** **

**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 March 31, 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                               .** |

** **

**Commission File Number:000-52857**

** **

**STONE TAN CHINA ACQUISITION CORP.**

(Exactname of registrant as specified in its charter)

 

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

 

**Suite 1A,11th Floor**

**Tower 1China Hong Kong City**

**33Canton Road Kowloon, Hong Kong**

(Addressof Principal Executive Offices including Zip Code)

 

**852-27355493**

(Registrant’sTelephone Number, Including Area 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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer  o                     |   | Accelerated filer o          |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated filer o                        |   | Smaller reporting  company x |
| (Do not check if a  smaller reporting company) |   |                              |

 

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

 

There were 41,212,875shares of the Registrant’s common stock issued and outstanding as of May 13,2008.

 

 

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** **

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

 
| **Part I.**  | **Financial Information**                                                                           | 3      |
|-------------------|-----------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                |   |
|              | Item 1.  Financial Statements (unaudited)                                                           | 3      |
|              |                                                                                                |   |
|              | Balance Sheets                                                                                      | 3      |
|              |                                                                                                |   |
|              | Statements of  Operations                                                                           | 4      |
|              |                                                                                                |   |
|              | Statement of  Stockholders’ Equity                                                             | 5      |
|              |                                                                                                |   |
|              | Statement of Cash  Flows                                                                            | 6      |
|              |                                                                                                |   |
|              | Notes to  Financial Statements                                                                      | 7      |
|              |                                                                                                |   |
|              | Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 16     |
|              |                                                                                                |   |
|              | Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                 | 19     |
|              |                                                                                                |   |
|              | Item 4T. Controls  and Procedures                                                                   | 19     |
|              |                                                                                                |   |
| **Part II.** | **Other Information**                                                                               | 21     |
|              |                                                                                                |   |
|              | Item 1. Legal Proceedings                                                                           | 21     |
|              |                                                                                                |   |
|              | Item  1A. Risk Factors                                                                              | 21     |
|              |                                                                                                |   |
|              | Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                | 21     |
|              |                                                                                                |   |
|              | Item 3.  Defaults Upon Senior Securities                                                            | 21     |
|              |                                                                                                |   |
|              | Item 4.  Submission of Matters to a Vote of Security Holders                                        | 22     |
|              |                                                                                                |   |
|              | Item 5. Other Information                                                                           | 22     |
|              |                                                                                                |   |
|              | Item  6. Exhibits                                                                                   | 22     |
|              |                                                                                                |   |
| SIGNATURES        | 23                                                                                                  |

 

2

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**PART I - FINANCIALINFORMATION**

 

**ITEM 1 — FINANCIALSTATEMENTS (UNAUDITED)**

 

****STONE TAN CHINAACQUISITION CORP.****

(a corporation inthe development stage)

 

**CONDENSED BALANCE SHEETS**

 
| ** **                                                                                                                                                                    | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **2008**           | ** **  | **2007**              | ** ** |
| ** **                                                                                                                                                                    | ** ** | **(Unaudited)**    | ** **  | ** **            | ** ** |
| ** **                                                                                                                                                                    | ** ** | ** **         | ** **  | ** **            | ** ** |
| **ASSETS**                                                                                                                                                                    | ** ** | ** **         | ** **  | ** **            | ** ** |
| Current  assets:                                                                                                                                                              |       |               |        |                  |       |
| Cash  and cash equivalents                                                                                                                                                    |       | $                  | 3,016,074   |                  | $          | 1,214,280 |   |
| Money  market funds - held in trust                                                                                                                                           |       | 260,559,997        |        | 260,800,695           |       |
| Prepaid  expenses                                                                                                                                                             |       | 164,584            |        | 203,186               |       |
| Total current assets                                                                                                                                                          |       | $                  | 263,740,655 |                  | $          | 262,218,161 |   |
|                                                                                                                                                                          |       |               |        |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                 | ** ** | ** **         | ** **  | ** **            | ** ** |
| Current  liabilities:                                                                                                                                                         |       |               |        |                  |       |
| Accounts  payable and accrued expenses                                                                                                                                        |       | $                  | 72,440      |                  | $          | 109,459 |   |
| Deferred  underwriting fees payable                                                                                                                                           |       | 9,231,684          |        | 9,231,684             |       |
| Deferred  interest on funds held in trust                                                                                                                                     |       | 48,668             |        | —                |       |
| Income  tax payable                                                                                                                                                           |       | 877,000            |        | 881,000               |       |
| Total liabilities                                                                                                                                                             |       | 10,229,792         |        | 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                                                                                                                                                            |       | 3,057,749          |        | 1,542,904             |       |
| Total stockholders’ equity                                                                                                                                               |       | 178,202,090        |        | 176,687,245           |       |
| Total liabilities and stockholders’ equity                                                                                                                               |       | $                  | 263,740,655 |                  | $          | 262,218,161 |   |

 

 

**See accompanyingnotes to condensed financial statements.**

 

3

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****STONE TAN CHINAACQUISITION CORP.****

(a corporation inthe development stage)

 

