debt or equity securities will be recognized in accordance with otherapplicable GAAP. SFAS No. 141(R) makes significant amendments toother Statements and other authoritative guidance to provide additionalguidance or to conform the guidance in that literature to that provided in SFASNo. 141(R). SFAS No. 141(R) also provides guidance as to whatinformation is to be disclosed to enable users of financial statements toevaluate the nature and financial effects of a business combination. SFAS No. 141(R) iseffective for financial statements issued for fiscal years beginning on orafter December 15, 2008. Early adoption is prohibited. The adoption ofSFAS No. 141(R) will affect how the Company accounts for a businesscombination concluded after December 31, 2008.

 

InDecember 2007, the FASB issued SFAS 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. 160also requires that once a subsidiary is deconsolidated, any retainednoncontrolling equity investment in the former subsidiary be initially measuredat fair value.  Sufficient disclosuresare required to clearly identify and distinguish between the interests of theparent and the interests of the noncontrolling owners.  SFAS No. 160 amends FASB No. 128 toprovide that the calculation of earnings per share amounts in the consolidatedfinancial statements will continue to be based on the amounts attributable tothe parent. SFAS No. 160 is effective for financial statements issued forfiscal years, and interim periods within those fiscal years, beginning on orafter December 15, 2008, and requires retroactive adoption of thepresentation and disclosure requirements for existing minority interests.  All other requirements are appliedprospectively.  Early adoption isprohibited.  The Company does notcurrently anticipate that the adoption of SFAS No. 160 will have an impacton its financial statement presentation or disclosures.

 

InMarch 2008, the FASB issued SFAS No. 161, “Disclosures aboutDerivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133”(“SFAS No. 161”).  SFAS No. 161amends and expands the disclosure requirements of SFAS No. 133, “Accountingfor Derivative 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 requires qualitativedisclosures about objectives and strategies for using derivatives, quantitativedisclosures about fair value amounts of and gains and losses on derivativeinstruments, and disclosures about credit-risk-related contingent features inderivative agreements.  SFAS No. 161applies to all derivative financial instruments, including bifurcatedderivative instruments (and nonderivative instruments that are designed andqualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS No. 133)and related hedged items accounted for under SFAS No. 133 and its relatedinterpretations.  SFAS No. 161 alsoamends certain provisions of SFAS No. 131. SFAS No. 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early application encouraged.  SFAS No. 161 encourages, but does notrequire, comparative disclosures for earlier periods at initial adoption.  The Company does not currently anticipatethat the adoption of SFAS No. 161 will have any impact on its financialstatement presentation or disclosures.

 

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**Results ofOperations for the Three Month Period ended June 30, 2008**

** **

For the threemonth period ended June 30, 2008, we had net income of approximately$643,000, derived from interest income less operating expenses of approximately$321,000, income taxes of approximately $553,000, and interest allocable toshares subject to redemption of approximately $408,000.

 

For the threemonth period ended June 30, 2008, we incurred approximately $100,000 oftravel expenses, $82,000 for professional fees, $33,000 for insurance, $65,000for other operating costs, $41,000 of costs related to capital based taxes,$553,000 related to income based taxes, and interest income of $1,925,000.

 

**Results ofOperations for the Six Month Period ended June 30, 2008**

** **

For the six monthperiod ended June 30, 2008, we had net income of approximately $2,158,000,derived from interest income less operating expenses of approximately $532,000,income taxes of approximately $1,449,000, and interest allocable to sharessubject to redemption of approximately $456,000.

 

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. In addition, on February 27, 2007, we issued an unsecuredpromissory note of $500,000 to one of our initial stockholders. The note, whichbore interest at the rate of 4% per annum, was paid on October 19, 2007.

 

For the six monthperiod ended June 30, 2008, we incurred approximately $113,000 of travelexpenses, $169,000 for professional fees, $66,000 for insurance, $105,000 forother operating costs, $79,000 of costs related to capital based taxes,$1,449,000 related to income based taxes, and interest income of $4,595,000.

 

**Liquidity andCapital Resources**

** **

On October 19,2007, we consummated our initial public offering of 30,000,000 units. Each unitconsists of one share of common stock and one redeemable common stock purchasewarrant. Immediately prior to the consummation of our initial public offering,we sold 6,200,000 warrants to the Company’s founding stockholders for $1.00 perwarrant. Each warrant entitles the holder to purchase from us one share of ourcommon stock at an exercise price of $5.50. On October 30, 2007, theunderwriters exercised their over-allotment option and purchased an additional2,970,300 Units. Our common stock and warrants started trading separately as ofNovember 7, 2007.

