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** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

 

**FORM 10-K**

 

**x** ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

** **

**For the fiscal year ended December 31, 2008**

 

**or**

 

**o** TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF1934

 

**For the transition period from                    to                    **

 

**Commission File No.: 000-52857**

 

**STONE TAN CHINA ACQUISITION CORP.**

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

**Suite 1A, 11th Floor,Tower 1 China Hong Kong City 33 Canton Road Kowloon, Hong Kong**

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: **852-27355493**

 

Securities registered pursuant to Section 12(b) of theAct:  **None**

 

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

 

**Common Stock, $.0001 par value**

(Title of Class)

 

**Common Stock Purchase Warrants**

(Title of Class)

 

**Units consisting of one shareof Common Stock and one Common Stock Purchase Warrant**

(Title of Class)

 

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

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

 

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

 

Indicate by check mark if disclosure of delinquentfilers pursuant to item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of the registrant’s knowledge in definitive proxyor information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  See thedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of 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 |
|---------------------------|--------|---------------------|------------------------------------------------------------------------|-----------------------------|

 

Reporting Company Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).  Yes x  No o

 

The aggregate market value of the voting stock heldon June 30, 2008 by non-affiliates of the registrant was $245,628,735  based on the closing price of $7.45 per shareas reported on the OTC Bulletin Board on June 30, 2008, the last businessday of the registrant’s most recently completed second fiscal quarter.

 

Indicate the number of shares outstanding of each ofthe registrant’s classes of common stock, as of the latest practicable date:41,212,875 at March 6, 2009.

 

Documents incorporated by reference: None

 

 

 

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**TABLE OF CONTENTS**

 
| ** ** | ** **                                                                                                          | **Page**   |
|------------|---------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** **                                                                                                          | ** ** |
| ITEM 1.    | BUSINESS                                                                                                            | 1          |
|       |                                                                                                                |
| ITEM 1A.   | RISK FACTORS                                                                                                        | 8          |
|       |                                                                                                                |       |
| ITEM 1B.   | UNRESOLVED  STAFF COMMENTS                                                                                          | 23         |
|       |                                                                                                                |
| ITEM 2.    | PROPERTIES                                                                                                          | 23         |
|       |                                                                                                                |       |
| ITEM 3.    | LEGAL PROCEEDINGS                                                                                                   | 24         |
|       |                                                                                                                |       |
| ITEM 4.    | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 24         |
|       |                                                                                                                |       |
| ITEM 5.    | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES | 24         |
|       |                                                                                                                |       |
| ITEM 6.    | SELECTED FINANCIAL  DATA                                                                                            | 25         |
|       |                                                                                                                |       |
| ITEM 7.    | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 26         |
|       |                                                                                                                |
| ITEM 7A.   | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         | 30         |
|       |                                                                                                                |
| ITEM 8.    | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 31         |
|       |                                                                                                                |       |
| ITEM 9.    | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 31         |
|       |                                                                                                                |       |
| ITEM 9A.   | CONTROLS AND  PROCEDURES                                                                                            | 31         |
|       |                                                                                                                |       |
| ITEM 9B.   | OTHER INFORMATION                                                                                                   | 32         |
|       |                                                                                                                |       |
| ITEM 10.   | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             | 32         |
|       |                                                                                                                |       |
| ITEM 11.   | EXECUTIVE  COMPENSATION                                                                                             | 35         |
|       |                                                                                                                |       |
| ITEM 12.   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    | 35         |
|       |                                                                                                                |       |
| ITEM 13.   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          | 37         |
|       |                                                                                                                |       |
| ITEM 14.   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             | 38         |
|       |                                                                                                                |       |
| ITEM 15.   | EXHIBITS,  FINANCIAL STATEMENT SCHEDULES                                                                            | 39         |

 

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**PART I**

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# **Item 1.**                              Business

# ** **

**Introduction**

 

We were formed on January 24, 2007 as a Delawareblank check company for the purpose of acquiring, through a merger, assetacquisition, stock exchange or other similar business combination, or controlthrough contractual arrangements, an operating business having its primaryoperations in the People’s Republic of China, or PRC.

 

On October 19, 2007, we consummated our initialpublic offering of 30,000,000 units. Each unit consists of one share of commonstock, $.0001 par value per share, and one redeemable common stock purchasewarrant. On October 30, 2007, the underwriters exercised theirover-allotment option and purchased an additional 2,970,300 units. Each warrantentitles the holder to purchase from us one share of our common stock at anexercise price of $5.50. Our common stock and warrants started tradingseparately as of November 7, 2007. Immediately prior to the consummationof our initial public offering, on October 19, 2007, we completed aprivate placement of 6,200,000 warrants to the Company’s founding stockholdersand received gross proceeds of $6,200,000.

 

The net proceeds from the sale of our units (includingthe exercise by the underwriters of their over-allotment option) and theprivate placement of warrants, after deducting certain offering expenses ofapproximately $9,592,000, including underwriting discounts of approximately$9,232,000, and the repayment of the note payable to a stockholder ofapproximately $513,000, including accrued interest, were approximately$259,857,000. Of this amount, approximately $259,746,000 (which includes$9,232,000 in deferred underwriting discounts) is being held in the trust accountestablished in connection with our initial public offering. The remainingproceeds, along with up to $3,300,000 in interest earned on the funds in thetrust account, are available to be used by us to provide for business, legaland accounting due diligence on prospective acquisitions and continuing generaland administrative expenses.

 

Our efforts in identifying a prospective targetbusiness are focused on identifying an operating business having its primaryoperations in the PRC. We are not limited to any particular industry,therefore, we intend to concentrate on industries and target businesses thatmay provide significant opportunities for growth.

 

Pursuant to our amended and restated certificate ofincorporation, the initial business combination must be a transaction with oneor more operating businesses in which the collective fair market value of thetarget business, at the time of the business combination, is at least 80% ofour net assets at the time of the business combination. Our initial businesscombination may involve the simultaneous acquisition or merger of more than onetarget business.

 

**Effecting a Business Combination**

 

*General*

* *

We are not presently engaged in, and we will notengage in, any substantive commercial business for an indefinite period oftime. We intend to utilize cash derived from the proceeds of our initial publicoffering and the private placement, our capital stock, debt or a combination ofthese in effecting a business combination. Although substantially all of the netproceeds from our initial public offering and the private placement areintended to be generally applied toward effecting a business combination, theproceeds are not otherwise being designated for any more specific purposes. Weintend to seek a business combination from amongst private businesses,corporate divestitures, and portfolio companies of private equity funds. Inseeking a business combination we will consider the following sources:

 

·                  *Private Companies**.*  Owners of privately-held companies seeking liquidity or financing foradditional growth opportunities are often interested in a sale to or a mergerwith a well-capitalized public company.

 

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·                  *Corporate Divestitures**.*  Corporate divestitures continue to represent an opportunity to acquireoperating divisions or subsidiaries from companies that embark ontransformation plans and seek to divest non-core assets.

 

·                  *Portfolio Companies of Private Equity Fund**.*   Private equity funds generally have finitelives and must seek exit transactions for their portfolio companies in order toliquidate and/or distribute the fund assets to their limited partners followinga predetermined term (which may include extensions).

 

*Our business strategy*

* *

Our management has substantially unrestrictedflexibility in identifying and selecting a prospective target business. Whilewe have not established specific attributes or criteria for prospective targetbusinesses we believe the following factors to be important in evaluatingprospects. However, we may decide to enter into a business combination with atarget business or businesses that do not meet some or all of these criteriaand guidelines.

 

·                  *Positive and reliable cash flow.*   We willgenerally seek to acquire established companies with a history of positive andreliable cash flow (earnings before interest, taxes, depreciation andamortization). We generally intend to avoid business start-ups and companiesthat we perceive as having significant technology risk or speculative businessprofiles. We also intend to focus on companies where there are opportunitiesfor substantial growth, either organically or through acquisitions, and wheresuch growth allows for enhanced profit margins through economies of scale.

 

·                  *Experienced management team.*   We believe thatexperienced and seasoned management that has been tested and proven through oneor more complete business cycles constitutes an important determinant forsuccess. Accordingly, we will weigh the quality and caliber of management aswell as its depth as an important criterion in our evaluation of targetbusiness opportunities.

 

·                  *Competitive position in industry.*   We will seekto evaluate the strengths and weaknesses of target businesses, particularlywith respect to their competitive position in the marketplace. In seeking todetermine the competitive advantages of a business, we will consider productquality, customer loyalty, market share, brand strength, switching costs (bothfor customers and suppliers), intellectual property protection and otherintangible assets as well as the customary financial measures such as growth,profitability and capitalization. We will favor businesses that are marketshare leaders within their respective industries and those that are positionedfor growth. In addition, in evaluating competitive advantages, we will seek toascertain and confirm their sustainability.

 

*We are not limited to a specific target industry*

* *

Subject to the limitations that the initial businesscombination must be a transaction with one or more operating businesses and inwhich the collective fair market value of the target business or businesses isat least 80% of our net assets at the time of the business combination, asdescribed below in more detail, we will have virtually unrestricted flexibilityin identifying and selecting a prospective acquisition candidate having itsprimary operations in the PRC.