**CONDENSED STATEMENTS OF OPERATIONS (Unaudited)**

 
| ** **                                                                                     | ** ** | **Three  Months  Ended  March 31, 2008** | ** ** | **Period from  January 24, 2007  (Inception) to  March 31, 2007** | ** ** | **Period from  January 24, 2007  (Inception) to  March 31, 2008  (Cumulative)** | ** ** |
|------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|
|                                                                                           |       |                                               |       |                                                                                       |       |                                                                                                          |       |
| Revenue                                                                                        |       | $                                                  | —     |                                                                                       | $          | —                                                                                                        |       | $ | — |   |
| Operating  expenses                                                                            |       | 211,261                                            |       | 15,019                                                                                     |       | 417,001                                                                                                       |       |
| Operating  loss                                                                                |       | (211,261                                           | )          | (15,019                                                                                    | )          | (417,001                                                                                                      | )          |
| Interest  income                                                                               |       | 2,670,774                                          |       | 1,821                                                                                      |       | 5,313,404                                                                                                     |       |
| Interest  expense - stockholder                                                                |       | —                                             |       | (1,918                                                                                     | )          | (12,986                                                                                                       | )          |
| Income  (loss) before provision for income tax                                                 |       | 2,459,513                                          |       | (15,116                                                                                    | )          | 4,883,417                                                                                                     |       |
| Provision  for income tax                                                                      |       | 896,000                                            |       | —                                                                                     |       | 1.777,000                                                                                                     |       |
| Income  (loss) before allocation of trust account interest                                     |       | 1,563,513                                          |       | (15,116                                                                                    | )          | 3,106,417                                                                                                     |       |
| Allocation  of trust account interest relating to common stock subject to possible  redemption |       | (48,668                                            | )          | —                                                                                     |       | (48,668                                                                                                       | )          |
| Net  income (loss) available to common stockholders                                            |       | $                                                  | 1,514,845  |                                                                                       | $          | (15,116                                                                                                       | )          | $ | 3,057,749 |   |
|                                                                                           |       |                                               |       |                                                                                       |       |                                                                                                          |       |
| Net  income (loss) per common share —                                                     |       |                                               |       |                                                                                       |       |                                                                                                          |       |
| Basic                                                                                          |       | $                                                  | 0.04       |                                                                                       | $          | (0.00                                                                                                         | )          |   |   |
| Diluted                                                                                        |       | $                                                  | 0.03       |                                                                                       | $          | (0.00                                                                                                         | )          |   |   |
| Weighted  average common shares outstanding —                                             |       |                                               |       |                                                                                       |       |                                                                                                          |       |
| Basic                                                                                          |       | 41,212,875                                         |       | 8,625,000                                                                                  |       |                                                                                                          |       |
| Diluted                                                                                        |       | 50,930,274                                         |       | 8,625,000                                                                                  |       |                                                                                                          |       |

 

 

 

**See accompanyingnotes to condensed financial statements.**

 

4

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**** ****

****STONE TAN CHINAACQUISITION CORP.****

(a corporation inthe development stage)

 

**CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY**

 
| ** **                                                                                                                    | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | ** **           | ** ** | **Total**              | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|----------------|------------|----------------------|------------|------------------------|------------|
| ** **                                                                                                                    | ** ** | **Shares**       | ** ** | **Amount**     | ** ** | **Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Stockholders’  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 three months ended  March 31, 2008 (unaudited)                      |       | —           |       | —         |       | —               |       | 1,514,845              |       | 1,514,845 |   |
| Balance,  March 31, 2008 (unaudited)                                                                                     |       | 41,212,875       |       | $              | 4,121      |                 | $          | 175,140,220            |       | $ | 3,057,749 |   | $ | 178,202,090 |   |

 

 

**See accompanyingnotes to condensed financial statements**.

 

5

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****STONE TAN CHINAACQUISITION CORP.****

(a corporation inthe development stage)

 

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

 
| ** **                                                                                           | ** ** | **Three  Months  Ended  March 31, 2008** | ** ** | **Period from  January 24, 2007  (Inception) to  March 31, 2007** | ** ** | **Period from  January 24, 2007  (Inception) to  March 31, 2008  (Cumulative)** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
|                                                                                                 |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Cash  flows from operating activities                                                                |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Net  income (loss)                                                                                   |       | $                                                  | 1,514,845  |                                                                                       | $          | (15,116                                                                                                  | )          | $ | 3,057,749 |   |
| 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                                                                                     |       | 38,602                                             |       | (15,174                                                                                    | )          | (164,584                                                                                                 | )          |
| Increase  (decrease) in -                                                                            |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Accounts payable and accrued expenses                                                                |       | (37,019                                            | )          | 2,482                                                                                      |       | 72,440                                                                                                   |       |
| Income tax payable                                                                                   |       | (4,000                                             | )          |                                                                                       |       | 877,000                                                                                                  |       |
| Accrued interest payable to stockholder                                                              |       | —                                             |       | 1,918                                                                                      |       | —                                                                                                   |       |
| Net  cash provided by (used in) operating activities                                                 |       | 1,512,428                                          |       | (25,890                                                                                    | )          | 3,842,605                                                                                                |       |
|                                                                                                 |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Cash  flows from investing activities                                                                |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Increase in trust account from interest earned on funds held in trust                                |       | (2,596,456                                         | )          | —                                                                                     |       | (5,226,622                                                                                               | )          |
| Funds placed in trust account from offerings                                                         |       | —                                             |       | —                                                                                     |       | (259,745,716                                                                                             | )          |
| Withdrawals from trust account                                                                       |       | 2,885,822                                          |       | —                                                                                     |       | 4,461,009                                                                                                |       |
| Net  cash provided by (used in) investing activities                                                 |       | 289,366                                            |       | —                                                                                     |       | (260,511,329                                                                                             | )          |
|                                                                                                 |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| 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                                                                           |       | —                                             |       | (88,084                                                                                    | )          | (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                                                           |       | —                                             |       | 436,916                                                                                    |       | 259,684,798                                                                                              |       |
|                                                                                                 |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Net  increase in cash and cash equivalents                                                           |       | 1,801,794                                          |       | 411,026                                                                                    |       | 3,016,074                                                                                                |       |
| Balance  at beginning of period                                                                      |       | 1,214,280                                          |       | —                                                                                     |       | —                                                                                                   |       |
| Balance  at end of period                                                                            |       | $                                                  | 3,016,074  |                                                                                       | $          | 411,026                                                                                                  |       | $ | 3,016,074 |   |
|                                                                                                 |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Cash  paid for:                                                                                      |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| Interest                                                                                             |       | $                                                  | 165        |                                                                                       | $          | —                                                                                                   |       | $ | 12,986 |   |
| Income taxes                                                                                         |       | $                                                  | 900,000    |                                                                                       | $          | —                                                                                                   |       | $ | 900,000 |   |
|                                                                                                 |       |                                               |       |                                                                                       |       |                                                                                                     |       |
| 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.**