 

The net proceedsfrom the sale of our units (including the underwriters’ over-allotment option)and the insider warrants, after deducting certain offering expenses ofapproximately $9,592,000, including underwriting discounts of approximately$9,232,000, and the repayment of the note payable to a stockholder ofapproximately $513,000, including accrued interest, were approximately$259,875,000. Of this amount, approximately $259,746,000 is being held in thetrust account and the remaining proceeds are being held outside of the trustaccount. The remaining proceeds, along with up to $3,300,000 in interest earnedon the funds in the trust account, are available to be used by us to providefor business, legal and accounting due diligence on prospective acquisitionsand continuing general and administrative expenses. We will use substantiallyall of the net proceeds of the offering to acquire a target business, includingidentifying and evaluating prospective acquisition candidates, selecting thetarget business, and structuring, negotiating and consummating a businesscombination. To the extent that our capital stock is used in whole or in partas consideration to effect a business combination, the proceeds held in thetrust account, as well as any other net proceeds not expended, will be used tofinance the operations of the target business. Including the $3,300,000 ininterest available to us, we believe we will have sufficient available fundsoutside of the trust account to operate through October 15, 2009, assumingthat a business combination is not consummated during that time.

 

From now until theearlier of October 15, 2009 or the date when we complete a businesscombination, we currently anticipate incurring expenses for the followingpurposes:

 

·                  legal,accounting and other expenses attendant to due diligence investigations,structuring and negotiation of a business combination;

 

·                  duediligence of prospective target businesses;

 

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·                  legaland accounting fees relating to our Securities and Exchange Commissionreporting obligations and general corporate matters;

 

·                  administrativefees ($7,500 per month);

 

·                  workingcapital, director and officer liability insurance premiums and reserves(including potential deposits, down payments or funding of a “no-shop”provision in connection with a particular business combination and dissolutionobligations and reserves, if any).

 

We may use all orsubstantially all of the proceeds held in trust other than the deferred portionof the underwriter’s fee to acquire one or more target businesses. We may notuse all of the proceeds held in the trust account in connection with a businesscombination, either because the consideration for the business combination isless than the proceeds in trust or because we finance a portion of theconsideration with capital stock or debt securities that we can issue. In thatevent, the proceeds held in the trust account as well as any other net proceedsnot expended will be used to finance the operations of the target business orbusinesses. The operating businesses that we acquire in such businesscombination must have, individually or collectively, a fair market value equalto at least 80% of our net assets at the time of such acquisition. If weconsummate multiple business combinations that collectively have a fair marketvalue of 80% of our net assets, then we would require that such transactionsare consummated simultaneously.

 

If we are unableto find a suitable target business by October 15, 2009, we will be forcedto liquidate. If we are forced to liquidate, the per share liquidation amountmay be less than the initial per unit offering price because of theunderwriting commissions and expenses related to our offering and because ofthe value of the warrants in the per unit offering price. Additionally, ifthird parties make claims against us, the offering proceeds held in the trustaccount could be subject to those claims, resulting in a further reduction tothe per share liquidation price. Under Delaware law, our stockholders who havereceived distributions from us may be held liable for claims by thirdparties to the extent such claims are not been paid by us. Furthermore, ourwarrants will expire worthless if we liquidate before the completion of abusiness combination.

 

**Off-Balance Sheet Arrangements**

 

We do not have nothave any off-balance sheet arrangements.

 

**Contractual Obligations**

 

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

 

**ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

Marketrisk is the sensitivity of income to changes in interest rates, foreignexchanges, commodity prices, equity prices, and other market-driven rates orprices. We are not presently engaged in and, if a suitable business target isnot identified by us prior to the prescribed liquidation date of the trustfund, we may not engage in, any substantive commercial business. Accordingly,we are not and, until such time as we consummate a business combination, wewill not be, exposed to risks associated with foreign exchange rates, commodityprices, equity prices or other market-driven rates or prices. The net proceedsof our initial public offering held in the trust fund have been invested onlyin money market funds meeting certain conditions under Rule 2a-7promulgated under the Investment Company Act of 1940. Given our limited risk inour exposure to money market funds, we do not view the interest rate risk to besignificant.

 

**ITEM4T. CONTROLS AND PROCEDURES**

** **

Anevaluation of the effectiveness of our disclosure controls and procedures as ofJune 30, 2008 was made under the supervision and with the participation ofour management, including our chief executive and principal financial officer.Based on that evaluation, they concluded that our disclosure controls andprocedures are effective as of the end of the period covered by this report toensure that information required to be disclosed by us in reports that we fileor submit under the Securities Exchange Act of 1934 is recorded, processed,summarized and reported within the time periods specified in Securities andExchange Commission rules and forms. During the most recently completedfiscal quarter, there has been no significant change in our internal controlover financial reporting that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

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Pursuantto Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning withour Annual Report on Form 10-K for the fiscal year ending December 31,2008, we will be required to furnish a report by our management on our internalcontrol over financial reporting. This report will contain, among othermatters, an assessment of the effectiveness of our internal control overfinancial reporting as of the end of our fiscal year, including a statement asto whether or not our internal control over financial reporting is effective.This assessment must include disclosure of any material weaknesses in ourinternal control over financial reporting identified by management. If weidentify one or more material weaknesses in our internal control over financialreporting, we will be unable to assert our internal control over financialreporting is effective.