 

We have not established any other specific attributesor criteria (financial or otherwise) for prospective target businesses. To theextent we effect a business combination with a financially unstable company oran entity in its early stage of development or growth, including entitieswithout established records of sales or earnings, we may be affected bynumerous risks inherent in the business and operations of financially unstableand early stage or potential emerging growth companies. Although our managementwill endeavor to evaluate the risks inherent in a particular target business,we cannot assure you that we will properly ascertain or assess all significantrisk factors.

 

*Sources of target businesses*

* *

We anticipate that target business candidates will bebrought to our attention from various unaffiliated sources, includinginvestment bankers, venture capital funds, private equity funds, leveragedbuyout funds, 

 

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management buyout fundsand other members of the financial community, who may present solicited orunsolicited proposals. Our executive officer and directors, as well as theiraffiliates, may also bring to our attention target business candidates. In noevent, however, will we pay any of our existing executive officer or directorsor any entity with which they are affiliated any finder’s fee or othercompensation for services rendered to us prior to or in connection with theconsummation of a business combination.

 

*Selection of a target business and structuring of abusiness combination*

* *

In evaluating a prospective target business, ourmanagement will consider, among other factors, the following:

 

·                  financialcondition and results of operation;

 

·                  growthpotential;

 

·                  experienceand skill of management and availability of additional personnel;

 

·                  capitalrequirements;

 

·                  competitiveposition;

 

·                  barriersto entry into other industries;

 

·                  stageof development of the products, processes or services;

 

·                  degreeof current or potential market acceptance of the products, processes orservices;

 

·                  proprietaryfeatures and degree of intellectual property or other protection of theproducts, processes or services;

 

·                  regulatoryenvironment of the industry; and

 

·                  costsassociated with effecting the business combination.

 

These criteria are not intended to be exhaustive. Anyevaluation relating to the merits of a particular business combination will bebased, to the extent relevant, on the above factors as well as otherconsiderations deemed relevant by our management in effecting a businesscombination consistent with our business objective. In evaluating a prospectivetarget business, we will conduct an extensive due diligence review which willencompass, among other things, meetings with incumbent management, whereapplicable, and inspection of facilities, as well as review of financial andother information which will be made available to us. Nevertheless, upon thecompletion of such due diligence, we may consummate a business combination witha business target which does not possess the foregoing characteristics.

 

The time and costs required to select and evaluate atarget business and to structure and complete the business combination cannotpresently be ascertained with any degree of certainty. Any costs incurred withrespect to the identification and evaluation of a prospective target businesswith which a business combination is not ultimately completed will result in aloss to us and reduce the amount of capital available to otherwise complete abusiness combination. However, we will not pay any finders or consulting feesto our existing officer and directors, or any of their respective affiliates,for services rendered to or in connection with a business combination.

* *

*Fair market value of business combination*

* *

Our management will have virtually unrestrictedflexibility in identifying and selecting a prospective target business, exceptthat our initial business combination must be a transaction in which the fairmarket value of the 

 

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target business orbusinesses acquired simultaneously is at least equal to 80% of our net assetsat the time of the business combination. In the event we determine tosimultaneously acquire several businesses and such businesses are owned bydifferent sellers and one or more the businesses do not, on a stand-alone basismeet the 80% test, we may need one or more of such sellers to agree that ourpurchase of its business is contingent on the simultaneous closings of one ormore of the other acquisitions, which may make it more difficult for us, anddelay our ability to complete the business combination. With multipleacquisitions, we could also face additional risks, including additional burdensand costs with respect to possible multiple negotiations and due diligenceinvestigations (if there are multiple sellers) and the additional risksassociated with the subsequent assimilation of the operations and services orproducts of the acquired companies in a single operating business. We mayfurther seek to acquire a target business that has a fair market value inexcess of 80% of our net assets by raising additional funds through the sale ofour securities, through loans or a combination of both. The fair market valueof any such business or businesses will be determined by our board of directorsbased upon standards generally accepted by the financial community, such asactual and potential sales, earnings and cash flow and book value. If our boardis not able to independently determine that the target business has asufficient fair market value, we will obtain an opinion from an unaffiliatedindependent investment banking firm with respect to the satisfaction of suchcriteria.

 

*Possible lack of business diversification*

* *

While we may seek to effect business combinations withmore than one target business, our initial business combination must be with atarget business which satisfies the minimum valuation standard at the time ofsuch acquisition, as discussed above. Consequently, it is possible that we willhave the ability to effect only a single business combination. Accordingly, theprospects for our success may be dependent upon the future performance of asingle business. Unlike other entities which may have the resources to completeseveral business combinations of entities operating in multiple industries ormultiple areas of a single industry, it is probable that we will not have theresources to diversify our operations or benefit from the possible spreading ofrisks or offsetting of losses. If we are able to consummate only a single businesscombination, our lack of diversification may:

 

·                  subjectus to numerous economic, competitive and regulatory developments, any or all ofwhich may have a substantial adverse impact upon the particular industry inwhich we may operate subsequent to a business combination; and

 

·                  resultin our dependency upon the development or market acceptance of a single orlimited number of products, processes or services.

 

*Limited ability to evaluate the target business’management*

* *

Although we intend to closely scrutinize themanagement of a prospective target business when evaluating the desirability ofeffecting a business combination, we cannot assure you that our assessment ofthe target business’ management will prove to be correct. In addition, wecannot assure you that the future management will have the necessary skills,qualifications or abilities to manage a public company. Furthermore, the futurerole of our executive officer and directors, if any, in the target businesscannot presently be stated with any certainty. While it is possible that one ormore of our directors will remain associated in some capacity with us followinga business combination, it is unlikely that any of them will devote their fullefforts to our affairs subsequent to a business combination. Moreover, wecannot assure you that our executive officer and directors will havesignificant experience or knowledge relating to the operations of theparticular target business.

 

Following a business combination, we may seek torecruit additional managers to supplement the incumbent management of thetarget business. We cannot assure you that we will have the ability to recruitadditional managers, or that additional managers will have the requisiteskills, knowledge or experience necessary to enhance the incumbent management.

* *

*Opportunity for stockholder approval of businesscombination*

* *

Prior to the completion of a business combination, wewill submit the transaction to our stockholders for approval, even if thenature of the acquisition is such as would not ordinarily require stockholderapproval under 

 

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applicable law. Inconnection with seeking stockholder approval of a business combination, we willalso submit to our stockholders for approval a proposal to amend our amendedand restated certificate of incorporation to provide for our corporate life tocontinue perpetually following the consummation of such business combination.Any vote to extend the corporate life to continue perpetually following theconsummation of a business combination will be taken only if the businesscombination is approved. We will only consummate a business combination ifstockholders vote both in favor of such business combination and our amendmentto extend our corporate life.

 

In connection with seeking stockholder approval of abusiness combination we will furnish our stockholders with proxy solicitationmaterials prepared in accordance with the Securities Exchange Act of 1934,which, among other matters, will include a description of the operations of thetarget business and certain audited historical financial statements of thebusiness.

 

In connection with the vote required for any businesscombination, all of our initial stockholders, including all of our executiveofficer and directors, have agreed to vote their respective shares of commonstock owned by them immediately prior to our initial public offering and theprivate placement in accordance with the majority of the shares of common stockvoted by the public stockholders. This voting arrangement shall not apply toshares of common stock included in units purchased by any of our initialstockholders in our initial public offering or following such offering, in theopen market. Our initial stockholders have agreed to vote any such shares theypurchase in favor of any business combination negotiated by our executiveofficer. We will proceed with the business combination only if a majority ofthe shares of common stock voted by the public stockholders are voted in favorof the business combination and public stockholders owning less than 30% of theshares of common stock sold in our initial public offering exercise theirredemption rights. Voting against the business combination alone will notresult in redemption of a stockholder’s shares for a pro rata share of thetrust account. To do so, a stockholder must have also exercised the redemptionrights described below. Because we will not know how many stockholders mayexercise such redemption rights, we will need to structure a businesscombination that requires less cash, or we may need to arrange third partyfinancing to help fund the transaction in case a larger percentage ofstockholders exercise their redemption rights than we expect. Alternatively, tocompensate for the potential shortfall in cash, we may be required to structurethe business combination, in whole or in part, using the issuance of our stockas consideration.

 

In the event that holders of more than 20% of theshares of common stock sold in our initial public offering elect to redeemtheir shares, our founding stockholders have agreed to forfeit that number ofshares (up to a maximum of 937,500) that will result in the number of sharesowned by them prior to this offering collectively being no more than 23.81% ofour outstanding common stock immediately prior to the consummation of suchbusiness combination after giving effect to the redemption.

