Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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 31,2009.**

 

**or**

 

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

 

**For the transition period from                             to                               .**

** **

**CommissionFile Number: 000-52857**

** **

**STONE TAN CHINA ACQUISITION CORP.**

(Exact name of registrant as specified in itscharter)

 

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

 

**Suite 1A, 11th Floor**

**Tower 1 China Hong Kong City**

**33 Canton Road Kowloon, Hong Kong**

(Address of Principal Executive Offices) (ZipCode)

 

**852-27355493**

(Registrant’s Telephone Number, IncludingArea Code)

 

 

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

 

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

 

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

 

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

 

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

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes xNo  ̈

 

There were41,212,875 shares of the registrant’s common stock issued and outstanding as ofMay 5, 2009.

 

 

 

----

Tableof Contents

 

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

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

 

2

----

**Tableof Contents**

 

**PART I - FINANCIAL INFORMATION**

** **

**ITEM1 — FINANCIAL STATEMENTS (UNAUDITED)**

** **

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

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                    | ** ** | **March 31,** |        | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **2009**           | ** **  | **2008**              | ** ** |
| ** **                                                                                                                                                                    |       | **(unaudited)**    |        |                  |       |
| **ASSETS**                                                                                                                                                                    |       |               |        |                  |       |
| Current  assets:                                                                                                                                                              |       |               |        |                  |       |
| Cash  and cash equivalents                                                                                                                                                    |       | $                  | 1,097,350   |                  | $          | 1,473,753 |   |
| Money  market funds - held in trust                                                                                                                                           |       | 263,345,154        |        | 263,192,125           |       |
| Prepaid  expenses                                                                                                                                                             |       | 21,294             |        | 55,815                |       |
| Income  tax refundable                                                                                                                                                        |       | 211,732            |        | 161,732               |       |
| Total  current assets                                                                                                                                                         |       | 264,675,530        |        | 264,883,425           |       |
| Total  assets                                                                                                                                                                 |       | $                  | 264,675,530 |                  | $          | 264,883,425 |   |
|                                                                                                                                                                          |       |               |        |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                 |       |               |        |                  |       |
| Current  liabilities:                                                                                                                                                         |       |               |        |                  |       |
| Accounts  payable and accrued expenses                                                                                                                                        |       | $                  | 97,522      |                  | $          | 162,125 |   |
| Deferred  underwriting fees payable                                                                                                                                           |       | 9,231,684          |        | 9,231,684             |       |
| Deferred  interest on funds held in trust                                                                                                                                     |       | 1,002,508          |        | 982,477               |       |
| Total  current liabilities                                                                                                                                                    |       | 10,331,714         |        | 10,376,286            |       |
|                                                                                                                                                                          |       |               |        |                  |       |
| Common  stock subject to possible redemption - 9,891,089 shares at redemption value                                                                                           |       | 75,308,773         |        | 75,308,773            |       |
|                                                                                                                                                                          |       |               |        |                  |       |
| Commitments  and contingencies                                                                                                                                                |       |               |        |                  |       |
|                                                                                                                                                                          |       |               |        |                  |       |
| Stockholders’  equity:                                                                                                                                                   |       |               |        |                  |       |
| Preferred  stock, $0.0001 par value; authorized - 1,000,000 shares; issued - none                                                                                             |       | —             |        | —                |       |
| Common  stock, $0.0001 par value; authorized - 139,000,000 shares; issued and  outstanding - 41,212,875 shares, inclusive of 9,891,089 shares subject to  possible redemption |       | 4,121              |        | 4,121                 |       |
| Additional  paid-in capital                                                                                                                                                   |       | 175,140,220        |        | 175,140,220           |       |
| Retained  earnings                                                                                                                                                            |       | 3,890,702          |        | 4,054,025             |       |
| Total  stockholders’ equity                                                                                                                                              |       | 179,035,043        |        | 179,198,366           |       |
| Total  liabilities and stockholders’ equity                                                                                                                              |       | $                  | 264,675,530 |                  | $          | 264,883,425 |   |

 

*See accompanying notes to condensedconsolidated financial statements.*

 

3

----

Table ofContents

 

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

 

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

 
| ** **                                                                                     | ** ** | ** **             | ** ** | ** **         | ** ** | **Period from**      | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                                     | ** ** | ** **             | ** ** | ** **         | ** ** | **January 24,** | ** ** |
| ** **                                                                                     | ** ** | ** **             | ** ** | ** **         | ** ** | **2007**             | ** ** |
| ** **                                                                                     | ** ** | ** **             | ** ** | ** **         | ** ** | **(Inception) to**   | ** ** |
| ** **                                                                                     | ** ** | **Three Months Ended** | ** ** | **March 31,** | ** ** |
| ** **                                                                                     | ** ** | **March 31,**     | ** ** | **2009**           | ** ** |
| ** **                                                                                     | ** ** | **2009**               | ** ** | **2008**           | ** ** | **(Cumulative)**     | ** ** |
| Revenues                                                                                       |       | $                      | —     |               | $          | —               |       | $ | — |   |
| Operating  expenses                                                                            |       | 349,073                |       | 211,261            |       | 1,459,581            |       |
| Professional  fees incurred relating to potential acquisitions abandoned                       |       | —                 |       | —             |       | 533,928              |       |
| Total  operating expenses                                                                      |       | 349,073                |       | 211,261            |       | 1,993,509            |       |
| Operating  loss                                                                                |       | (349,073               | )          | (211,261           | )          | (1,993,509           | )          |
| Interest  income                                                                               |       | 155,781                |       | 2,670,774          |       | 9,678,705            |       |
| Interest  expense — stockholder                                                           |       | —                 |       | —             |       | (12,986              | )          |
| Income  (loss) before provision for income tax                                                 |       | (193,292               | )     | 2,459,513          |       | 7,672,210            |       |
| Provision  (benefit) for income tax, current                                                   |       | (50,000                | )     | 896,000            |       | 2,779,000            |       |
| Income  (loss) before allocation of trust account interest                                     |       | (143,292               | )     | 1,563,513          |       | 4,893,210            |       |
| Allocation  of trust account interest relating to common stock subject to possible  redemption |       | (20,031                | )          | (48,668            | )     | (1,002,508           | )          |
| Net  income (loss) available to common stockholders                                            |       | $                      | (163,323   | )             | $          | 1,514,845            |       | $ | 3,890,702 |   |
|                                                                                           |       |                   |       |               |       |                 |       |
| Net  income (loss) per common share —                                                     |       |                   |       |               |       |                 |       |
| Basic                                                                                          |       | $                      | (0.00      | )             | $          | 0.04                 |       |   |   |
| Diluted                                                                                        |       | $                      | (0.00      | )             | $          | 0.03                 |       |   |   |
| Weighted  average common shares outstanding —                                             |       |                   |       |               |       |                 |       |
| Basic                                                                                          |       | 41,212,875             |       | 41,212,875         |       |                 |       |
| Diluted                                                                                        |       | 41,212,875             |       | 50,830,822         |       |                 |       |