 

6

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**** ****

****STONE TAN CHINAACQUISITION CORP.****

(a corporation inthe development stage)

 

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

 

Three Months EndedMarch 31, 2008 and 2007

 

****1. Basis of Presentation****

 

The financial statementsof Stone Tan China Acquisition Corp. (the “Company”) at March 31, 2008,for the three months ended March 31, 2008, the period from January 24,2007 (inception) to March 31, 2007, and for the period from January 24,2007 (inception) to March 31, 2008 (cumulative), are unaudited. In the opinionof management, all adjustments (including normal recurring adjustments) havebeen made that are necessary to present fairly the financial position of theCompany as of March 31, 2008, the results of its operations for the threemonths ended March 31, 2008, the period from January 24, 2007(inception) to March 31, 2007, and for the period from January 24,2007 (inception) to March 31, 2008 (cumulative), and its cash flows forthe three months ended March 31, 2008, the period from January 24,2007 (inception) to March 31, 2007, and for the period from January 24,2007 (inception) to March 31, 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 andProposed Business 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 March 31,2008, the Company had not yet commenced any business operations and istherefore considered a “corporation in the development stage.”  Allactivity through March 31, 2008 related to the Company’s formation,capital raising efforts (as described below), and efforts to acquire abusiness. The Company is subject to the risks associated with development stagecompanies. The Company has selected December 31 as its fiscal year-end.

 

The Company’sability to acquire an operating business was contingent upon obtaining adequatefinancial resources through a private placement in accordance with Regulation Dunder the Securities Act of 1933, as amended (the “Private Placement”), and aninitial public offering (the “Public Offering”, and together with the PrivatePlacement, the “Offerings”), which are discussed in Note 4. The Company’smanagement has broad discretion with respect to the specific application of thenet proceeds of the Offerings, although substantially all of the net proceedsof the Offerings are intended to be generally applied toward consummating abusiness combination with an operating company. As used herein, a “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.

 

7

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****3. Summary of SignificantAccounting Policies****

 

***Cash and Cash Equivalents***

 

The Companyconsiders all highly liquid investments with an original maturity of three monthsor less when purchased to be cash equivalents. Such cash and equivalents, attimes, may exceed federally insured limits. The Company maintains its accountswith financial institutions with high credit ratings.

 

***Income Taxes***

 

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

 

In July 2006,the Financial 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).

 

***Earnings Per Common Share***

 

The Companycomputes earnings (loss) per common share (“EPS”) in accordance with SFAS No. 128,“Earnings per Share” and SEC Staff Accounting Bulletin No. 98 (“SAB98”).  SFAS No. 128 requires companies with complex capitalstructures to present basic and diluted EPS.  Basic EPS is measured as theincome (loss) available to common shareholders divided by the weighted averagecommon shares outstanding for the period.  Diluted EPS is similar to basicEPS but presents the dilutive effect on a per share basis of potential common shares(e.g., convertible securities, options and warrants) as if they had beenconverted at the beginning of the periods presented, or issuance date, iflater.  Potential common shares that have an anti-dilutive effect (i.e.,those that increase income per share or decrease loss per share) are excludedfrom the calculation of diluted EPS

 

At March 31,2008, potentially dilutive securities consisted of outstanding warrants andoptions to acquire an aggregate of 44,170,300 shares of common stock, asfollows, of which options to acquire 2,500,000 shares were anti-dilutiveat such date.

 

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

 

Diluted weightedaverage common shares outstanding utilizes the treasury stock method, and isbased on the average of the closing price of the Company’s common stock, asquoted on the OTC Bulletin Board for the applicable period.

 

***Use of Estimates***

 

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

 

8

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***Fair Value of Financial Instruments***

 

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

 

***Share-Based Payments***

 

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

 

****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, which is the maximum amount, net ofpermitted withdrawals by the Company, that the Company would be obligated topay to stockholders who elect to have their stock redeemed by the Companywithout resulting in a rejection of a business combination.