 

*Redemption rights*

* *

At the time we seek stockholder approval of anybusiness combination, we will offer each public stockholder the right to havesuch stockholder’s shares of common stock redeemed for cash if the stockholdervotes against the business combination and the business combination is approvedand completed. The actual per share redemption price will be equal to theaggregate amount then on deposit in the trust account, including a pro-ratashare of the deferred underwriting discount and any interest earned on thetrust account, net of income taxes payable on such interest and after releaseof up to $3,300,000 of interest income earned on the trust account, after tax,to fund working capital requirements (calculated as of two business days priorto the consummation of the proposed business combination), divided by thenumber of shares of common stock sold in our initial public offering. Withouttaking into account any interest earned on the trust account, the initial pershare redemption price was approximately $7.88, which includes $0.28 being heldin the trust account attributable to the deferred underwriting discount, or$0.12 less than the per unit offering price of $8.00. As of December 31,2008, the amount held in trust was $7.98 per share. An eligiblestockholder may request redemption at any time after the mailing to ourstockholders of the proxy statement and prior to the vote taken with respect toa proposed business combination at a meeting held for that purpose, but therequest will not be granted unless the stockholder votes against the businesscombination and the business combination is approved and completed.Stockholders will not be requested to tender their shares of common stockbefore a business combination is consummated. If a business combination isconsummated, redeeming stockholders will be sent instructions on how to tendertheir shares of common stock and when they should expect to receive theredemption amount. If a stockholder votes against the business combination butfails to properly exercise his or her redemption rights, such stockholder willnot have his or her shares of common stock

 

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redeemed for his or herpro rata distribution of the trust account. Any request for redemption, oncemade, may be withdrawn at any time up to the date of the meeting. It isanticipated that the funds to be distributed to stockholders entitled to redeemtheir shares of common stock who elect redemption will be distributed promptlyafter completion of a business combination. Public stockholders who redeemtheir shares of common stock into their share of the trust account still havethe right to exercise the warrants that they received as part of the units. Wewill not complete any business combination if public stockholders owning 30% ormore of the shares of common stock sold in our initial public offering exercisetheir redemption rights. Our initial stockholders are not entitled to redeemany shares of common stock held by them whether acquired by them prior to, aspart of or after our initial public offering, for a pro rata share of the trustaccount in connection with a business combination.

 

*Liquidation if no business combination*

* *

Our amended and restated certificate of incorporationprovides that we will continue in existence only until October 15, 2009.This provision may not be amended without the affirmative vote of 95% of theshares issued in our initial public offering except in connection with theconsummation of a business combination. If we have not completed a businesscombination by October 15, 2009, our corporate existence will cease exceptfor the purposes of winding up our affairs and liquidating, pursuant to Section 278of the Delaware General Corporation Law. This has the same effect as if ourboard of directors and stockholders had formally voted to approve ourdissolution pursuant to Section 275 of the Delaware General CorporationLaw. Accordingly, limiting our corporate existence to a specified date aspermitted by Section 102(b)(5) of the Delaware General CorporationLaw removes the necessity to comply with the formal procedures set forth in Section 275(which would have required our board of directors and stockholders to formallyvote to approve our dissolution and liquidation and to have filed a certificateof dissolution with the Delaware Secretary of State). We view this provisionterminating our corporate life by October 15, 2009 as an obligation to ourstockholders and will not take any action to amend or waive this provision toallow us to survive for a longer period of time except in connection with theconsummation of a business combination.

 

If we are unable to complete a business combination byOctober 15, 2009, we will distribute to all of our public stockholders, inproportion to their respective equity interests, an aggregate sum equal to theamount in the trust account, inclusive of any interest, net of taxes (up to$3,300,000 of interest, if any may be used to fund our working capitalrequirements), plus any remaining net assets (subject to our obligations underDelaware law to provide for claims of creditors as described below). Weanticipate notifying the trustee of the trust account to begin liquidating suchassets promptly after such date and anticipate it will take no more than 10business days to effectuate such distribution.

 

There will be no distribution from the trust accountor otherwise with respect to our warrants which will expire worthless. We willpay the costs of liquidation and dissolution from our remaining assets outsideof the trust account. Based on consultation with Delaware counsel, we believeliquidation costs will be approximately $25,000.

 

Section 281(b) of the Delaware GeneralCorporation Law requires that the corporation, or any successor entity, adopt aplan of distribution under which the dissolved corporation: (i) pays, ormakes reasonable provision to pay all claims and obligations, includingcontingent, conditional, or unmatured contractual claims known to thecorporation or successor entity; (ii) makes provisions which arereasonably sufficient to provide compensation for any claim against thecorporation which is the subject of a pending action, suit or proceeding towhich the corporation is a party; and (iii) makes provision forcompensation for claims that have not been made against the corporation, butbased on facts known to the corporation or successor entity are likely to arisewithin 10 years after the date of dissolution. The plan of dissolution mustprovide that all claims will be paid in full. If there are insufficient assetsto satisfy such claims the plan must indicate that claims shall be paid, orprovided for according to their priority and, among claims of equal priority,ratably to the extent there are assets legally available. Any remaining assetsshall be distributed to the stockholders of the dissolved corporation.

 

If we were to expend all of the funds available to usfor working capital, other than the proceeds deposited in the trust account,and without taking into account future interest, if any, earned on the trustaccount, the per-share liquidation price as of December 31, 2008 was$7.98, or $0.02 less than the unit offering price of $8.00. The proceedsdeposited in the trust account could, however, become subject to the claims ofour creditors (which could include vendors and service providers we haveengaged to assist us in any way in connection with our search for a targetbusiness and that are owed money by us, as well as target businessesthemselves) which could have higher 

 

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priority than the claimsof our public stockholders. Our executive officer and directors have agreed toindemnify us, jointly and severally pro rata according to their beneficialinterest in our company immediately prior to our initial public offering, forour debts to vendors, or to any prospective target business, if we do notobtain a valid and enforceable waiver from that vendor or prospective targetbusiness of its rights or claims to the trust account and only to the extentnecessary to ensure that such claims do not reduce the amount in the trustaccount. However, we cannot assure you that they will be able to satisfy thoseobligations, if they are required to do so. As a result, we cannot assure youthat the per-share distribution from the trust account, if we liquidate, willnot be less than the $7.88, plus interest then held in the trust account.

 

Additionally, if we are forced to file a bankruptcycase or an involuntary bankruptcy case is filed against us which is notdismissed, the proceeds held in the trust account could be subject toapplicable bankruptcy law, and may be included in our bankruptcy estate andsubject to the claims of third parties with priority over the claims of ourstockholders. To the extent any bankruptcy claims deplete the trust account, wecannot assure you we will be able to return to our public stockholders at least$7.88 per share.

 

*Amended and restated certificate of incorporation*

* *

Our amended and restated certificate of incorporationrequires that we obtain the affirmative vote of holders of 95% of the sharesissued in our initial public offering to amend certain provisions of ouramended and restated certificate of incorporation. However, the validity ofsuch supermajority voting provisions under Delaware law has not been settled. Acourt could conclude that such supermajority voting consent requirementconstitutes a practical prohibition on amendment in violation of thestockholders’ implicit rights to amend the corporate charter. In that case,certain provisions of the amended and restated certificate of incorporationwould be amendable without such supermajority consent and any such amendmentcould reduce or eliminate the protection afforded to our stockholders. However,we view the foregoing provisions as obligations to our stockholders, and wewill not take any action to waive or amend any of these provisions.

 

**Competition**

 

In identifying, evaluating and selecting a targetbusiness, we may encounter intense competition from other entities having abusiness objective similar to ours. Many of these entities are well establishedand have extensive experience identifying and effecting business combinationsdirectly or through affiliates. Many of these competitors possess greatertechnical, human and other resources than us and our financial resources willbe relatively limited when contrasted with those of many of these competitors.While we believe there are numerous potential target businesses that we couldacquire with the net proceeds of our initial public offering, our ability tocompete in acquiring certain sizable target businesses will be limited by ouravailable financial resources. This inherent competitive limitation givesothers an advantage in pursuing the acquisition of a target business. Further:

 

·                  ourobligation to seek stockholder approval of a business combination or obtain thenecessary financial information to be included in the proxy statement to besent to stockholders in connection with such business combination may delay orprevent the completion of a transaction;

 

·                  ourobligation to redeem into cash shares of common stock held by our publicstockholders in certain instances may reduce the resources available to us fora business combination; and

 

·                  ouroutstanding warrants and options, and the future dilution they potentiallyrepresent, may not be viewed favorably by certain target businesses.

 

Any of these factors may place us at a competitivedisadvantage in successfully negotiating a business combination. Our managementbelieves, however, that to the extent that our target business is a privatelyheld entity, our status as a public entity may give us a competitive advantageover privately-held entities having a similar business objective as ours inacquiring a target business with significant growth potential on favorableterms.

 

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

 

**Officers and Employees**

 

We have one executive officer who is also a member ofour board of directors. This individual is not obligated to contribute anyspecific number of hours per week and intend to devote only as much time as hedeems necessary to our affairs. The amount of time he devotes in any timeperiod varies based on the availability of suitable target businesses toinvestigate.

 

## **Item 1A.**                     Risk Factors

## ** **

**Risks associated with our business**

** **

***We are a development stage company with nooperating history and, accordingly, there is limited basis on which to evaluateour ability to achieve our business objective.***

*** ***

We are a recently formed development stage companywith no operating results to date. Since we do not have an operating history,there is limited basis upon which to evaluate our ability to achieve ourbusiness objective, which is to acquire an operating business. We will notgenerate any operating revenues until, at the earliest, after the consummationof a business combination. We cannot assure you that an initial businesscombination will occur.