 

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

 

4

----

Table ofContents

 

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

 

**CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ EQUITY**

 

**FOR THE PERIOD FROM JANUARY 24, 2007(INCEPTION) TO MARCH 31, 2009**

 
| ** **                                                                                                                    | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Retained** | ** ** | **Total  Stockholders’** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|-------------------------------|------------|
| ** **                                                                                                                    | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings**                  | ** ** | **Equity** | ** ** |
|                                                                                                                          |       |                  |       |                    |       |         |       |                          |       |   |   |
| Balance, January 24,  2007 (inception)                                                                                   |       | —                |       | $                       | —     |         | $          | —                        |       | $ | — |   | $ | — |   |
| Sale of common shares  to initial stockholders at $0.003 per share                                                            |       | 8,625,000             |       | 863                     |       | 24,137       |       | —                        |       | 25,000 |   |
| Sale of shares and  warrants in private placement and public offering, net of offering costs of  $19,534,385                  |       | 32,970,300            |       | 3,297                   |       | 250,424,717  |       | —                        |       | 250,428,014 |   |
| Sale of unit purchase  option to underwriters                                                                                 |       | —                |       | —                  |       | 100          |       | —                        |       | 100 |   |
| Shares reclassified to “Common  stock subject to possible redemption”                                               |       | —                |       | —                  |       | (75,308,773  | )          | —                        |       | (75,308,773 | ) |
| Shares surrendered and  cancelled                                                                                             |       | (382,425              | )          | (39                     | )          | 39           |       | —                        |       | — |   |
| Net income available to  common stockholders for the period from January 24, 2007 (inception) to December 31,  2007 |       | —                |       | —                  |       | —       |       | 1,542,904                     |       | 1,542,904 |   |
| Balance, December 31,  2007                                                                                              |       | 41,212,875            |       | 4,121                   |       | 175,140,220  |       | 1,542,904                     |       | 176,687,245 |   |
| Net income available to  common stockholders for the year ended December 31, 2008                                        |       | —                |       | —                  |       | —       |       | 2,511,121                     |       | 2,511,121 |   |
| Balance, December 31,  2008                                                                                              |       | 41,212,875            |       | 4,121                   |       | 175,140,220  |       | 4,054,025                     |       | 179,198,366 |   |
| Net loss available to  common stockholders for  the three months ended March 31, 2009 (unaudited)                        |       | —                |       | —                  |       | —       |       | (163,323                      | )          | (163,323 | ) |
| Balance, March 31,  2009 (unaudited)                                                                                     |       | 41,212,875            |       | $                       | 4,121      |         | $          | 175,140,220                   |       | $ | 3,890,702 |   | $ | 179,035,043 |   |

 

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

 

5

----

Table ofContents

 

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

 

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

 
|                                                                                                                                  |   |                   |       |               |    | **Period from**    |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|--------------------|---------|-------------------------|--------|
|                                                                                                                                  |   |                   |       |               |    | **January 24,**    |   |
|                                                                                                                                  |   |                   |       |               |    | **2007**                |   |
|                                                                                                                                  |   |                   |       |               |    | **(Inception) to** |   |
|                                                                                                                                  |   | **Three Months Ended** |       | **March 31,** |    |
|                                                                                                                                  |   | **March 31,**     |       | **2009**           |    |
|                                                                                                                                  |   | **2009**               | ** ** | **2008**           |    | **(Cumulative)**        |   |
| Cash  flows from operating activities:                                                                                                |   |                   |       |               |    |                    |   |
| Net  income (loss) available to common stockholders                                                                                   |   | $                      | (163,323   | )             | $       | 1,514,845               |   | $ | 3,890,702 |   |
| Adjustments  to reconcile net income (loss) available to common stockholders to net cash  provided by (used in) operating activities: |   |                   |       |               |    |                    |   |
| Changes  in operating assets and liabilities:                                                                                         |   |                   |       |               |    |                    |   |
| (Increase)  decrease in -                                                                                                             |   |                   |       |               |    |                    |   |
| Prepaid  expenses                                                                                                                     |   | 34,521                 |       | 38,602             |    | (21,294                 | )      |
| Income  tax refundable                                                                                                                |   | (50,000                | )          | —             |    | (211,732                | )      |
| Increase  (decrease) in -                                                                                                             |   |                   |       |               |    |                    |   |
| Accounts  payable and accrued expenses                                                                                                |   | (64,603                | )     | (37,019            | )  | 97,522                  |   |
| Income  tax payable                                                                                                                   |   | —                 |       | (4,000             | )  | —                  |   |
| Net  cash provided by (used in) operating activities                                                                                  |   | (243,405               | )     | 1,512,428          |    | 3,755,198               |   |
|                                                                                                                                  |   |                   |       |               |    |                    |   |
| Cash  flows from investing activities:                                                                                                |   |                   |       |               |    |                    |   |
| Increase  in trust account from interest earned on funds held in trust                                                                |   | (132,998               | )          | (2,596,456         | )       | (8,597,064              | )      |
| Funds  placed in trust account from offerings                                                                                         |   | —                 |       | —             |    | (259,745,716            | )      |
| Withdrawals  from trust account                                                                                                       |   | —                 |       | 2,885,822          |    | 6,000,134               |   |
| Net  cash provided by (used in) investing activities                                                                                  |   | (132,998               | )          | 289,366            |    | (262,342,646            | )      |
|                                                                                                                                  |   |                   |       |               |    |                    |   |
| Cash  flows from financing activities:                                                                                                |   |                   |       |               |    |                    |   |
| Proceeds  from initial sale of common stock                                                                                           |   | —                 |       | —             |    | 25,000                  |   |
| Gross  proceeds from private placement                                                                                                |   | —                 |       | —             |    | 6,200,000               |   |
| Gross  proceeds from public offering                                                                                                  |   | —                 |       | —             |    | 263,762,399             |   |
| Payments  of offering costs                                                                                                           |   | —                 |       | —             |    | (10,302,701             | )      |
| Proceeds  from underwriter’s purchase option                                                                                     |   | —                 |       | —             |    | 100                     |   |
| Proceeds  from stockholder loans                                                                                                      |   | —                 |       | —             |    | 500,000                 |   |
| Repayment  of stockholder loans                                                                                                       |   | —                 |       | —             |    | (500,000                | )      |
| Net  cash provided by financing activities                                                                                            |   | —                 |       | —             |    | 259,684,798             |   |
|                                                                                                                                  |   |                   |       | —             |    |                    |   |
| Net  increase (decrease) in cash and cash equivalents                                                                                 |   | (376,403               | )     | 1,801,794          |    | 1,097,350               |   |
| Balance  at beginning of period                                                                                                       |   | 1,473,753              |       | 1,214,280          |    | —                  |   |
| Balance  at end of period                                                                                                             |   | $                      | 1,097,350  |               | $       | 3,016,074               |   | $ | 1,097,350 |   |
|                                                                                                                                  |   |                   |       | —             |    |                    |   |
| Cash  paid for:                                                                                                                       |   |                   |       | —             |    |                    |   |
| Interest                                                                                                                              |   | $                      | —     |               | $       | 165                     |   | $ | 12,986 |   |
| Income  taxes                                                                                                                         |   | $                      | —     |               | $       | 900,000                 |   | $ | 2,990,732 |   |
|                                                                                                                                  |   |                   |       |               |    |                    |   |
| Supplemental  schedule of non-cash investing and financing activities:                                                                |   |                   |       |               |    |                    |   |
| Increase  in accrued offering costs and placement fees, net                                                                           |   | $                      | —     |               | $       | —                  |   | $ | 9,231,684 |   |
| Common  stock subject to possible redemption                                                                                          |   | $                      | —     |               | $       | —                  |   | $ | 75,308,773 |   |
| Fair  value of unit purchase option issued to underwriters                                                                            |   | $                      | —     |               | $       | —                  |   | $ | 7,689,369 |   |
| Allocation  of trust account interest relating to common stock subject to possible  redemption                                        |   | $                      | 20,031     |               | $       | 48,668                  |   | $ | 1,002,508 |   |