 

****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 formalframework for measuring fair value under Generally Accepted AccountingPrinciples (“GAAP”). SFAS No. 157 defines and codifies the manydefinitions of fair value included among various other authoritativeliterature, clarifies and, in some instances, expands on the guidance forimplementing fair value measurements, and increases the level of disclosurerequired for fair value measurements. SFAS No. 157 applies to all other accounting pronouncementsrequiring or permitting fair value measurements, except for: SFAS No. 123R,share-based payment and related pronouncements, the practicability exceptions tofair value determinations allowed by various other authoritativepronouncements, and AICPA Statements of Position 97-2 and 98-9 that deal withsoftware revenue recognition. SFAS No. 157 was adopted 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.Generally accepted 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 ofaccounting-induced volatility by enabling companies to report related assetsand liabilities at fair value, which would likely reduce the need for companiesto comply with detailed rules for hedge accounting. SFAS No. 159also establishes presentation and disclosure requirements designed tofacilitate comparisons between companies that choose different measurement attributesfor similar types of assets and liabilities. SFAS No. 159 requirescompanies to provide additional information that will help investors and otherusers of financial statements to more easily understand the effect of theCompany’s choice to use fair value on its earnings. SFAS No. 159 alsorequires companies to display the fair value of those assets and liabilitiesfor which the Company has chosen to use fair value on the face of the balancesheet. SFAS No. 159 does not eliminate disclosure requirementsincluded in other accounting standards, including requirements for disclosuresabout fair value measurements included in SFAS No. 157 and SFAS No. 107.SFAS No. 159 was adopted January 1, 2008.

 

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The adoption ofSFAS No. 157 and SFAS No. 159 on January 1, 2008 did not haveany effect on the Company’s financial statement presentation or disclosures.

 

***Recent Accounting 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) alsoprovides guidance as to what information is to be disclosed to enable users offinancial statements to evaluate the nature and financial effects of a businesscombination. SFAS No. 141(R) is effective for financial statementsissued for fiscal years beginning on or after December 15, 2008. Earlyadoption is prohibited. The adoption of SFAS No. 141R will effect how theCompany accounts for a business combination after December 15, 2008.

 

In December 2007,the FASB issued SFAS No. 160, “Noncontrolling Interests inConsolidated Financial Statements — an amendment of ARB No. 51”(“SFAS No. 160”), which requires that ownership interests insubsidiaries held by parties other than the parent, and the amount ofconsolidated net income, be clearly identified, labeled and presented in theconsolidated financial 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. 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 has not yet determinedthe effect on its financial statements, if any, upon adoption of SFAS No. 160.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging 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 has not yet determined the effecton its financial statements, if any, upon adoption of SFAS No. 161.

 

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****4. Private Placement andPublic Offering****

 

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

 

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

 

On October 19,2007, the closing date of the Offerings, $236,815,000 of the proceeds of theOfferings, including $8,400,000 of contingent underwriting compensation whichwill be paid to Morgan if a business combination is consummated, but which willbe forfeited in part if the public stockholders elect to have their 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 liquidation of the Company. However, up to$3,300,000 of the interest earned on the Trust Account will be released to theCompany to fund working capital requirements as set forth in the InvestmentManagement Trust Agreement. Therefore, unless and until a business combinationis consummated, the proceeds held in the Trust Account (other than up to$3,300,000 of the interest earned and amounts necessary to pay taxes) will notbe available for the Company’s use for any expenses related to the Offerings orexpenses which may be incurred related to the investigation and selection of atarget business and the negotiation of an agreement to acquire a targetbusiness.

 

On October 30,2007, the underwriters of the Public Offering exercised their option topurchase an additional 2,970,300 units to cover over-allotments. In connectionwith the exercise of the over-allotment option, the underwriters received anunderwriting discount of 3.5% of the gross proceeds and upon the consummationof a business combination the underwriters will receive an additionalunderwriting discount equal to 3.5% of the gross proceeds. Consequently, on October 30,2007, the closing date of the overallotment exercise, an additional $22,930,716of the proceeds from the exercise, including $831,684 of contingentunderwriting compensation which will be paid to Morgan if a businesscombination is consummated, but which will be forfeited in part if the publicstockholders elect to have their shares 

 

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redeemed for cash and infull if a business combination is not consummated, was placed in the TrustAccount.

 

The common stockand warrants included in the units began to trade separately on November 7,2007, and trading in the units ceased on that date.

 

On October 19,2007, prior to the consummation of the Public Offering, the Company’s foundingstockholders 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) subjectto certain limited exceptions, none of the Founder Warrants were transferableor salable until after the Company completes a business combination; and (ii) theFounder Warrants are not subject to redemption and are not exercisable on acashless basis if held by the initial holders thereof. The $6,200,000 of proceedsfrom the sale of the Founder Warrants were added to the portion of the proceedsfrom the Public Offering held in the Trust Account pending completion of theCompany’s initial business combination. The Company has determined, based on areview of the trading price of the public warrants of other blank checkcompanies similar to the Company, that the purchase price of $1.00 per FounderWarrant was not less than the approximate fair value of such warrants on thedate of issuance. Therefore, the Company did not record compensation expenseupon the sale of the Founder Warrants.

 

After the Companysigns a definitive agreement for the acquisition of a target business, it willsubmit such transaction for stockholder approval. In the event that holders ofthe shares sold in the Public Offering (the “Public Stockholders”) owning 30%or more of the outstanding stock sold in the Public Offering vote against thebusiness combination and elect to have the Company redeem their shares forcash, the business combination will not be consummated. 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 tothe first business combination which is approved and consummated, any PublicStockholders who voted against the business combination may demand that theCompany redeem their shares for a pro rata share of the Trust Account(inclusive of a pro rata portion of the contingent underwriting compensation of$0.28 per share). Accordingly, Public Stockholders holding one share less than30% of the aggregate number of shares sold in the offerings may seek redemptionof their shares in the event of a business combination.