 

***Theeffects of the global financial crisis are far-reaching and difficult topredict and may adversely impact our ability to complete a businesscombination.***

*** ***

In recent months,there has been severe volatility and overall significant declines in theinternational capital markets and a freezing of the international creditmarkets that together have led to severe constraints in private flows ofcapital and an acutely negative impact on the operating results of companies ina wide range of industries and geographic sectors.  Declining valuations of potential targetbusinesses and uncertainty regarding the future may make it more difficult forus to reach agreement on a business combination that satisfies our requirementsand the lack of available credit sources may adversely impact our ability tostructure a transaction in the most advantageous manner.  In addition, certain stockholders of theCompany may experience pressure to vote against any business combination thatwe may propose in order to liquidate their investment and free up theircapital, without regard to the merits of any such transaction.  All of these factors may make it moredifficult for us to complete a business combination in the time allotted.

 

***If we are unable to complete a businesscombination and are forced to liquidate, our public stockholders will receiveless than $8.00 per share upon distribution of the trust account and ourwarrants will expire worthless.***

*** ***

If we are unable to complete a business combinationprior to October 15, 2009 and are forced to liquidate our assets, the pershare liquidation will likely be less than $8.00 because of the expenses ofthis offering, our general and administrative expenses and the anticipatedcosts of seeking a business combination (although the per share liquidationprice could be $8.00 or more as a result of interest earned on the trust account).As of December 31, 2008, the per share liquidation value would have been$7.98 per share. While we will pay, or reserve for payment, fromfunds not held in trust, our liabilities and obligations, and our executiveofficer and directors have agreed to indemnify us under certain circumstancesfor such liabilities and obligations, we cannot assure you, where it issubsequently determined that the reserve for liabilities is insufficient, thatstockholders will not be liable for such amounts to creditors. Furthermore,there will be no distribution with respect to our outstanding warrants and,accordingly, the warrants will expire worthless if we liquidate before thecompletion of a business combination.

* *

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*** ***

***If third parties bring claims against us, theproceeds held in trust could be reduced and the per share liquidation amountreceivable by our public stockholders from the trust account as part of ourplan of dissolution and liquidation will likely be less than $7.*****98 per share.**

*** ***

Our placing of funds in trust may not protect thosefunds from third party claims against us. Although we will seek to have allsignificant vendors, prospective target businesses or other entities with whichwe execute agreements waive any right, title, interest or claim of any kind inor to any monies held in the trust account for the benefit of our publicstockholders, there is no guarantee that they will execute such agreements, oreven if they execute such agreements that they would be prevented from bringingclaims against the trust account including, but not limited to, claims allegingfraudulent inducement, breach of fiduciary responsibility or other similarclaims, as well as claims challenging the enforceability of the waiver, in eachcase in order to gain an advantage with a claim against our assets, includingthe funds held in the trust account.

 

Accordingly, the proceeds held in trust could besubject to claims that could take priority over the claims of our publicstockholders and the per share liquidation amount receivable by our publicstockholders could be less than the $7.98 per share held in the trustaccount due to claims of such creditors. If we are unable to complete abusiness combination and dissolve the company, our executive officer anddirectors will be personally liable to the extent of their pro rata beneficialinterest in our company immediately prior to this offering, if we did notobtain a valid and enforceable waiver from any vendor, prospective targetbusiness or other entity of any rights or claims by such creditors to the trustaccount, to ensure that the proceeds in the trust account are not reduced bythe claims of various vendors, prospective target businesses or other entitiesthat are owed money by us for services rendered or products sold to us, to theextent necessary to ensure that such claims do not reduce the amount in thetrust account. Our directors and executive officer are of substantial means andcapable of funding any shortfall in our trust account, even though we have notasked them to reserve for such an eventuality. However, we cannot assure youthat they will satisfy those obligations. In the event we obtain a valid andenforceable waiver of any right, title, interest or claim of any kind in or toany monies held in the trust account for the benefit of our stockholders from avendor, prospective target business or other entity, the indemnification willnot be available. In the event that a plan of dissolution and liquidationadopted by us is subsequently determined to have insufficient reserves forclaims and liabilities, stockholders who received a return of funds from ourtrust account as part of its liquidation could be liable for claims made bycreditors.

 

Additionally, if we are forced to file a bankruptcycase or an involuntary bankruptcy case is filed against us that is notdismissed, the funds held in our trust account will be subject to applicablebankruptcy law, and may be included in our bankruptcy estate and subject to theclaims of third parties with priority over the claims of our stockholders. Tothe extent any bankruptcy claims deplete the trust account we cannot assure youwe will be able to return to our public stockholders the liquidation amountsdue them.

 

***The fact that we will proceed with the businesscombination if public stockholders holding less than 30% of the shares sold inour initial public offering exercise their redemption rights, may hinder ourability to consummate a business combination in the most efficient manner or tooptimize our capital structure.***

*** ***

Unlike many other blank check companies which have a20% redemption threshold, we will proceed with the business combination ifpublic stockholders holding less than 30% of the shares sold in our initialpublic offering exercise their redemption rights, which may make it easier forus to receive stockholder approval for a business combination. As a result ofour higher redemption threshold, we may have less cash available to complete abusiness combination. Because we will not know how many stockholders mayexercise such redemption rights, we will need to structure a businesscombination meeting the 80% of our net assets test that requires less cash, orwe may need to arrange third party financing to help fund the transaction incase a larger percentage of stockholders exercise their redemption rights thanwe expect. Alternatively, to compensate for the potential shortfall in cash, wemay be required to structure the business combination, in whole or in part,using the issuance of our stock as consideration. Accordingly, this higherredemption threshold of 30% may hinder our ability to consummate a businesscombination in the most efficient manner or to optimize our capital structure.Furthermore, the potential ownership by our founding stockholders of$10,000,000 worth of common stock purchased on the open market furtherincreases the likelihood the business combination will be approved.

*** ***

***You will not be entitled to protections normallyafforded to investors of blank check companies under the U.S. securities laws.***

*** ***

Since the net proceeds of our initial public offeringare intended to be used to complete a business combination with a targetbusiness that has not been identified, we may be deemed to be a “blank check”company 

 

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under the U.S. securitieslaws. However, since we have net tangible assets in excess of $5,000,000 andfiled a Current Report on Form 8-K with the Securities and ExchangeCommission upon consummation of our initial public offering, including anaudited balance sheet demonstrating this fact, we are exempt from rules promulgatedby the Securities and Exchange Commission to protect investors of blank checkcompanies, such as Rule 419.

 

***Our stockholders may be held liable for claims ofthird parties against us to the extent of distributions received by them inconnection with the liquidation of the trust account.***

*** ***

Our amended and restated certificate of incorporationprovides that we will continue in existence only until 24 months from the dateof our initial public offering. If we have not completed a business combinationby such date and amended this provision in connection therewith, pursuant tothe Delaware General Corporation Law, our corporate existence will cease exceptfor the purposes of winding up our affairs and liquidating. Under Sections 280through 282 of the Delaware General Corporation Law, stockholders may be heldliable for claims by third parties against a corporation to the extent ofdistributions received by them in a dissolution. If the corporation complieswith certain procedures intended to ensure that it makes reasonable provisionfor all claims against it, including a 60-day notice period during which anythird-party claims can be brought against the corporation, a 90-day periodduring which the corporation may reject any claims brought, and an additional150-day waiting period before any liquidating distributions are made tostockholders, any liability of stockholders with respect to a liquidatingdistribution is limited to the lesser of such stockholder’s pro rata share ofthe claim or the amount distributed to the stockholder, and any liability ofthe stockholder would be barred after the third anniversary of the dissolution.However, it is our intention to make liquidating distributions to ourstockholders within 10 business days after the 24 month period and, therefore,we do not intend to comply with those procedures. Because we will not becomplying with those procedures, we are required, pursuant to Section 281of the Delaware General Corporation Law, to adopt a plan that will provide forour payment, based on facts known to us at such time, of (i) all existingclaims, (ii) all pending claims and (iii) all claims that may bepotentially brought against us within the subsequent 10 years. Accordingly, wewould be required to provide for any creditors known to us at that time orthose that we believe could be potentially brought against us within thesubsequent 10 years prior to distributing the funds held in the trust tostockholders. We cannot assure you that we will properly assess all claims thatmay be potentially brought against us. As such, our stockholders couldpotentially be liable for any claims to the extent of distributions received bythem and any liability of our stockholders may extend well beyond the thirdanniversary of such dissolution. Accordingly, we cannot assure you that thirdparties will not seek to recover from our stockholders amounts owed to them byus.

 

Additionally, if we are forced to file a bankruptcycase or an involuntary bankruptcy case is filed against us which is notdismissed, any distributions received by stockholders could be viewed underapplicable debtor/creditor and/or bankruptcy laws as either a “preferentialtransfer” or a “fraudulent conveyance.” As a result, a bankruptcy court couldseek to recover all amounts received by our stockholders in our dissolution.Furthermore, because we intend to distribute the proceeds held in the trustaccount to our public stockholders promptly after October 15, 2009, thismay be viewed or interpreted as giving preference to our public stockholdersover any potential creditors with respect to access to or distributions fromour assets. Additionally, our board may be viewed as having breached theirfiduciary duties to our creditors and/or may have acted in bad faith, andthereby exposing itself and our company to claims of punitive damages, bypaying public stockholders from the trust account prior to addressing theclaims of creditors. We cannot assure you that claims will not be broughtagainst us for these reasons.