 

Managementacknowledges its responsibility for internal controls over financial reportingand seeks to continually improve those controls. In order to achieve compliancewith Section 404 of the Act within the prescribed period, we are currentlyperforming the system and process documentation and evaluation needed to complywith Section 404, which is both costly and challenging. We believe ourprocess, which began in 2007 and continues in 2008 for documenting, evaluatingand monitoring our internal control over financial reporting is consistent withthe objectives of Section 404 of the Act.

 

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**PART II - OTHER INFORMATION**

** **

**ITEM1. LEGAL PROCEEDINGS**

** **

None.

 

**ITEM1A. RISK FACTORS**

** **

We are notrequired to respond to this item because we are a smaller reporting company.

 

**ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

** **

**RecentSales of Unregistered Securities**

 

Wedid not engage in the sale of any unregistered securities during the threemonths ended June 30, 2008.

 

**Use ofProceeds**

 

OnOctober 19, 2007, we consummated our initial public offering of 30,000,000units. Each unit consisted of one share of common stock, $.0001 par value pershare, and one warrant to purchase one share of common stock. On October 30,2007, the underwriters of our initial public offering exercised theirover-allotment option to sell an additional 2,970,300 units. We receivedaggregate gross proceeds of $240,000,000 from the sale of the units. Theoffering was registered under the Securities Act of 1933, as amended, pursuantto a registration statement on Form S-1 (File No. 333-142729), whichwas declared effective by the Securities and Exchange Commission on October 15,2007.

 

Theunderwriters of the offering were Morgan Joseph & Co. Inc., SouthwestSecurities, Inc., Maxim Group LLC, Brean Murray, Carret & Co.,LLC, GunnAllen Financial, Inc., Legend Merchant Group. Each of our unitscommenced trading its component share of common stock and warrant separately onNovember 7, 2007.

 

Immediatelyprior to the consummation of our initial public offering, we sold 6,200,000warrants to the Company’s founding stockholders for $1.00 per warrant foraggregate gross proceeds of $6,200,000.

 

Thenet proceeds from the sale of our units (including the underwriters’over-allotment option) and the insider warrants, after deducting certainoffering expenses of approximately $9,592,000, including underwriting discountsof approximately $9,232,000, and the repayment of the note payable to astockholder of approximately $513,000, including accrued interest, wereapproximately $259,875,000. 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, are available to be used byus to provide for business, legal and accounting due diligence on prospectiveacquisitions and continuing general and administrative expenses.

 

Noexpenses of the offering were paid to our officer and directors or any of theirrespective affiliates. We did, however, repay an affiliate of our officer for aloan in the principal amount of $500,000 made to us prior to the consummation of the initial public offering,together with. interest at the rate of 4%.

 

Allthe funds held in the trust account have been invested in either Treasury Billsor Money Market Accounts.

 

**Repurchasesof Equity Securities**

 

None

 

**ITEM3. DEFAULTS UPON SENIOR SECURITIES**

** **

None.

 

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**ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

** **

None.

 

**ITEM5. OTHER INFORMATION**

** **

None.

 

**ITEM6. EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                          |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                     |
| 31.1                 |       | Certification of the Chief Executive Officer  (Principal Executive Officer) pursuant to Rule 13a-14(a) of the  Securities Exchange Act, as amended.                                            |
| 32.1                 |       | Certification of the Principal Executive Officer and  Principal Financial and Accounting 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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**SIGNATURES**

** **

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 
|                | STONE TAN CHINA ACQUISITION CORP. |
|---------------------|-----------------------------------|
|                |                              |
|                |                              |
| August 4, 2008 | By:                               | /s/ Richard Tan |
|                |                              |   |
|                |                              | Richard Tan |
|                |                              | Chief Executive Officer, President and Director   (Principal Executive and Principal Financial and   Accounting Officer) |

 

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**Exhibit Index**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                          |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                     |
| 31.1                 |       | Certification of the Chief Executive Officer  (Principal Executive Officer) pursuant to Rule 13a-14(a) of the  Securities Exchange Act, as amended.                                            |
| 32.1                 |       | Certification of the Principal Executive Officer and  Principal Financial and Accounting 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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