 

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

 

6

----

Table ofContents

 

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

 

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

 

**Three Months Ended March 31, 2009 and 2008, and**

**Period from January 24, 2007 (Inception) to March 31,2009 (Cumulative)**

 

**1.Basis of Presentation**

 

Thecondensed consolidated financial statements of Stone Tan China AcquisitionCorp., including  its wholly-ownedsubsidiary, Stone Tan China Acquisition (Hong Kong) Company Limited (the “Company”),at March 31, 2009, for the three months ended March 31, 2009 and2008, and for the period from January 24, 2007 (inception) to March 31,2009 (cumulative), are unaudited. In the opinion of management, all adjustments(including normal recurring adjustments) have been made that are necessary topresent fairly the financial position of the Company as of March 31, 2009,the results of its operations for the three months ended March 31, 2009and 2008, and for the period from January 24, 2007 (inception) to March 31,2009 (cumulative), and its cash flows for the three months ended March 31,2009 and 2008, and for the period from January 24, 2007 (inception) to March 31,2009 (cumulative). Operating results for the interim periods presented are notnecessarily indicative of the results to be expected for a full fiscal year.The condensed balance sheet at December 31, 2008 has been derived from theaudited financial statements.

 

Thesecondensed consolidated financial statements and related notes have beenprepared pursuant to the rules and regulations of the Securities andExchange Commission. Accordingly, certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been omitted pursuant to such rules andregulations. These condensed consolidated financial statements should be readin conjunction with the consolidated financial statements and other informationincluded in the Company’s Annual Report on Form 10-K for the fiscal yearended December 31, 2008, as filed with Securities and Exchange Commission.

 

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

 

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

 

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

 

At March 31,2009, the Company had not yet commenced any business operations and istherefore considered a “corporation in the development stage.”  Allactivity through March 31, 2009 is related to the Company’s formation,capital raising efforts (as described below), and efforts to acquire abusiness. The Company is subject to the risks associated with development stagecompanies.

 

TheCompany’s ability to acquire an operating business was contingent uponobtaining adequate financial resources through a private placement inaccordance with Regulation D under the Securities Act of 1933, as amended (the “PrivatePlacement”), and an initial public offering (the “Public Offering”, andtogether with the Private Placement, the “Offerings”), which are discussed inNote 4. The Company’s management has broad discretion with respect to thespecific application of the net proceeds of the Offerings, althoughsubstantially all of the net proceeds of the Offerings are intended to begenerally applied toward consummating a business combination with an operatingcompany. As used herein, a “target business” shall include one or moreoperating businesses or assets with primary operations in the People’s Republicof China, and a “business combination” shall mean the acquisition by theCompany of such a target business. There can be no assurances that the Companywill be able to successfully effect a business combination.

 

Theaccompanying condensed consolidated financial statements have been preparedassuming that the Company will continue as a going concern.  The Company’sAmended and Restated Certificate of Incorporation provides that if the Companyis not able to complete a business combination by October 15, 2009, itscorporate existence will cease, except for the process of winding up andliquidating.  The Company cannot assure its investors that it will be ableto find a suitable business combination by October 15, 

 

7

----

Table ofContents

 

2009.  Thiscondition raises substantial doubt about the Company’s ability to continue as agoing concern.  The condensed consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

**3.Summary of Significant Accounting Policies**

 

***Principles of Consolidation***

 

Theaccompanying condensed consolidated financial statements include the financialstatements of Stone Tan Acquisition Corp. and its wholly-owned subsidiary,Stone Tan China Acquisition (Hong Kong) Company Limited. All intercompanybalances and transactions have been eliminated in consolidation.

 

***Cash and Cash Equivalents***

 

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

 

***Income Taxes***

 

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

 

The Company has adopted FASB Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,Accounting for Income Taxes” (“FIN 48”). FIN 48 addresses the determination ofwhether tax benefits claimed or expected to be claimed on a tax return shouldbe recorded in the financial statements. Under FIN 48, the Company mayrecognize the tax benefit from an uncertain tax position only if it is morelikely than not that the tax position will be sustained on examination by thetaxing authorities, based on the technical merits of the position. The taxbenefits recognized in the financial statements from such a position aremeasured based on the largest benefit that has a greater than fifty percentlikelihood of being realized upon ultimate settlement. FIN 48 also providesguidance on de-recognition, classification, interest and penalties on incometaxes, accounting in interim periods and requires increased disclosures. The adoption of the provisions of FIN 48 did not have a material effect on theCompany’s consolidated financial statements. As of March 31, 2009, noliability for unrecognized tax benefits was required to be recorded.

 

TheCompany files income tax returns in the U.S. federal jurisdiction and issubject to income tax examinations by federal tax authorities for theyear 2007 and thereafter.  The Company’s policy is to record interest andpenalties on uncertain tax positions as income tax expense. As of March 31, 2009, theCompany has no accrued interest or penalties related to uncertain taxpositions.