 

***Since we are not limited to a particular industryor prospective target business with which to complete a business combination,investors may be unable to currently ascertain the merits or risks of theindustry or target business in which we may ultimately operate.***

*** ***

We may consummate a business combination with acompany in any industry we choose and are not limited to any particularindustry or type of business. Accordingly, there is no current basis for you toevaluate the possible merits or risks of the particular industry in which wemay ultimately operate or the target business which we may ultimately acquire.To the extent we complete a business combination with a financially unstablecompany or an entity in its development stage, we may be affected by numerousrisks inherent in the business operations of those entities. If we complete abusiness combination with an entity in an industry characterized by a highlevel of risk, we may be affected by the currently unascertainable risks ofthat industry. For example, if we complete a business combination with abusiness in a regulated industry, we may be subject to various regulatory risks

 

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associated with thatindustry. Although our management will endeavor to evaluate the risks inherentin a particular industry or target business, we cannot assure you that we willproperly ascertain or assess all of the significant risk factors. We alsocannot assure you that an investment in our units will not ultimately prove tobe less favorable to investors in our company than a direct investment, if anopportunity were available, in a target business.

 

***We may issue shares of our capital stock or debtsecurities to complete a business combination, which would reduce the equityinterest of our stockholders and may cause a change in control of ourownership.***

*** ***

We may issue a substantial number of additional sharesof common stock or preferred shares, or a combination of common stock andpreferred shares, to complete a business combination. The issuance ofadditional common stock or preferred shares:

 

·                  maysignificantly reduce the equity interest of our existing stockholders;

 

·                  couldcause a change in control if a substantial number of our shares of common stockare issued and in the event of a change of control most likely result in theresignation or removal of our present officer and directors;

 

·                  maysubordinate the rights of holders of common stock if preferred stock is issuedwith rights senior to those afforded to our common stock; and

 

·                  mayadversely affect prevailing market prices for our securities.

 

Similarly, if we issued debt securities, it couldresult in:

 

·                  defaultand foreclosure on our assets if our operating cash flow after a businesscombination were insufficient to pay our debt obligations;

 

·                  accelerationof our obligations to repay the indebtedness even if we have made all principaland interest payments when due if the debt security contained covenants thatrequired the maintenance of certain financial ratios or reserves and any suchcovenant were breached without a waiver or renegotiation of that covenant;

 

·                  ourimmediate payment of all principal and accrued interest, if any, if the debtsecurity was payable on demand;

 

·                  covenantsthat limit our ability to acquire capital assets or make additionalacquisitions; and

 

·                  ourinability to obtain additional financing, if necessary, if the debt securitycontained covenants restricting our ability to obtain additional financingwhile such security was outstanding.

 

***Our ability to successfully effect a businesscombination and to be successful afterwards will be dependent upon the effortsof our key personnel, some of whom may join us following a business combinationand whom we would have only a limited ability to evaluate.***

*** ***

Our ability to successfully effect a businesscombination will be dependent upon the efforts of our management. We can giveyou no assurance that our executive officer or our directors will remain withus until we complete a business combination. In addition, the future role ofthese individuals following a business combination cannot presently be fullyascertained. It is likely that we may employ other personnel following thebusiness combination. While we intend to closely scrutinize any additionalindividuals we engage after a business combination, we cannot assure you thatour assessment of these individuals will prove to be correct. These individualsmay be unfamiliar with the requirements of operating a public company as wellas U.S. securities laws which could cause us to have to expend time andresources helping them become familiar with such laws. This could be expensiveand time-consuming and could lead to various regulatory issues which mayadversely affect our 

 

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operations. Moreover, ourcurrent management will only remain with the combined company if they negotiateto do so in connection with the negotiation of the business combination.

 

***Our executive officer and directors may allocatetheir time to other businesses thereby causing conflicts of interest in theirdetermination as to how much time to devote to our affairs, hampering ourability to consummate a business combination.***

*** ***

Our executive officer and directors are not requiredto commit their full time to our affairs, which may result in a conflict ofinterest in allocating their time between our operations and other businesses.Our executive officer is engaged in several other business endeavors and is notobligated to contribute any specific number of hours per week to our affairs.If our executive officer’s other business affairs require him to devote moresubstantial amounts of time to such affairs, it could limit his ability todevote time to our affairs and could have a negative impact on our ability toconsummate a business combination. We cannot assure you that these conflictswill be resolved in our favor.

 

***Our executive officer and directors may beinvolved or in the future may become affiliated with other businesses,including other blank check companies, which could cause a conflict of interestas to which business they may present a viable acquisition opportunity.***

*** ***

Our executive officer and directors may be involved orin the future may become affiliated with entities, including other blank checkcompanies, engaged in business activities similar to those intended to beconducted by us. For example, Mr. Stone is the Chairman and ChiefExecutive Officer of KapStone Paper and Packaging Corporation (formerly StoneArcade Acquisition Corporation, a blank check company) and Mr. Tan is thefounder and Chief Executive Officer of Pacific Millennium. In addition, Mr. Stonesits on the board of directors of McDonalds Corporation and Mr. Tan sitson the boards of Domtar, Inc., Samling Global Limited and a number ofPacific Millennium subsidiaries and portfolio companies. Due to these existingaffiliations, they may have conflicting fiduciary obligations with regard topresenting certain potential business opportunities to those entities that maybe of interest to us. For example, our executive officer and directors maybecome aware of business opportunities that may be appropriate for presentationto us as well as the other entities with which they are or become affiliated(which would include companies for whom either of them served as officers ordirectors or of which they were the controlling stockholder, either directly orthrough a company controlled by them, but would not include companies of whichthey were merely stockholders). If appropriate, opportunities must first bepresented by such individuals to the entities, other than us, with which theyare affiliated as executive officers or directors, which currently are thoselisted above. Accordingly, there may be potential opportunities that would beattractive to us that would need to be presented to, and rejected by, one ormore of these entities before they can be presented to us. Other than theagreements of Messrs. Stone and Tan to present to us, subject to theirrespective fiduciary obligations, opportunities meeting our criteria andrequirements, we have no written policies covering potential conflicts.

 

***Our existing executive officer and directors, ortheir respective affiliates, own shares of our common stock which will notparticipate in liquidation distributions and therefore they may have a conflictof interest in determining whether a particular target business is appropriatefor a business combination.***

*** ***

Our executive officer and directors, or theirrespective affiliates, as applicable, have waived the right to receivedistributions upon our liquidation upon our failure to complete a businesscombination with respect to shares of common stock they purchased prior to thisoffering. Additionally, these individuals have collectively agreed with therepresentative of the underwriters that they and certain of their affiliates ordesignees will purchase the founder warrants in a private placement immediatelyprior to the closing of this offering. The shares of common stock and warrantsowned by our executive officer and directors prior to this offering and theiraffiliates will be worthless if we do not consummate a business combination.The personal and financial interests of our executive officer and directors mayinfluence their motivation in identifying and selecting a target business andcompleting a business combination on a timely basis. Consequently, ourexecutive officer’s and directors’ discretion in identifying and selecting asuitable target business may result in a conflict of interest when determiningwhether the terms, conditions and timing of a particular business combinationare appropriate and in our stockholders’ best interest.

 

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***Our initial stockholders’ interests in obtainingreimbursement for any out-of-pocket expenses incurred by them may lead to aconflict of interest in determining whether a particular target business isappropriate for a business combination and in the public stockholders’ bestinterest.***

*** ***

Our initial stockholders, which include our executiveofficer and directors, will not receive reimbursement for any out-of-pocketexpenses incurred by them to the extent that such expenses exceed the availableproceeds not deposited in the trust account, including interest income of$3,300,000, unless the business combination is consummated. The amount ofavailable proceeds is based on management estimates of the funds needed for operationsand to consummate a business combination, and those estimates may prove to beinaccurate. The financial interest of our executive officer and directorscould influence their motivation in selecting a target business as certainbusiness combinations may involve the repayment of expenses while others maynot. For instance, our executive officer and directors may, as part of any suchcombination, negotiate the repayment of some or all of their out-of-pocketexpenses in excess of the amount in the trust account, which if not agreed toby the target business’ owners, could cause our executive officer and directorsto view such potential business combination unfavorably, thereby resulting in aconflict of interest. As a result, our executive officer and directors may havea potential conflict of interest when determining whether or not a particularbusiness combination is in the stockholders’ best interest.

 

***It is likely that we will only be able to completeone business combination with the proceeds of our initial public offering andthe private placement, which will cause us to be solely dependent on a singlebusiness.***

*** ***

Our management will have virtually unrestrictedflexibility in identifying and selecting a prospective target business, exceptthat our initial business combination must be a transaction in which the fairmarket value of the target business or businesses acquired simultaneously atthe time of the business combination is at least 80% of our net assets at thetime of the business combination. While we may be able to purchase more thanone target business using our equity securities as consideration for theacquisition or raising additional funds through the sale of our securities orthrough loan arrangements, we have no agreements or arrangements for suchadditional funding. We therefore believe that it is most likely that we willhave the ability to effect only a single business combination. However, shouldour management elect to pursue more than one acquisition of target businessessimultaneously, our management could encounter difficulties in consummating allor a portion of such acquisitions due to a lack of adequate resources,including the inability of management to devote sufficient time to the duediligence, negotiation and documentation of each acquisition. Furthermore, evenif we complete the acquisition of more than one target business atsubstantially the same time, there can be no assurance that we will be able tointegrate the operations of such target businesses.