 

If no businesscombination occurs, the Company’s Amended and Restated Certificate ofIncorporation provides for mandatory liquidation of the Company on October 15,2009, 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 of holdersof a majority of all outstanding shares entitled to vote.

 

****5. Money Market Funds —Held In Trust****

 

At March 31,2008 and December 31, 2007, money market funds — held in trust consist ofCiti Institutional Liquid Reserves Class A Funds of $260,559,997 and$260,800,695, having annualized taxable yields of 3.58% and 4.94%,respectively.

 

****6. Note Payable toStockholder****

 

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 public 

 

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offering of itssecurities. The note, including related accrued interest of $12,821, was paidin full on October 19, 2007.

 

****7. Common Stock****

 

The Company wasinitially authorized to issue 39,000,000 shares of its common stock with a parvalue $0.0001 per share. On October 15, 2007, the authorized common shareswere increased 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 noconsideration, 382,425 shares of common stock so as to ensure that the numberof shares they held prior to the Public Offering, exclusive of sharesunderlying the Founder Warrants, equaled 20% of the outstanding shares ofcommon stock after the Public Offering and the exercise of the underwriters’over-allotment option.

 

In the event thatholders of more than 20% of the shares of common stock sold in the PublicOffering elect to redeem their shares, the Company’s Initial Stockholders haveagreed to forfeit that number of shares (up to a maximum of 937,500 shares)that will result in them owning collectively no more than 23.81% of theCompany’s outstanding common stock immediately prior to the consummation ofsuch business combination after giving effect to the redemption (without regardto any open market or co-investment unit purchases by the Company’s InitialStockholders as described in Note 10).

 

****8. Preferred Stock****

 

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

 

****9. Income Taxes****

 

The provision forincome tax consists of U.S. federal income tax currently payable. The Companyhas its executive office in Hong Kong and accordingly is not subject to stateincome tax.

 

Deferred incometaxes reflect the net tax effects of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and theamounts used for income tax purposes. The Company’s deferred tax assets as of March 31,2008 and December 31, 2007 consist of start-up and organization costswhich must be deferred until the Company commences business operations, at whichtime they may be written off over a 60-month period. Because of the uncertaintyassociated with the realization of the Company’s deferred tax assets, a 100%valuation allowance has been recorded.

 

****10. Commitments andContingencies****

 

The Company willnot proceed with a business combination if Public Stockholders owning 30% ormore of the shares sold in the Public Offering vote against the businesscombination and exercise their redemption rights. Accordingly, the Company mayeffect a business combination if Public Stockholders 

 

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owning up to one shareless than 30% of the aggregate shares sold in the Public Offering exercisetheir redemption rights. If this occurred, the Company would be required toredeem for cash up to one share less than 30% of the 32,970,300 shares ofcommon stock included in the units, or 9,891,089 shares of common stock, at anexpected initial per share redemption price of $7.88. However, the ability ofstockholders to receive $7.88 per unit is subject to any valid claims by theCompany’s creditors which are not covered by amounts held in the Trust Accountor the indemnities provided by the Company’s officers and directors. Theexpected redemption price per share is greater than each stockholder’s initialpro rata share of the Trust Account of approximately $7.60 per share. Of theexcess redemption price, approximately $0.28 per share represents a portion ofthe underwriters’ contingent fee, which they have agreed to forego for each sharethat is redeemed. Accordingly, the total deferred underwriting compensationpayable to the underwriters in the event of a business combination will bereduced by approximately $0.28 for each share that is redeemed. The balancewill be paid from proceeds held in the Trust Account, which are payable to theCompany upon consummation of a business combination. Even if less than 30% ofthe stockholders exercise their redemption rights, the Company may be unable toconsummate a business combination if such redemption leaves the Company withfunds insufficient to acquire or merge with a business with a fair market valuegreater than 80% of the Company’s net assets at the time of such acquisition,which would be in violation of a condition to the consummation of the Company’sinitial business combination, and as a consequence, the Company may be forcedto find additional financing to consummate such a business combination,consummate a different business combination or liquidate.

 

The Company’sInitial Stockholders will enter into an agreement with Morgan pursuant to whichthey will place limit orders to purchase up to an aggregate of $10,000,000 ofthe Company’s common stock in the open market commencing 10 business days afterthe Company files its Current Report on Form 8-K announcing the executionof a definitive agreement for a business combination and ending on the businessday immediately preceding the date of the meeting of stockholders at which abusiness combination is to be approved. Such open market purchases will be madein accordance with Rules 10b-18 and 10b5-1 under the Securities ExchangeAct of 1934, as amended, at a price per share of not more than the per shareamount held in the Trust Account (less taxes payable) as reported in such Form 8-Kand will be made by a broker-dealer mutually agreed upon by the Company’sInitial Stockholders and Morgan in such amounts and at such times as suchbroker-dealer may determine, in its sole discretion, so long as the purchaseprice does not exceed the above-referenced per share purchase price. TheCompany’s Initial Stockholders have agreed to vote any such shares of commonstock purchased in the open market in favor of the Company’s initial businesscombination, representing a possible maximum aggregate of 4.2% of the publicshares entitled to vote on the business combination. They have agreed not tosell such shares unless a business combination is approved by the Company’sstockholders; however, they will be entitled to participate in any liquidatingdistributions with respect to the shares purchased in the open market if thebusiness combination is not completed and the Company dissolves.

 

In the eventpurchases of $10,000,000 of the Company’s common stock cannot be completedthrough the open market purchases described above, the Company’s InitialStockholders have agreed to purchase from the Company, in a private placement,units identical to the units offered hereby at a purchase price of $8.00 perunit until they have spent an aggregate of $10,000,000 in the open marketpurchases 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.