 

***Earnings Per Common Share***

 

TheCompany computes earnings (loss) per common share (“EPS”) in accordance withStatement of Financial Accounting Standards No. 128, “Earnings per Share”(“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). SFAS No. 128 requires companies with complex capital structures to presentbasic and diluted EPS.  Basic EPS is measured as the income (loss)available to common shareholders divided by the weighted average common sharesoutstanding for the period.  Diluted EPS is similar to basic EPS butpresents 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.

 

Thecalculation of net income (loss) per common share is summarized below. The calculationof diluted weighted average common shares outstanding for the three monthsended March 31, 2009 and 2008 is based on the average of the closing priceof the Company’s common stock, as quoted on the OTC Bulletin Board for theapplicable period.

 

8

----

Table of Contents

 
| ** **                                          | ** ** | **Three Months Ended**

**March 31,** |       |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| **Basic:**                                          |       |                                       |       |   |   |
| Net income (loss)  available to common stockholders |       | $                                          | (163,323   | )  | $ | 1,514,845 |   |
| Weighted average common  shares outstanding         |       | 41,212,875                                 |       | 41,212,875 |   |
| Net income (loss) per  common share — basic    |       | $                                          | (0.00      | )  | $ | 0.04 |   |
| ** **                                          |       |                                       |       |   |   |
| **Diluted:**                                        |       |                                       |       |   |   |
| Net income (loss)  available to common stockholders |       | $                                          | (163,323   | )  | $ | 1,514,845 |   |
| Weighted average common  shares outstanding         |       | 41,212,875                                 |       | 41,212,875 |   |
| Effect of dilutive  warrants                        |       | —                                     |       | 9,617,947 |   |
| Diluted weighted  average common shares outstanding |       | 41,212,875                                 |       | 50,830,822 |   |
| Net income (loss) per  common share — diluted  |       | $                                          | (0.00      | )  | $ | 0.03 |   |

 

At March 31,2009 and 2008, potentially dilutive securities consisted of outstandingwarrants and options to acquire an aggregate of 44,170,300 shares of commonstock, all of which were anti-dilutive at March 31, 2009, and 5,000,000 ofwhich were anti-dilutive at March 31, 2008.

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

 

***Use of Estimates***

 

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

 

***Fair Value of Financial Instruments***

 

Thecarrying amounts of cash and cash equivalents, money market funds - held intrust, prepaid expenses, income tax refundable, accounts payable and accruedexpenses, and deferred underwriting fees payable approximate their respectivefair values, due to the short-term nature of these items.

 

***Share-Based Payments***

 

TheCompany accounts for share-based payments pursuant to Statement of FinancialAccounting Standards No. 123R, “Share-Based Payment” (“SFAS No. 123R”).SFAS No. 123R requires all share-based payments, including grants ofemployee stock options to employees, to be recognized in the financial statementsbased on their fair values. The Company adopted SFAS No. 123R on January 24,2007 (inception). The Company expects that SFAS No. 123R could have amaterial impact on the Company’s consolidated financial statements to theextent that the Company grants stock-based compensation in future periods.

 

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

 

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

 

***Recent Accounting Pronouncements***

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157,“Fair Value Measurements” (“SFAS No. 157”), which establishes a framework for measuringfair value in accordance with generally accepted accounting principles,clarifies the definition of fair value within that framework and expands 

 

9

----

Table ofContents

 

disclosures about fairvalue measurements. SFAS No. 157 applies whenever other standards require (orpermit) assets or liabilities to be measured at fair value, except for themeasurement of share-based payments. The Company adopted SFAS No. 157 on January 1, 2008.  However, since the issuance of SFAS No. 157,the FASB hasissued several FASB Staff Positions (FSPs) to clarify the application of SFAS No. 157.  In February 2008, the FASB released FSP No. 157-2,“Effective Date of FASB Statement No. 157”, which delayed the effectivedate of SFAS No. 157 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually).  In October 2008, the FASB issued FSP No. 157-3,“Determining the Fair Value of a Financial Asset When the Market for That AssetIs Not Active”, which clarifies the application of SFAS No. 157 in a market that is not active andprovides guidance in key considerations in determining the fair value of afinancial asset when the market for that financial asset is not active.  FSPs apply to financial assets within the scope of accountingpronouncements that require or permit fair value measurements in accordancewith SFAS No. 157.  In April 2009, the FASB issued FSPNo. 157-4, “Determining the FairValue When the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly”, which provides additional guidance forestimating fair value in accordance with SFAS No. 157, when the volume and levelof activity for the asset or liability have significantly decreased.  FSP No. 157-4 also provides guidance onidentifying circumstances that indicate a transaction is not orderly.  FSP No. 157-4 is effective for interimand periods ending after June 15, 2009, and shall be appliedprospectively.  Additional disclosuresrequired as a result of the Company’s implementation of SFAS No. 157 arepresented at Note 6.

 

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

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 141(R), “BusinessCombinations” (“SFAS No. 141(R)”), which requires an acquirer to recognizein its financial statements as of the acquisition date (i) theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree, measured at their fair values on the acquisitiondate, and (ii) goodwill as the excess of the consideration transferredplus the fair value of any noncontrolling interest in the acquiree at theacquisition date over the fair values of the identifiable net assets acquired.Acquisition-related costs, which are the costs an acquirer incurs to effect abusiness combination, will be accounted for as expenses in the periods in whichthe costs are incurred and the services are received, except that costs toissue debt or equity securities will be recognized in accordance with otherapplicable GAAP. SFAS No. 141(R) makes significant amendments toother Statement of Financial Accounting Standards and other authoritativeguidance to provide additional guidance or to conform the guidance in thatliterature to that provided in SFAS No. 141(R). SFAS No. 141(R) alsoprovides guidance as to what information is to be disclosed to enable users offinancial statements to evaluate the nature and financial effects of a businesscombination. SFAS No. 141(R) is effective for financial statementsissued for fiscal years beginning on or after December 15, 2008. TheCompany adopted SFAS No. 141(R) on January 1, 2009.  The adoption of SFAS No. 141(R) willaffect how the Company accounts for a business combination in 2009 and beyond.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51”(“SFAS No. 160”), which requires that ownership interests in subsidiariesheld by parties other than the parent, and the amount of consolidated netincome, be clearly identified, labeled and presented in the consolidatedfinancial statements.  SFAS No. 160 also requires that once asubsidiary is deconsolidated, any retained noncontrolling equity investment inthe former subsidiary be initially measured at fair value.  Sufficientdisclosures are required to clearly identify and distinguish between theinterests of the parent and the interests of the noncontrolling owners. SFAS No. 160 amends FASB No. 128 to provide that the calculation ofearnings per share amounts in the consolidated financial statements willcontinue to be based on the amounts attributable to the parent. SFAS No. 160is effective for financial statements issued for fiscal years, and interimperiods within those fiscal years, beginning on or after December 15,2008, and requires retroactive adoption of the 

 

10

----

Table ofContents

 

presentation anddisclosure requirements for existing minority interests.  All otherrequirements are applied prospectively.  The Company adopted SFAS No. 160on January 1, 2009.  The adoption of SFAS No. 160 did not haveany impact on the Company’s consolidated financial statement presentation ordisclosures.