 

Accordingly, the prospects for our ability to effectour business strategy may be:

 

·                  solelydependent upon the performance of a single business; or

 

·                  dependentupon the development or market acceptance of a single or limited number ofproducts, processes or services.

 

In the event we acquire a single target business, wewill not be able to diversify our operations or benefit from the possiblespreading of risks or offsetting of losses, unlike other entities that may havethe resources to complete several business combinations.

 

***Because of our limited resources and thesignificant competition for business combination opportunities, we may not beable to consummate an attractive business combination.***

*** ***

We expect to encounter intense competition from otherentities having a business objective similar to ours, including venture capitalfunds, leveraged buyout funds and operating businesses competing foracquisitions. Many of these entities are well established and have extensiveexperience in identifying and effecting business combinations directly orthrough affiliates. Many of these competitors possess greater technical, humanand other resources than we do and our financial resources will be relativelylimited when contrasted with those of many of these competitors. Our ability tocompete in acquiring certain sizable target businesses will be limited by our 

 

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available financialresources. This inherent competitive limitation gives others an advantage inpursuing the acquisition of certain target businesses. Further, our obligationto seek stockholder approval of a business combination may delay theconsummation of a transaction, and our obligation to redeem for cash the sharesof common stock held by public stockholders in certain instances may reduce theresources available for a business combination. Additionally, our outstandingwarrants, and the future dilution they potentially represent, may not be viewedfavorably by certain target businesses. Any of these obligations may place usat a competitive disadvantage in successfully negotiating a businesscombination.

 

***We may be unable to obtain additional financing,if required, to complete a business combination or to fund the operations andgrowth of the target business, which could compel us to restructure thetransaction or abandon a particular business combination.***

*** ***

Although we believe that the net proceeds of ourinitial public offering and the private placement will be sufficient to allowus to consummate a business combination, since we have not yet identified anyprospective target business, we cannot ascertain the capital requirements forany particular transaction. If the net proceeds of our initial public offeringand the private placement prove to be insufficient, either because of the sizeof the business combination or the depletion of the available net proceeds insearch of a target business, or because we become obligated to redeem into casha significant number of shares from dissenting stockholders, we will berequired to seek additional financing. We cannot assure you that such financingwould be available on acceptable terms, if at all, particularly in light of thecurrent international credit crisis. To the extent that additional financingproves to be unavailable when needed to consummate a particular businesscombination, we would be compelled to restructure the transaction or abandonthat particular business combination and seek an alternative target businesscandidate. If we were unable to secure additional financing, we would mostlikely fail to consummate a business combination in the allotted time and woulddissolve and liquidate the trust as part of our plan of dissolution andliquidation. In addition, if we consummate a business combination, we mayrequire additional financing to fund the operations or growth of the targetbusiness. The failure to secure additional financing could have a materialadverse effect on the continued development or growth of the target business.None of our executive officer, directors or stockholders is required to provideany financing to us in connection with or after a business combination.

 

***We currently do not have an audit committeeperform an independent review our financial statements.***

*** ***

Our board of directors does not have “independentdirectors” within the meaning of Rule 10A-3 promulgated under theSecurities Exchange Act of 1934 and does not have a separately designated auditcommittee. Therefore, the entire board of directors acts as our audit committeeand there will be no independent review of our financial statements by anyoneother than our auditors.

 

***Our initial stockholders control a substantialinterest in us and thus may influence certain actions requiring stockholdervote.***

*** ***

Our executive officer and directors and theiraffiliates collectively own 20% of our issued and outstanding shares of commonstock and may have considerable influence over the outcome of all mattersrequiring approval by our stockholders, including our initial businessconsideration and the election of directors.

 

In addition, our board of directors is divided intothree classes, each of which will generally serve for a term of three yearswith only one class of directors being elected in each year. Since we currentlyhave only two directors, one of the classes does not currently have anydirectors in it. It is unlikely that there will be an annual meeting ofstockholders to elect new directors prior to the consummation of a businesscombination, in which case all of the current directors will continue in officeat least until the consummation of the business combination. If there is anannual meeting, as a consequence of our “staggered” board of directors, only aminority of the board of directors will be considered for election and ourinitial stockholders, because of their ownership position, will haveconsiderable influence regarding the outcome. Accordingly, our initialstockholders will continue to exert control at least until the consummation ofa business combination.

 

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**Risks associated with our acquisition of a targetbusiness in the PRC**

** **

***After a business combination, substantially all ofour assets could be located in China and substantially all of our revenue willbe derived from our operations in China. Accordingly, our results of operationsand prospects will be subject, to a significant extent, to the economic, politicaland legal developments in China.***

*** ***

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

 

Since 1978, China has been one of the world’sfastest-growing economies in terms of gross domestic product, or GDP growth. Wecannot assure you, however, that such growth will be sustained in the future.If, in the future, China’s economy experiences a downturn or grows at a slowerrate than expected, there may be less demand for spending in certainindustries. A decrease in demand for spending in certain industries couldmaterially and adversely affect our ability to find an attractive targetbusiness with which to consummate a business combination and if we make anacquisition, the ability of that target business to become profitable.

 

Our ability to find an attractive target business withwhich to consummate a business combination is based on the assumption that theChinese economy will continue to grow. The PRC’s economic growth has beenuneven, both geographically and among various sectors of the economy. The PRCgovernment has implemented various measures to encourage economic growth andguide the allocation of resources. Some of these measures benefit the overallPRC economy, but may also have a negative effect on us, depending on theindustry in which we engage in a business combination. For example, ourbusiness, prospects, financial condition and results of operations may bematerially adversely affected by PRC government control over capitalinvestments or changes in tax regulations that are applicable to a potentialtarget business and a business combination.

 

The PRC economy has been transitioning from a planned economyto a more market-oriented economy. Although in recent years the PRC governmenthas implemented measures emphasizing the use of market forces for economicreform, the reduction of state ownership of productive assets and theestablishment of sound corporate governance in business enterprises, asubstantial portion of productive assets in China is still owned by the PRCgovernment. In addition, the PRC government continues to play a significantrole in regulating industry development by imposing industrial policies. Italso exercises significant control over PRC economic growth through theallocation of resources, controlling payment of foreign currency-denominatedobligations, setting monetary policy and providing preferential treatment toparticular industries or companies. We cannot assure you that China’s economic,political or legal systems will not develop in a way that becomes detrimentalto our business, prospects, financial conditions and results of operations.

 

***Deterioration of China’s political relations withthe U.S., Europe, or other nations could make Chinese businesses lessattractive to Western investors.***

*** ***

The relationship between the U.S. and China is subjectto sudden fluctuation and periodic tension. Changes in political conditions in Chinaand changes in the state of Sino-foreign relations are difficult to predict andcould materially adversely affect our operations or cause potential targetbusinesses or services to become less attractive. This could lead to a declinein our profitability. Any weakening of relations between the U.S., Europe, orother nations and China could have a material adverse effect on our operationseven after the successful completion of a business combination.

 

***If the PRC enacts regulations in the industry segmentswhich forbid or restrict foreign investment in our taget business, our abilityto consummate a business combination could be severely impaired.***

*** ***

The PRC government hasimposed increasing number of rules and measures to regulate the industriesin China during the past decade. Moreover, many of the rules andregulations that companies face in China are not explicitly communicated. It is possible that increasedregulations may negatively affect our target business in the PRC.  If new laws or regulations forbid foreigninvestment in industries in which we want to complete a business combination,they could severely impair our choice of candidate pool of potential targetbusinesses. Additionally, if the relevant Chinese authorities find us or thetarget business with which we ultimately complete a business 

 

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combination to be inviolation of any applicable Chinese laws or regulations, they would have broaddiscretion in dealing with such a violation, including, without limitation:

 

·                  levyingfines;

 

·                  revokingour business license and other licenses;

 

·                  requiringthat we restructure our ownership or change the business scope; and/or

 

·                  requiringthat we discontinue any portion or all of our business.

 

The imposition of any of the above penalties couldresult in a material and adverse effect on our ability to conduct our businessas well as our financial situation and we might be forced to relinquish ourinterests in operations.

 

In many cases, existing regulations with regard toinvestments from foreign investors and domestic private capital lack detailedexplanations and operational procedures, and are subject to interpretation,which may change over time. We thus cannot be certain how the regulations willbe applied to our business, either currently or in the future. Moreover, newregulations may be adopted or the interpretation of existing regulations maychange, any of which could result in similar penalties, resulting in a materialand adverse effect on our ability to conduct our business as well as ourfinancial situation.