 

The Company hasagreed to pay Pacific Millennium Investment Corporation, an affiliate of theCompany’s Chief Executive Officer, $7,500 per month for 24 months, for thisoffice space and reimbursement of general and administrative expenses pursuantto a letter agreement, commencing on the date of the Public Offering andterminating upon the date the Company consummates a business combination orliquidates.

 

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****11. Registration Rights****

 

The holders of8,242,575 shares issued prior to the completion of the Public Offering, theholders of the warrants to purchase 6,200,000 shares of common stock underlyingthe Founder Warrants sold in the Private Placement, and the holders ofco-investment units are entitled to registration rights covering the resale oftheir shares and the resale of their warrants and shares acquired upon exerciseof their warrants. The holders of the majority of these shares are entitled tomake up to two demands that the Company register their shares, warrants andshares that they are entitled to acquire upon the exercise of warrants. Theholders of the majority of these shares can elect to exercise theseregistration rights at any time after one year from the date of theconsummation of the Company’s initial business combination, subject to thetransfer restrictions imposed by the lock-up agreements. The holders of theFounder Warrants are also entitled to require the Company to register forresale the shares underlying the Founder Warrants when such warrants becomeexercisable by their terms. In addition, these stockholders have certain“piggy-back” registration rights on registration statements filed subsequent tothe date on which these securities are released from the restrictions imposedby the lock-up agreements. The Company will bear the expenses incurred inconnection with the filing of any such registration statements.

 

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

 

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

 

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** **

**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

** **

**Forward Looking Statements**

 

This Quarterly Report on Form 10-Qincludes forward-looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. We have based these forward-lookingstatements on our current expectations and projections about future events.These forward-looking statements are subject to known and unknown risks,uncertainties and assumptions about us that may cause our actual results,levels of activity, performance or achievements to be materially different fromany future results, levels of activity, performance or achievements expressedor implied by such forward-looking statements. In some cases, you can identifyforward-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**

 

Wewere formed on January 24, 2007 to serve as a vehicle to effect a merger,asset acquisition, stock exchange or other similar business combination, orcontrol through contractual arrangements, an operating business having itsprimary operations in the People’s Republic of China. Our initial businesscombination must be with a target business or businesses whose fair marketvalue 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 fromthe proceeds 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.

 

Wecannot assure investors that we will find a suitable business combination inthe allotted time.

 

**Critical Accounting Policies**

 

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.

 

*Share-BasedPayments*

 

We account forshare-based payments pursuant to Statement of Financial Accounting Standards No. 123R,“Share-Based Payments” (“SFAS No. 123R”). SFAS 123R requires allshare-based payments, including grants of stock options to employees, to berecognized in the financial statements based on their fair values. We adoptedSFAS 123R on January 24, 2007 (inception) and expect that it could have amaterial impact on our financial statements to the extent we grant stock-basedcompensation in future periods.

 

*DeferredInterest on Funds Held in Trust*

 

Deferred interest onfunds held in the trust account consists of the 30% less one share portion ofthe interest earned on the funds held in trust, which is the maximum amount,net of permitted withdrawals by us, that we would be obligated to pay tostockholders who elect to have their stock redeemed by us without resulting ina rejection of a business combination.

 

*IncomeTaxes*

 

We account for incometaxes pursuant to Statement of Financial Accounting Standards No. 109,“Accounting for Income Taxes (“SFAS 109”), which establishes financialaccounting and reporting standards for the effects of income taxes that resultfrom an enterprise’s activities during the current and preceding years. SFAS109 requires an asset and liability approach for financial accounting andreporting for income taxes.

 

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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 the recognition,management, presentation and disclosure of uncertain tax positions. A taxbenefit from an uncertain position may be recognized only if it is “more likelythan not” that the position is sustainable based on its technical merits. Weadopted the provisions of FIN 48 on January 24, 2007 (inception).

 

**Recent Accounting 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 the acquisitiondate (i) the identifiable assets acquired, the liabilities assumed, andany noncontrolling interest in the acquiree, measured at their fair values onthe acquisition date, and (ii) goodwill as the excess of the considerationtransferred plus the fair value of any noncontrolling interest in the acquireeat the acquisition date over the fair values of the identifiable net assetsacquired. Acquisition-related costs, which are the costs an acquirer incurs toeffect a business combination, will be accounted for as expenses in the periodsin which the costs are incurred and the services are received, except thatcosts to issue debt or equity securities will be recognized in accordance withother applicable GAAP. SFAS No. 141(R) makes significant amendmentsto other 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. 141R will effect how the Company accounts for a businesscombination after December 15, 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 financial statements. SFASNo. 160 also requires that once a subsidiary is deconsolidated, anyretained noncontrolling equity investment in the former subsidiary be initiallymeasured at fair value. Sufficient disclosures are required to clearly identifyand distinguish between the interests of the parent and the interests of thenoncontrolling owners. SFAS No. 160 amends FASB No. 128 to providethat 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. Allother requirements are applied prospectively. Early adoption is prohibited. TheCompany has not yet determined the effect on its financial statements, if any,upon adoption of SFAS No. 160.