 

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

 

In May 2008,the FASB issued Statement of Financial Accounting Standards No. 162, “TheHierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”).SFAS No. 162 identifies the sources of accounting principles and theframework for selecting the principles to be used in the preparation offinancial statements of nongovernmental entities that are presented inconformity with GAAP. SFAS No. 162 became effective on November 15,2008. The adoption of SFAS No. 162 did not have any impact on the Company’sconsolidated financial statement presentation or disclosures.

 

In June 2008,the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-05, “DeterminingWhether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”(“EITF 07-05”). EITF 07-05 mandates a two-step process for evaluating whetheran equity-linked financial instrument or embedded feature is indexed to theentity’s own stock. Warrants that a company issues that contain a strike priceadjustment feature, upon the adoption of EITF 07-05, results in the instrumentsno longer being considered indexed to the company’s own stock. Accordingly,adoption of EITF 07-05 will change the current classification (from equity toliability) and the related accounting for such warrants outstanding at thatdate. EITF 07-05 is effective for fiscal years beginning after December 15,2008, and interim periods within those fiscal years. The Company adopted EITF07-05 on January 1, 2009.  The adoption of EITF 07-05 did not haveany impact on the Company’s consolidated financial statement presentation ordisclosures.

 

In April 2009, the FASB issued FSP 107-1, “InterimDisclosures about Fair Value of Financial Instruments” (“FSP 107-1”), whichrequires disclosures about fair value of financial instruments for interimreporting periods of publicly traded companies as well as in annual financialstatements.  FSP 107-1 also amends APBOpinion No. 28, “Interim Financial Reporting”, to require those disclosures insummarized financial information at interim reporting. FSP 107-1 is effectivefor interim reporting periods ending after June 15, 2009, with early adoptionpermitted for periods ending after March 15, 2009.  The Company is currently evaluating thepotential impact of FSP 107-1 on its consolidated financial statementpresentation and disclosures.

 

Managementdoes not believe that any other recently issued, but not yet effective,accounting standards or pronouncements, if currently adopted, would have amaterial effect on the Company’s consolidated financial statements.

 

**4.Private Placement and Public Offering**

 

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

 

TheCompany paid the underwriters in the Public Offering an underwriting discountof 3.5% of the gross proceeds and upon the consummation of a businesscombination, the underwriters will receive an additional underwriting discountequal to 3.5% of the gross proceeds. The Company also issued a unit purchaseoption, for $100, upon consummation of the Public Offering, to Morgan Joseph &Co. Inc. (“Morgan”) , the representative of the underwriters, to purchase up toa total 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 

 

11

----

Table of Contents

 

price of the warrantsunderlying the units is $7.00. This option is exercisable for cash, or on acashless basis, commencing October 15, 2007 and expiring October 15,2012. Since the warrants underlying the option are the same as the units soldin the Public Offering and expire October 15, 2011, if the option isexercised after such date, the holders of the option will only receive thecommon stock component of the units. The estimated fair value of this unitpurchase option on the grant date was determined to be approximately $7,689,369($3.08 per unit) using a Black-Scholes option-pricing model with the followingassumptions:  (1) expected volatility of 45.3%, (2) risk-freeinterest rate of 4.2%, (3) expected life of 5 years, and (4) dividendrate of zero. The Company accounted for the fair value of the unit purchaseoption as a cost of the Public Offering, resulting in a charge directly toadditional paid-in capital, offset by an equal amount credited directly toadditional paid-in capital. As a result, the net increase in shareholders’equity from the issuance of the unit purchase option was the $100 cash paymentreceived by the Company. The option and warrants could expire worthless ifthere 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 is permitted to bereleased to the Company to fund working capital requirements as set forth inthe Investment Management Trust Agreement. Therefore, unless and until abusiness combination is consummated, the proceeds held in the Trust Account(other than up to $3,300,000 of the interest earned and amounts necessary topay taxes) will not be available for the Company’s use for any expenses relatedto the Offerings or expenses which may be incurred related to the investigationand selection of a target business and the negotiation of an agreement toacquire a target business.

 

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

 

On October 19,2007, prior to the consummation of the Public Offering, the Company’s foundingstockholders 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 ofproceeds from the sale of the Founder Warrants were added to the portion of theproceeds from the Public Offering held in the Trust Account pending completionof the Company’s initial business combination. The Company determined, based ona review 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.

 

Afterthe Company signs a definitive agreement for the acquisition of a targetbusiness, it will submit such transaction for stockholder approval. In theevent that holders of the shares sold in the Public Offering (the “PublicStockholders”) owning 30% or more of the outstanding stock sold in the PublicOffering vote against the business combination and elect to have the Companyredeem their shares for cash, the business combination will not be consummated.All of the Company’s stockholders prior to the Offerings, including the officerand directors of the Company (the “Initial Stockholders”), have agreed to votetheir 8,625,000 founding shares of common stock in accordance with the vote ofthe majority of shares purchased in the Public Offering with respect to anybusiness combination and to vote any shares they acquire in the PublicOffering, or in the aftermarket, in favor of the business combination. Afterconsummation of the Company’s first business combination, all of these voting safeguardswill no longer be applicable.

 

12

----

Table ofContents

 

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

 

If no businesscombination occurs, the Company’s Amended and Restated Certificate ofIncorporation provides for mandatory liquidation of the Company on October 15,2009, 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. MoneyMarket Funds — Held In Trust**

 

Money market fundsheld in trust at March 31, 2009 and December 31, 2008 consist of aninvestment in Citi Institutional US Treasury Reserves Class A Funds with amarket value of $263,345,154 and $263,192,125, respectively, and annualizedtaxable yields of 0.21% and 0.56%, respectively.  The money market fundinvests solely in U.S. treasuries.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

13

----

Tableof Contents

 
|                                                              | ** ** | **Total** | ** **  | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** |   |
|-------------------------------------------------------------------|------------|-----------|-------------|------------------|------------|------------------|------------|------------------|--------|
|                                                              |       |      |        |             |       |             |       |             |   |
| March 31, 2009:                                              |       |      |        |             |       |             |       |             |   |
| Money Market Funds —  presented as cash and cash equivalents |       | $         | 1,097,350   |             | $          | 1,097,350        |       | $                | — |   | $ | — |   |
| Money Market Funds —  Held in Trust                          |       | $         | 263,345,154 |             | $          | 263,345,154      |       | $                | — |   | $ | — |   |

 

**7.Related Party Transactions**

 

***Note Payable to Stockholder***

 

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

 

***Management Fees and Other Costs***

 

The Company hasagreed to pay Pacific Millennium Investment Corporation (“Pacific Millennium”),an affiliate of the Company’s Chief Executive Officer, $7,500 per month for 24months, for office space and reimbursement of general and administrativeexpenses pursuant to a letter agreement, commencing on the date of the PublicOffering and terminating upon the date the Company consummates a businesscombination or liquidates. During the three months ended March 31, 2009and 2008, and for the period from January 24, 2007 (inception) to March 31,2009, the Company incurred $22,500, $22,500 and $127,500 of costs,respectively, under this agreement.