 

***If we acquire a target business throughcontractual arrangements with one or more operating businesses in China, suchcontracts may not be as effective in providing operational control as directownership of such businesses and may be difficult to enforce.***

*** ***

The government of the PRC has restricted or limitedforeign ownership of certain kinds of assets and companies operating in certainindustries. The industry groups that are restricted are wide ranging, includingcertain aspects of telecommunications, certain food and alcoholproduction, and certain specializedequipment manufacturers, for example. In addition there can be restrictions onthe foreign ownership of businesses that are determined from time to time to bein “important industries” that may affect the national economic security orhaving “famous Chinese brand names” or “well established Chinese brand names.”Subject to the review requirements of the Ministry of Commerce and otherrelevant agencies as discussed elsewhere for acquisitions of assets andcompanies in the PRC and subject to the various percentage ownershiplimitations that exist from time to time, acquisitions involving foreigninvestors and parties in the various restricted categories of assets andindustries may nonetheless sometimes be consummated using contractualarrangements with permitted Chinese parties. To the extent that such agreementsare employed, they may be for control of specific assets such as intellectualproperty or control of blocks of the equity ownership interests of a companywhich may not be subject to the merger and acquisition regulations mentionedabove since these types of arrangements typically do not involve a change ofequity ownership in a PRC operating company, injure a third party or affect thesocial public interest. The agreements would be designed to provide our companywith the economic benefits of and control over the subject assets or equityinterests similar to the rights of full ownership, while leaving the technicalownership in the hands of Chinese parties who would be our nominees and,therefore, based our understanding ofthe PRC laws and the current practice in the PRC, may exempt thetransaction from the merger and acquisition regulations, including theapplication process required thereunder. However, since there has been limitedimplementation guidance provided with respect to the merger and acquisitionregulations, there can be no assurance that the relevant government agencywould not apply them to a business combination effected through contractualarrangements. If such an agency determines that such an application should havebeen made, the consequences may include, without limitation, confiscatingrelevant incomes, levying fines, revoking business and other licenses,requiring restructure of ownership or operations and requiring discontinuationof any portion of all of the acquired business. These agreements likely alsowould provide for increased ownership or full ownership and control by us whenand if permitted under PRC law and regulation. If we choose to effect abusiness combination that employs the use of these types of controlarrangements, we may have difficulty in enforcing our rights. Therefore thesecontractual arrangements may not be as effective in providing us with the sameeconomic benefits, accounting consolidation or control over a target businessas would direct ownership. For example, if the target business or any otherentity fails 

 

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to perform itsobligations under these contractual arrangements, we may have to incursubstantial costs and expend substantial resources to enforce such arrangements,and rely on legal remedies under Chinese law, including seeking specificperformance or injunctive relief, and claiming damages, which we cannot assurewill be sufficient to off-set the cost of enforcement and may adversely affectthe benefits we expect to receive from the business combination.

 

Moreover, we expect that the contractual arrangementsupon which we would be relying would be governed by Chinese law and would bethe only basis of providing resolution of disputes which may arise througheither arbitration or litigation in the PRC. Accordingly, these contracts wouldbe interpreted in accordance with Chinese law and any disputes would beresolved in accordance with Chinese legal procedures.

 

Uncertainties in the Chinese legal system could limitour ability to enforce these contractual arrangements. In the event we areunable to enforce these contractual arrangements, we may not be able to exertthe effective level of control or receive the full economic benefits of fulldirect ownership over the target business.

 

***Contractual arrangements we enter into withpotential future subsidiaries and affiliated entities or acquisitions ofoffshore entities that conduct PRC operations through affiliates in China maybe subject to a high level of scrutiny by the PRC tax authorities.***

*** ***

Under PRC law, arrangements and transactions amongrelated parties may be subject to audit or challenge by the PRC taxauthorities. If any of the transactions we enter into with potential futuresubsidiaries and affiliated entities are found not to be on an arm’s-lengthbasis, or to result in an unreasonable reduction in tax under PRC law, the PRCtax authorities have the authority to disallow any tax savings, adjust theprofits and losses of such potential future PRC entities and assess latepayment interest and penalties. A finding by the PRC tax authorities that weare ineligible for any such tax savings, or that any of our possible futureaffiliated entities are not eligible for tax exemptions, would substantiallyincrease our possible future taxes and thus reduce our net income and the valueof a stockholder’s investment.

 

***If the PRC imposes restrictions to reduceinflation, future economic growth in the PRC could be severely curtailed whichcould lead to a significant decrease in our profitability following a businesscombination.***

*** ***

While the economy of the PRC has experienced rapidgrowth, this growth has been uneven among various sectors of the economy and indifferent geographical areas of the country. Rapid economic growth can lead togrowth in the supply of money and rising inflation. In order to controlinflation in the past, the PRC has imposed controls on bank credits, limits onloans for fixed assets and restrictions on state bank lending. If similarrestrictions are imposed, it may lead to a slowing of economic growth anddecrease the interest in the services or products we may ultimately offerleading to a decline in our profitability.

 

***Because Chinese law will govern almost all of anytarget business’ material agreements, we may not be able to enforce our rightswithin the PRC or elsewhere, which could result in a significant loss ofbusiness, business opportunities or capital.***

*** ***

We believe that it is highly likely that Chinese lawwill govern almost all of our target business’ material agreements, some ormany of which could be with Chinese governmental agencies. We cannot assure youthat the target business will be able to enforce any of its material agreementsor that remedies will be available outside of the PRC. The Chinese legal systemis similar to a civil law system based on written statutes. Unlike common lawsystems, it is a system in which decided legal cases have little precedentialvalue. Although legislation in China over the past 30 years has significantlyimproved the protection afforded to various forms of foreign investment andcontractual arrangements in China, these laws, regulations and legalrequirements are relatively new and their interpretation and enforcementinvolve uncertainties, which could limit the legal protection available to us,and foreign investors, including you. The inability to enforce or obtain aremedy under any of our future agreements could result in a significant loss ofbusiness, business opportunities or capital and could have a material adverseimpact on our business, prospects, financial condition, and results ofoperations.

 

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***As a result of merger and acquisition regulationsimplemented on September 8, 2006 relating to acquisitions of assets and/orequity interests of Chinese companies by foreign investors, it is expected thatacquisitions will take longer and be subject to economic scrutiny by the PRCgovernment authorities such that we may not be able to complete a transaction.***

*** ***

On September 8, 2006, the Ministry of Commerce,together with several other government agencies, implemented a comprehensiveset of regulations governing the approval process by which a Chinese companymay participate in an acquisition of its assets or its equity interests and bywhich a Chinese company may obtain public trading of its securities on asecurities exchange outside the PRC. Although there was a complex series ofregulations in place prior to September 8, 2006 for approval of Chineseenterprises that were administered by a combination of provincial andcentralized agencies, the new regulations have largely centralized and expandedthe approval process to the Ministry of Commerce (MOFCOM), the StateAdministration of Industry and Commerce (SAIC), the State Administration ofForeign Exchange (SAFE) or its branch offices, the State Asset Supervision andAdministration Commission (SASAC), and the China Securities RegulatoryCommission (CSRC). Depending on the structure of the transaction, theseregulations will require the Chinese parties to make a series of applicationsand supplemental applications to the aforementioned agencies, some of which mustbe made within strict time limits and depending on approvals from one or theother of the aforementioned agencies. The application process has beensupplemented to require the presentation of economic data concerning atransaction, including appraisals of the business to be acquired andevaluations of the acquirer which will permit the government to assess theeconomics of a transaction in addition to the compliance with legalrequirements. If obtained, approvals will have expiration dates by which a transactionmust be completed. Also, completed transactions must be reported to MOFCOM andsome of the other agencies within a short period after closing or be subject toan unwinding of the transaction. It is expected that compliance with theregulations will be more time consuming than in the past, will be more costlyfor the Chinese parties and will permit the government much more extensiveevaluation and control over the terms of the transaction.

 

Therefore, acquisitions in China may not be able to becompleted because the terms of the transaction may not satisfy aspects of theapproval process and may not be completed, even if approved, if they are notconsummated within the time permitted by the approvals granted.

 

***Because the September 8, 2006 PRC merger andacquisition regulations permit the government agencies to have scrutiny overthe economics of an acquisition transaction and*****impose a number of requirementson the acquisition transaction, such as time limit for payment ofconsiderations, we may not be able to negotiate a transaction that isacceptable to our stockholders or sufficiently protect their interests in atransaction.**

*** ***

The regulations have introduced aspects of economicand substantive analysis of the target business and the acquirer and the termsof the transaction by MOFCOM and the other governing agencies throughsubmissions of an appraisal report, an evaluation report and the acquisitionagreement, all of which form part of the application for approval, depending onthe structure of the transaction. The regulations also prohibit a transactionat an acquisition price obviously lower than the appraised value of the Chinesebusiness or assets. The regulations require that the consideration for the acquisition or assets or equityinterest must be paid within requiredtime periods, in certain transactionsnot in excess of a year. Because the Chinese authorities have been concernedwith offshore transactions which converted domestic companies into foreigninvestment enterprises (FIEs) in order to take advantage of certain benefits,including reduced taxation, in China, the new regulations require new foreignsourced capital of not less than 25% of the domestic company’s post–acquisitioncapital in order to obtain FIE treatment. Accordingly, if a sufficient amountof foreign capital is not infused into the domestic company, it will not beeligible to obtain FIE treatment. In asset transactions there must be no harmof third parties and the public interest in the allocation of assets andliabilities being assumed or acquired. These aspects of the regulations willlimit our ability to negotiate various terms of the acquisition, includingaspects of the initial consideration, contingent consideration, holdbackprovisions, indemnification provisions and provisions relating to theassumption and allocation of assets and liabilities. Transaction structuresinvolving trusts, nominees and similar entities are restricted. Therefore, wemay not be able to negotiate a transaction with terms that will satisfy ourinvestors and protect our stockholders interests in an acquisition of a Chinesebusiness or assets.