 

In March 2008, the FASBissued SFAS No. 161, “Disclosures about Derivative Instruments and HedgingActivities — an amendment of FASB Statement No. 133” (“SFAS No. 161”).SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”).The objective of SFAS No. 161 is to provide users of financial statementswith an enhanced understanding of how and why an entity uses derivativeinstruments, how derivative instruments and related hedged items are accountedfor under SFAS 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. 161 applies to all derivative financialinstruments, including bifurcated derivative instruments (and nonderivativeinstruments that are designed and qualify as hedging instruments pursuant toparagraphs 37 and 42 of SFAS No. 133) and related hedged items accountedfor under SFAS No. 133 and its related interpretations. SFAS No. 161also amends certain provisions of SFAS No. 131. SFAS No. 161 iseffective for financial statements issued for fiscal years and interim periodsbeginning after November 15, 2008, with early application encouraged. SFASNo. 161 encourages, but does not require, comparative disclosures forearlier periods at initial adoption. The Company has not yet determined theeffect on its financial statements, if any, upon adoption of SFAS No. 161.

 

**Results of Operations for theThree Month Period ended March 31, 2008**

 

For thethree month period ended March 31, 2008, we had net income ofapproximately $1,515,000, derived from interest income less operating expensesand interest allocable to shares subject to redemption.

 

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Commencingon October 15, 2007 and ending upon the acquisition of a target business,we began incurring a fee of $7,500 per month for office space and certain otheradditional services from Pacific Millennium, an affiliate of Mr. Tan, ourChief Executive Officer. In addition, on February 27, 2007, we issued anunsecured promissory note of $500,000 to one of our initial stockholders. Thenote, which bore interest at the rate of 4% per annum, was paid on October 19,2007.

 

For thethree month period ended March 31, 2008, we incurred approximately $13,000of travel expenses, $87,000 for professional fees, $33,000 for insurance,$41,00 for other formation and operating costs, $37,000 of costs related tocapital based taxes, $896,000 related to income based taxes, and interestincome of $2,622,000.

 

**Liquidity and Capital Resources**

 

On October 19, 2007, we consummated our initialpublic offering of 30,000,000 units. Each unit consists of one share of commonstock and one redeemable common stock purchase warrant. Immediately prior tothe consummation of our initial public offering, we sold 6,200,000 warrants tothe Company’s founding stockholders for $1.00 per warrant. Each warrant entitlesthe holder to purchase from us one share of our common stock at an exerciseprice of $5.50. On October 30, 2007, the underwriters exercised theirover-allotment option and purchased an additional 2,970,300 Units. Our commonstock and warrants started trading separately as of November 7, 2007.

 

The net proceeds from the sale of our units (includingthe underwriters’ over-allotment option) and the insider warrants, afterdeducting certain offering expenses of approximately $9,592,000, includingunderwriting discounts of approximately $9,232,000, and the repayment of thenote payable to a stockholder of approximately $513,000, including accruedinterest, were approximately $259,875,000. Of this amount, approximately$259,746,000 is being held in the trust account and the remaining proceeds arebeing held outside of the trust account. The remaining proceeds, along with upto $3,300,000 in interest earned on the funds in the trust account, areavailable to be used by us to provide for business, legal and accounting duediligence on prospective acquisitions and continuing general and administrativeexpenses. We will use substantially all of the net proceeds of the offering toacquire a target business, including identifying and evaluating prospectiveacquisition candidates, selecting the target business, and structuring,negotiating and consummating a business combination. To the extent that ourcapital stock is used in whole or in part as consideration to effect a businesscombination, the proceeds held in the trust account, as well as any other netproceeds not expended, will be used to finance the operations of the targetbusiness. Including the $3,300,000 in interest available to us, we believe wewill have sufficient available funds outside of the trust account to operatethrough October 15, 2009, assuming that a business combination is notconsummated during that time.

 

From now until the earlier of October 15, 2009 orthe date when we complete a business combination, we currently anticipateincurring expenses for the following purposes:

 

·                  legal, accounting and other expensesattendant to due diligence investigations, structuring and negotiation of abusiness combination;

 

·                  due diligence of prospective targetbusinesses;

 

·                  legal and accounting fees relating to ourSecurities and Exchange Commission reporting obligations and general corporatematters;

 

·                  administrative fees ($7,500 per month);

 

·                  working capital, director and officerliability insurance premiums and reserves (including potential deposits, down paymentsor funding of a “no-shop” provision in connection with a particular businesscombination and dissolution obligations and reserves, if any).

 

We may use all or substantially all of the proceedsheld in trust other than the deferred portion of the underwriter’s fee toacquire one or more target businesses. We may not use all of the proceeds heldin the trust account in connection with a business combination, either becausethe consideration for the business combination is less than the proceeds in trustor because we finance a portion of the consideration with capital stock or debtsecurities that we can issue. In that event, the proceeds held in the trustaccount as well as any other net proceeds not expended will be used to financethe operations of the target business or businesses. The operating businessesthat we acquire in such business combination must have, individually orcollectively, a fair market value equal to

 

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at least 80% of our netassets at the time of such acquisition. If we consummate multiple businesscombinations that collectively have a fair market value of 80% of our netassets, then we would require that such transactions are consummatedsimultaneously.

 

If we are unable to find a suitable target business byOctober 15, 2009, we will be forced to liquidate. If we are forced toliquidate, the per share liquidation amount may be less than the initial perunit offering price because of the underwriting commissions and expenses relatedto our offering and because of the value of the warrants in the per unitoffering price. Additionally, if third parties make claims against us, theoffering proceeds held in the trust account could be subject to those claims,resulting in a further reduction to the per share liquidation price. UnderDelaware law, our stockholders who have received distributions from us may beheld liable for claims by third parties to the extent such claims are notbeen paid by us. Furthermore, our warrants will expire worthless if weliquidate before the completion of a business combination.