 

From time to time,Pacific Millennium makes payments on the Company’s behalf to third parties forexpenses incurred in the pursuit of a potential business combination for whichit is reimbursed by the Company.  Such reimbursements amounted to $45,352,$26,438 and $432,749 during the three months ended March 31, 2009 and2008, and the period from January 24, 2007 (inception) to March 31,2009, respectively.  Pacific Millenniumdoes not receive any benefit from these transactions.

 

**8.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 the Company’soutstanding common stock immediately prior to the consummation of such businesscombination after giving effect to the redemption.

 

14

----

Table of Contents

 

**9.Preferred Stock**

 

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

 

**10.Income Taxes**

 

The provision forincome tax for the three months ended March 31, 2008 consists of U.S.federal income tax currently payable. The Company had a tax benefit for the three monthsended March 31, 2009.  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 31,2009 and December 31, 2008 consist of start-up and organizationcosts.  Start-up costs must be deferred until the Company activelycommences business operations, at which time they may be written off over a180-month period.  Organization costs must be deferred and written offover a 180-month period starting with the date that the Company isformed.  Because of the uncertainty associated with the realization of theCompany’s deferred tax assets, a 100% valuation allowance has been recorded.

 

**11.Commitments and Contingencies**

 

The Company 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 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 eachshare that is redeemed. Accordingly, the total deferred underwritingcompensation payable to the underwriters in the event of a business combinationwill be reduced by approximately $0.28 for each share that is redeemed. Thebalance will be paid from proceeds held in the Trust Account, which are payableto the Company upon consummation of a business combination. Even if less than30% of the stockholders exercise their redemption rights, the Company may beunable to consummate a business combination if such redemption leaves theCompany with funds insufficient to acquire or merge with a business with a fairmarket value greater than 80% of the Company’s net assets at the time of suchacquisition, which would be in violation of a condition to the consummation ofthe Company’s initial business combination, and as a consequence, the Companymay be forced to find additional financing to consummate such a businesscombination, 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 

 

15

----

Table of Contents

 

open market purchasesdescribed above and this private purchase. The purchase of co-investment unitswill occur immediately prior to the Company’s consummation of a businesscombination, which will not occur until after the signing of a definitivebusiness combination agreement and the approval of that business combination bya majority of the Company’s public stockholders. The warrants included in theco-investment units will be exercisable on a cashless basis.

 

**12.Registration Rights**

 

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

 

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

 

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

 

16

----

Table of Contents

 

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

** **

**Forward-LookingStatements**

 

This QuarterlyReport on Form 10-Q includes forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. We have based theseforward-looking statements on our current expectations and projections aboutfuture events. These forward-looking statements are subject to known andunknown risks, uncertainties and assumptions about us that may cause our actualresults, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by such forward-looking statements. In somecases, you can identify forward-looking statements by terminology such as “may,”“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”“continue,” or the negative of such terms or other similar expressions. Factorsthat might cause or contribute to such a discrepancy include, but are notlimited to, those described in our other Securities and Exchange Commissionfilings. The following discussion should be read in conjunction with ourconsolidated financial statements and related notes thereto included elsewherein this report.

 

**Overview**

 

We were formed on January 24,2007 to serve as a vehicle to effect a merger, asset acquisition, stockexchange or other similar business combination, or control through contractualarrangements, an operating business having its primary operations in the People’sRepublic of China. Our initial business combination must be with a targetbusiness or businesses whose fair market value is at least equal to 80% of ournet assets at the time of such acquisition. Since our initial public offeringin October 2007, we have been actively searching for a suitable businesscombination candidate. We currently have not entered into any definitiveagreement with any potential target businesses. We are not presently engagedin, and will not engage in, any substantive commercial business until weconsummate an initial transaction. We intend to utilize cash derived from theproceeds of our private placement and initial public offering, our capitalstock, debt or a combination of cash, capital stock and debt, in effecting abusiness combination.

 

**GoingConcern**

 

Our financialstatements have been prepared assuming that we will continue as a goingconcern.  Our amended and restated certificate of incorporation providesthat if we are not able to complete a business combination by October 15,2009, our corporate existence will cease, except for the process of winding upand liquidating.  We cannot assure our investors that we will be able tofind a suitable business combination by October 15, 2009.  Ourindependent registered public accounting firm, in their report on our 2008consolidated financial statements, have raised substantial doubt about ourability to continue as a going concern.  The condensed consolidatedfinancial statements as of and for the three months ended March 31, 2009do not include any adjustments that might result from the outcome of thisuncertainty.

 

**CriticalAccounting 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 (“SFAS”)No. 123R, “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123Rrequires all share-based payments, including grants of stock options toemployees, to be recognized in the financial statements based on their fairvalues. We adopted SFAS No. 123R on January 24, 2007 (inception) andexpect that it could have a material impact on our financial statements to theextent that we grant stock-based compensation in future periods.

 

*DeferredInterest on Funds Held in Trust*

 

Deferred intereston funds held in the trust account consists of the 30% less one share portionof the interest earned on the funds held in trust reduced by certain permittedwithdrawals, including income taxes, by us, which is the maximum amount that we

 

17

----

Table ofContents

 

would be obligated to payto stockholders who elect to have their stock redeemed by us without resultingin a rejection of a business combination.

 

*IncomeTaxes*

 

We account forincome taxes pursuant to SFAS No. 109, “Accounting for Income Taxes” (“SFAS109”), which establishes financial accounting and reporting standards for theeffects of income taxes that result from an enterprise’s activities during thecurrent and preceding years. SFAS No. 109 requires an asset and liabilityapproach for financial accounting and reporting for income taxes.

 

Effective January 24,2007 (inception), we adopted the provisions of FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109,” 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.

 

**RecentAccounting Pronouncements**

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157,“Fair Value Measurements” (“SFAS No. 157”), which establishes a framework for measuringfair value in accordance with generally accepted accounting principles,clarifies the definition of fair value within that framework and expandsdisclosures about fair value measurements. SFAS No. 157 applies whenever other standardsrequire (or permit) assets or liabilities to be measured at fair value, exceptfor the measurement of share-based payments. The Company adopted SFAS No. 157 on January 1, 2008.  However, since the issuance of SFAS No. 157,the FASB hasissued several FASB Staff Positions (FSPs) to clarify the application of SFAS No. 157.  In February 2008, the FASB released FSP No. 157-2,“Effective Date of FASB Statement No. 157”, which delayed the effectivedate of SFAS No. 157 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually).  In October 2008, the FASB issued FSP No. 157-3,“Determining the Fair Value of a Financial Asset When the Market for That AssetIs Not Active”, which clarifies the application of SFAS No. 157 in a market that is not active andprovides guidance in key considerations in determining the fair value of a financialasset when the market for that financial asset is not active.  FSPs apply to financial assets within the scope of accountingpronouncements that require or permit fair value measurements in accordancewith SFAS No. 157.  In April 2009, the FASB issued FSPNo. 157-4, “Determining the FairValue When the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly”, which provides additional guidance forestimating fair value in accordance with SFAS No. 157, when the volume and levelof activity for the asset or liability have significantly decreased.  FSP No. 157-4 also provides guidance onidentifying circumstances that indicate a transaction is not orderly.  FSP No. 157-4 is effective for interimand periods ending after June 15, 2009, and shall be appliedprospectively.

 

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

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 141(R), “BusinessCombinations” (“SFAS No. 141(R)”), which requires an acquirer to recognizein its financial statements as of the acquisition date (i) theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree, measured at their fair values on the acquisitiondate, and (ii) goodwill as the excess of the consideration transferredplus the fair value of any noncontrolling interest in the acquiree at theacquisition date over the fair values of the identifiable net assets acquired.Acquisition-related costs, which are the costs an 

 

18

----

Table of Contents

 

acquirer incurs to effecta business combination, will be accounted for as expenses in the periods inwhich the costs are incurred and the services are received, except that coststo issue debt or equity securities will be recognized in accordance with otherapplicable GAAP. SFAS No. 141(R) makes significant amendments toother Statement of Financial Accounting Standards and other authoritativeguidance to provide additional guidance or to conform the guidance in thatliterature to that provided in SFAS No. 141(R). SFAS No. 141(R) alsoprovides guidance as to what information is to be disclosed to enable users offinancial statements to evaluate the nature and financial effects of a businesscombination. SFAS No. 141(R) is effective for financial statementsissued for fiscal years beginning on or after December 15, 2008. TheCompany adopted SFAS No. 141(R) on January 1, 2009.  The adoption of SFAS No. 141(R) willaffect how the Company accounts for a business combination in 2009 and beyond.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51”(“SFAS No. 160”), which requires that ownership interests in subsidiariesheld by parties other than the parent, and the amount of consolidated netincome, be clearly identified, labeled and presented in the consolidatedfinancial statements.  SFAS No. 160 also requires that once asubsidiary is deconsolidated, any retained noncontrolling equity investment inthe former subsidiary be initially measured at fair value.  Sufficientdisclosures are required to clearly identify and distinguish between theinterests of the parent and the interests of the noncontrolling owners. SFAS No. 160 amends FASB No. 128 to provide that the calculation ofearnings per share amounts in the consolidated financial statements willcontinue to be based on the amounts attributable to the parent. SFAS No. 160is effective for financial statements issued for fiscal years, and interimperiods within those fiscal years, beginning on or after December 15,2008, and requires retroactive adoption of the presentation and disclosurerequirements for existing minority interests.  All other requirements areapplied prospectively.  The Company adopted SFAS No. 160 on January 1,2009.  The adoption of SFAS No. 160 did not have any impact on theCompany’s consolidated financial statement presentation or disclosures.

 

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

 

In May 2008,the FASB issued Statement of Financial Accounting Standards No. 162, “TheHierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”).SFAS No. 162 identifies the sources of accounting principles and theframework for selecting the principles to be used in the preparation offinancial statements of nongovernmental entities that are presented inconformity with GAAP. SFAS No. 162 became effective on November 15,2008. The adoption of SFAS No. 162 did not have any impact on the Company’sconsolidated financial statement presentation or disclosures.

 

In June 2008,the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-05, “DeterminingWhether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”(“EITF 07-05”). EITF 07-05 mandates a two-step process for evaluating whetheran equity-linked financial instrument or embedded feature is indexed to theentity’s own stock. Warrants that a company issues that contain a strike priceadjustment feature, upon the adoption of EITF 07-05, results in the instrumentsno longer being considered indexed to the company’s own stock. Accordingly,adoption of EITF 07-05 will change the current classification (from equity toliability) and the related accounting for such warrants outstanding at thatdate. EITF 07-05 is effective for fiscal years beginning after December 15,2008, and interim periods within those fiscal years. The Company adopted EITF 07-05on January 1, 2009.  The adoption of EITF 07-05 did not have anyimpact on the Company’s consolidated financial statement presentation ordisclosures.

 

19

----

Table of Contents

 

In April 2009, the FASB issued FSP 107-1, “InterimDisclosures about Fair Value of Financial Instruments” (“FSP 107-1”), whichrequires disclosures about fair value of financial instruments for interimreporting periods of publicly traded companies as well as in annual financialstatements.  FSP 107-1 also amends APBOpinion No. 28, “Interim Financial Reporting”, to require thosedisclosures in summarized financial information at interim reporting. FSP 107-1is effective for interim reporting periods ending after June 15, 2009,with early adoption permitted for periods ending after March 15,2009.  The Company is currentlyevaluating the potential impact of FSP 107-1 on its consolidated financialstatement presentation and disclosures.

 

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

 

**Resultsof Operations -Three Months Ended March 31, 2009 and 2008**

 

For the threemonths ended March 31, 2009, we had a net loss of approximately $163,300,comprised of interest income of approximately $155,800, less operating expensesof approximately $349,100, interest allocable to common shares subject topossible redemption of approximately $20,000, and an income tax benefit of$50,000. Operating expenses consisted of approximately $200,500 forprofessional fees, $19,400 for travel expenses, $33,100 for insurance, $54,800for other operating costs, and $41,300 for capital based taxes.

 

For the threemonths ended March 31, 2008, we had net income available to commonstockholders of approximately $1,514,800, comprised of interest income ofapproximately $2,670,800, less operating expenses of approximately $211,300,income tax expense of approximately $896,000, and interest allocable to commonshares subject to possible redemption of approximately $48,700. Operatingexpenses consisted of approximately $86,900 for professional fees, $13,100 fortravel expenses, $33,100 for insurance, $40,900 for other operating costs, and$37,300 for capital based taxes.