 

**Off-Balance Sheet Arrangements**

 

Warrants issued in conjunction with our initial publicoffering are equity-linked derivatives and, accordingly, represent off-balancesheet arrangements. These warrants meet the scope exception in paragraph 11(a) inSFAS No. 133 “Accounting for Derivative Instruments and HedgingActivities” and, accordingly, are not accounted for as equity.

 

**Contractual Obligations**

 

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

 

**ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

** **

Market risk is thesensitivity of income to changes in interest rates, foreign exchanges,commodity prices, equity prices, and other market-driven rates or prices. Weare not presently engaged in and, if a suitable business target is notidentified by us prior to the prescribed liquidation date of the trust fund, wemay not engage in, any substantive commercial business. Accordingly, we are notand, until such time as we consummate a business combination, we will not be,exposed to risks associated with foreign exchange rates, commodity prices,equity prices or other market-driven rates or prices. The net proceeds of ourinitial public offering held in the trust fund have been invested only in moneymarket funds meeting certain conditions under Rule 2a-7 promulgated underthe Investment Company Act of 1940. Given our limited risk in our exposure tomoney market funds, we do not view the interest rate risk to be significant.

 

**ITEM 4T. CONTROLS ANDPROCEDURES**

** **

An evaluation of theeffectiveness of our disclosure controls and procedures as of March 31,2008 was made under the supervision and with the participation of ourmanagement, 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.

 

This quarterly reportdoes not include a report of management’s assessment regarding internal controlover financial reporting or an attestation report of our registered publicaccounting firm due to a transition period established by the rules of theSecurities and Exchange Commission for newly public companies.

 

Pursuant to Section 404of the Sarbanes-Oxley Act of 2002 (the Act), beginning with our Annual Reporton Form 10-K for the fiscal year ending December 31, 2008, we will berequired to furnish a report by our management on our internal control overfinancial reporting. This report will contain, among other matters, anassessment of the effectiveness of our internal control over financialreporting as of the end of our fiscal year, including a statement as to whetheror not our internal control over financial reporting is effective. Thisassessment must include disclosure of any material weaknesses in our internalcontrol over financial reporting identified by management. If we identify oneor more material weaknesses in our internal control over financial reporting,we will be unable to assert our internal control over financial reporting iseffective. This report will also contain a statement that our

 

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independent registeredpublic accountants have issued an attestation report on management’s assessmentof such internal controls and conclusion on the operating effectiveness ofthose controls.

 

Management acknowledgesits responsibility for internal controls over financial reporting and seeks tocontinually improve those controls. In order to achieve compliance with Section 404of the Act within the prescribed period, we are currently performing the systemand process documentation and evaluation needed to comply with Section 404,which is both costly and challenging. We believe our process, which began in2007 and continues in 2008 for documenting, evaluating and monitoring ourinternal control over financial reporting is consistent with the objectives of Section 404of the Act.

 

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**PART II- OTHER INFORMATION**

** **

**ITEM1. LEGAL PROCEEDINGS**

** **

                                                None.

 

**ITEM1A. RISK FACTORS**

** **

We are not required to respond to this item because weare a smaller reporting company.

 

**ITEM2. UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

** **

**Recent Sales of UnregisteredSecurities**

 

We did not engage in thesale of any unregistered securities during the three months ended March 31,2008.

 

**Use of Proceeds**

 

On October 19, 2007,we consummated our initial public offering of 30,000,000 units. Each unitconsisted of one share of common stock, $.0001 par value per share, and onewarrant to purchase one share of common stock. On October 30, 2007, theunderwriters of our initial public offering exercised their over-allotmentoption to sell an additional 2,970,300 units. We received aggregate grossproceeds of $240,000,000 from the sale of the units. The offering wasregistered under the Securities Act of 1933, as amended, pursuant to aregistration statement on Form S-1 (File No. 333-142729), which wasdeclared effective by the Securities and Exchange Commission on October 15,2007.

 

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

 

Immediately prior to theconsummation of our initial public offering, we sold 6,200,000 warrants to theCompany’s founding stockholders for $1.00 per warrant for aggregate grossproceeds of $6,200,000.

 

The net proceeds from thesale of our units (including the underwriters’ over-allotment option) and theinsider warrants, after deducting certain offering expenses of approximately$9,592,000, including underwriting discounts of approximately $9,232,000, andthe repayment of the note payable to a stockholder of approximately $513,000, includingaccrued interest, were approximately $259,875,000. Of this amount,approximately $259,746,000 is being held in the trust account and the remainingproceeds are being held outside of the trust account. The remaining proceeds,along with up to $3,300,000 in interest earned on the funds in the trustaccount, are available to be used by us to provide for business, legal andaccounting due diligence on prospective acquisitions and continuing general andadministrative expenses.

 

No expenses of the offeringwere paid to any of our officer and directors or any of their respectiveaffiliates. We did, however, repay certain of our officer and directors forloans they made to us prior to the consummation of the initial public offering.These loans had an annual interest rate of 4%. The aggregate amount ofprincipal and interest on such loans that we repaid were $500,000 and $12,821,respectively. All the funds held in the trust account have been invested ineither Treasury Bills or Money Market Accounts.

 

**Repurchases of 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 and Principal Financial 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 with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|              | STONE TAN CHINA ACQUISITION CORP. |
|-------------------|-----------------------------------|
|              |                              |   |
|              |                              |   |
| May 14, 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 and Principal Financial 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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