 

Commencing on October 15,2007 and ending upon the acquisition of a target business, we began incurring afee of $7,500 per month for office space and certain other additional servicesfrom Pacific Millennium, an affiliate of Mr. Tan, our Chief ExecutiveOfficer.  During each of the three months ended March 31, 2009 and 2008,we incurred $22,500 of costs under this agreement.

 

From time to timePacific Millennium makes payments on our behalf to third parties for expensesincurred by us in the pursuit of a potential business combination for which wereimburse Pacific Millennium.  Such reimbursements amounted to $45,352 and$26,438 during the three months ended March 31, 2009 and 2008,respectively.  Pacific Millennium does not receive any benefit from thesetransactions.

 

**Liquidityand Capital Resources**

 

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

 

The net proceedsfrom the sale of our units (including the underwriters’ over-allotment option)and the insider warrants, after deducting certain offering expenses 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,including accrued interest, were approximately $259,875,000, of whichapproximately $259,746,000 was deposited into the trust account. The remainingproceeds were deposited into the Company’s operating account, which along withup to $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 expect to use substantially all of the net proceeds of theoffering to acquire a target business, including identifying and evaluatingprospective acquisition candidates, selecting the target business, andstructuring, negotiating and consummating a business combination. To the extentthat our capital stock is used in whole or in part as consideration to effect abusiness combination, the proceeds held in the trust account, as well as anyother net proceeds not expended, is expected to be used to finance theoperations of the target business.

 

On February 27,2007, we issued an unsecured promissory note of $500,000 to one of our initialstockholders. The note, which bore interest at the rate of 4% per annum, waspaid in full on October 19, 2007.

 

20

----

Table of Contents

 

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

 

·                  legal, accounting and other 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);and

 

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

 

As of March 31,2009, we had $1,097,350 available to us outside of the trust account to fundour working capital requirementsand are entitled to withdraw up to anadditional $256,634 of the interest earned on the trust account, net of taxes,to fund our business. However, we may not have sufficient funds available tocomplete a business combination. In such event, we would need to borrow fundsfrom our insiders or others or seek favorable payment terms with ourprofessionals and we may not be successful in these efforts.

 

We may use all orsubstantially all of the proceeds held in trust other than the deferred portionof the underwriter’s fee to acquire one or more target businesses. We may notuse all of the proceeds held in the trust account in connection with a businesscombination, either because the consideration for the business combination isless than the proceeds in trust or because we finance a portion of theconsideration with capital stock or debt securities that we can issue. In thatevent, the proceeds held in the trust account, as well as any other netproceeds not expended, will be used to finance the operations of the targetbusiness or businesses. The operating businesses that we acquire in suchbusiness combination must have, individually or collectively, a fair marketvalue equal to at least 80% of our net assets at the time of such acquisition.If we consummate multiple business combinations that collectively have a fairmarket value of 80% of our net assets, then we would require that suchtransactions are consummated simultaneously.

 

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

 

**OffBalance-Sheet Arrangements**

 

We do not have anyoff-balance sheet arrangements.

 

**ContractualObligations**

 

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

 

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

** **

Marketrisk is the sensitivity of income to changes in interest rates (with respect toboth interest income on the trust funds and interest expense on any future debtobligations), foreign exchange rates, commodity prices, equity prices, andother market-driven rates or prices.

 

21

----

Table of Contents

 

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

 

Thenet proceeds of our initial public offering held in the trust fund have beeninvested only in money market funds meeting certain conditions under Rule 2a-7promulgated under the Investment Company Act of 1940. Although we believe thatour risk is limited with respect to our exposure to money market funds,reductions in interest rates could decrease the amount of interest earned onthe trust funds and thus negatively impact future earnings.  Fluctuations in interest rates could beexacerbated in future periods as a result of the current worldwide instabilityin the banking and credit markets.

 

**ITEM 4. CONTROLS ANDPROCEDURES**

** **

**Disclosurecontrols and procedures**

 

As of March 31, 2009, our chief executive and principal financialofficer has evaluated the effectiveness of our disclosure controls andprocedures as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934 (the “Exchange Act”), and has concluded thatour disclosure controls and procedures were effective to ensure that theinformation required to be disclosed by us in reports we file or submit underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the Securities andExchange Commission, and that such information is accumulated and communicatedto our chief executive and principal financial officer as appropriate to allowtimely decisions regarding required disclosure.

 

**Changesin internal control over financial reporting**

 

During the most recently completed fiscal quarter, there has been nochange in our internal control over financial reporting that has materiallyaffected, or is reasonably likely to materially affect, our internal control overfinancial reporting.

 

22

----

Table of Contents

 

**PART II -OTHER INFORMATION**

** **

**ITEM 1. LEGAL PROCEEDINGS**

** **

None.

 

**ITEM 1A. RISK FACTORS**

** **

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

 

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

** **

**RecentSales of Unregistered Securities**

 

Wedid not engage in the sale of any unregistered securities during the threemonths ended March 31, 2009.

 

**Use ofProceeds**

 

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

 

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

 

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

 

Thenet proceeds from the sale of our units (including the underwriters’over-allotment option) and the insider warrants, after deducting certainoffering expenses of approximately $9,592,000, including underwriting discountsof approximately $9,232,000, and the repayment of the note payable to astockholder of approximately $513,000, including accrued interest, wereapproximately $259,875,000. Of this amount, approximately $259,746,000 is beingheld in the trust account and the remaining proceeds are being held outside ofthe trust account. The remaining proceeds, along with up to $3,300,000 ininterest earned on the funds in the trust account, are available to be used byus to provide for business, legal and accounting due diligence on prospectiveacquisitions and continuing general and administrative expenses.

 

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

 

OnSeptember 29, 2008, all the funds held in the trust account weretransferred into a money market fund that is invested solely in U.S.treasuries.

 

**Repurchasesof Equity Securities**

 

None.

 

23

----

Table of Contents

 

**ITEM 3. DEFAULTS UPONSENIOR SECURITIES**

** **

None.

 

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

** **

None.

 

**ITEM 5. OTHER INFORMATION**

** **

None.

 

**ITEM 6. EXHIBITS**

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

 

24

----

Table of Contents

 

**SIGNATURES**

** **

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

 

 
|             | STONE TAN CHINA ACQUISITION CORP. |
|------------------|-----------------------------------|
|             |                              |
|             |                              |
| May 7, 2009 | By:                               | /s/ Richard Tan |
|             |                              |   |
|             |                              | Richard Tan |
|             |                              | Chief Executive Officer, President and Director |
|             |                              | (Principal Executive, Accounting and Financial |
|             |                              | Officer) |

 

25

----

**Tableof Contents**

 

**Exhibit Index**

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

 

26

----