 

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** **

***ThePRC merger and acquisition regulations of September 8, 2006 haveintroduced industry protection and anti-trust aspects to the acquisition ofChinese companies and assets which may limit our ability to effect anacquisition.***

 

Under the PRC merger and acquisition regulations,acquisitions of Chinese domestic companies relating to “important industries”that may affect the national economic security or result in the transfer of “actualcontrol” of companies having “famous Chinese brand names” or “well establishedChinese brand names” must be reported and approved by the relevant agencies.The merger and acquisition regulations also provide for antitrust review requirementsfor certain large transactions or transactions involving large companies androll-up transactions with the same effect in the relevant Chinese market. Inaddition, certain mergers and acquisitions among foreign companies occurringoutside of the PRC could also be subject to antitrust review in China which issimilar to United States anti-trust law concepts. Exemptions may be sought fromthe MOFCOM and SAIC. In addition to the regulations, of September 8, 2006,the Standing Committee of the National People’s Congress (NPC), China’s toplegislature, passed the Anti-Monopoly Law on August 30, 2007,strengthening the examination and supervision of foreign merger operationsaffecting major enterprises in sensitive sectors. Any transaction that wecontemplate will have to comply with these regulations and may requireadditional approval or abandonment if we are not able to satisfy therequirements of the governmental authorities. When we evaluate a potentialtransaction, we will consider the need to comply with these regulations whichmay result in our modifying or not pursuing a particular transaction.

 

***The Ministry of Information Industry (MII) issuedregulations that regulate and limit ownership and investment in internet andother value-added telecommunications businesses in China which may affect ourability of acquiring*****suchtype of business.**

 

On July 13, 2006, the MII issued a notice withthe purpose of increasing the regulation of foreign investment in andoperations of value added telecom services which includes internet andtelecommunications businesses in China. The regulations require Chineseentities to own and control the following: (i) internet domain names, (ii) registeredtrademarks, and (iii) servers and other infrastructure equipment used tohost and operate web-sites and conduct business. The ownership requirementsfunctionally limit foreign direct and indirect ownership and control of theintellectual property of these businesses even when attempted through variousparallel control, licensing, use and management agreements. It is anticipatedthat these regulations will be strictly enforced, and the government hasprovided that the new regulations apply retroactively and provides for auditprocedures. The failure to comply may cause the MII to terminate atelecommunications license or otherwise modify existing agreements or requirethe disposition of the assets by the foreign entity. Any anticipated foreigninvestment in such businesses will be subject to prior approval by the MII, andit is expected that approval for investment may not be easily obtained forforeign investment in these businesses unless in strict compliance. Therefore,investment by us in this sector may not be actively pursued because certainassets may not be acquirable and accounting consolidation may be restricted ornot permitted as a result of an unfavorable but permitted transactionstructure.

*** ***

***Because any target business with which we attemptto complete a business combination will be required to provide our stockholderswith financial statements prepared in accordance with, or reconciled to, U.S.generally accepted accounting principles, prospective target businesses may belimited.***

 

In accordance with requirements of U.S. federalsecurities laws, in order to seek stockholder approval of a businesscombination, a proposed target business will be required to have certainfinancial statements which are prepared in accordance with, or which arereconciled to, U.S. generally accepted accounting principles, or GAAP. Generally, Chinese domestic companies arerequired to prepare financial statements in accordance with PRC GAAP.  To the extent that a proposed targetbusiness does not have financial statements which have been prepared with, orwhich can be reconciled to, U.S. GAAP, we will not be able to acquire thatproposed target business. These financial statements may limit the pool ofpotential target businesses which we may acquire.

*** ***

***Any devaluation of currencies used in the PRCcould negatively impact our target business’ results of operations and anyappreciation thereof could cause the cost of a target business as measured indollars to increase.***

 

Because our objective is to complete a businesscombination with a target business having its primary operating facilities locatedin the PRC, and because substantially all revenues and income following abusiness combination would be received in a foreign currency such as Renminbi,the main currency used in the PRC, the dollar equivalent of our net assets anddistributions, if any, would be adversely affected by reductions in the valueof the Renminbi. The value of the Renminbi fluctuates and is affected by, amongother things, changes in the PRC’s political and economic conditions. To theextent that we need to convert United States dollars into Chinese 

 

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Renminbi for ouroperations, appreciation of this currency against the United States dollarcould have a material adverse effect on our business, financial condition andresults of operations. Conversely, if we decide to convert our Renminbi intoUnited States dollars for other business purposes and the United States dollarappreciates against this currency, the United States dollar equivalent of theRenminbi we convert would be reduced. The conversion of Renminbi into foreigncurrencies such as the United States dollar has been generally based on ratesset by the People’s Bank of China, which are set daily based on the previousday’s interbank foreign exchange market rates and current exchange rates on theworld financial markets. Historically, the official exchange rate for theconversion of Renminbi to the U.S. dollar had generally been stable and theRenminbi had appreciated slightly against the U.S. dollar. However, since July 21,2005, the Renminbi has been re-pegged to a basket of currencies, and ispermitted to fluctuate within a managed band. This floating exchange rate, andany appreciation of the Renminbi that may result from such rate, could causethe cost of a target business as measured in dollars to increase. Further,target companies may be adversely affected since the competitive advantagesthat existed as a result of the former policies will cease. We cannot assureyou that a target business with which we consummate a business combination willbe able to compete effectively with the new policies in place.

 

***Restrictions on currency exchange may limit ourability to utilize our cash flow effectively following a business combination.***

 

Following a business combination, we will be subjectto China’s rules and regulations on currency conversion. In China, theState Administration for Foreign Exchange (“SAFE”) regulates the conversion ofthe Chinese Renminbi into foreign currencies. Currently, FIEs are required toapply to the SAFE for “Foreign Exchange Registration Certificates for FIEs.”Following a business combination, the entity in which we invest in China willlikely be a FIE as a result of our ownership structure. FIEs holding suchregistration certificates, which must be renewed annually, are allowed to openforeign currency accounts including a “current account” and “capital account.”Under PRCregulations, foreign exchange income arising from current account transactionsshall be converted into RMB unless otherwise stipulated in the regulations(where current account transactions are defined as the transactions generallyoccurring during the international payment and expenditure process, includingthe distribution of dividends, interest payments, trade and service-relatedforeign exchange transactions); while foreign exchange income arising fromcapital account transactions shall not be converted into RMB without the priorapproval of SAFE (where capital account transactions are defined as theincrease or reduction in the assets and liabilities which result from theinflow and outflow of capital during international payment and expenditureprocess, including direct equityinvestments, loan, and repatriation of investments and investments in securities outside China).Foreign exchange income arising from capital account transactions are subjectto limitations and require approvals from, or registration with, SAFE and otherrelevant PRC governmental authorities.  In addition, the SAFE issued a Notice on August 29,2008 (“Notice 142”) to further regulate the foreign exchange of FIEs.  According to the Notice 142,  FIEs shall obtain verification report from alocal accounting firm before converting its registered capital into Renminbi,and the converted Renminbi shall be used for the business within its permitedbusiness scope.  The Notice 142explicitly prohibits FIEs from using RMB converted from foreign capital to makeequity investments in the PRC, unless the domestic equity investment is withinthe approved business scope of the FIE and has been approved by SAFE inadvance.  We cannot assure youthat the Chinese regulatory authorities will not impose further restrictions onthe convertibility of the Chinese Renminbi. Any future restrictions on currencyexchanges may limit our ability to use our cash flow for the distribution ofdividends to our stockholders or to fund operations we may have outside ofChina.

*** ***

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

 

If you are a U.S. holder, you will be taxed on theU.S. dollar value of your dividends at the time you receive them, even if youactually receive a smaller amount of U.S. dollars when the payment is in factconverted into U.S. dollars. Specifically, if a dividend is declared and paidin a foreign currency, the amount of the dividend distribution that you mustinclude in your income as a U.S. holder will be the U.S. dollar value of thepayments made in the foreign currency, determined at the spot rate of theforeign currency to the U.S. dollar on the date the dividend distribution isincludible in your income, regardless of whether the payment is in factconverted into U.S. dollars. Thus, if the value of the foreign currencydecreases before you actually convert the currency into U.S. dollars, you willbe taxed on a larger amount in U.S. dollars than the U.S. dollar amount thatyou will actually ultimately receive. We have not sought a tax opinionregarding taxation of dividends.

 

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* *

***After we consummate a business combination, ouroperating company in China will be subject to restrictions on dividendpayments.***

 

After we consummate a business combination, we mayrely on dividends and other distributions from our operating company to provideus with cash flow and to meet our other obligations. Current regulations inChina would permit our operating company in China to pay dividends to us onlyout of its accumulated distributable profits, if any, determined in accordancewith Chinese accounting standards and regulations. In addition, our operatingcompany in China will be required to set aside at least 10% (up to an aggregateamount equal to half of its registered capital) of its accumulated profits eachyear. Such cash reserve may not be distributed as cash dividends. In addition,if our operating company in China incurs debt on its own behalf in the future,the instruments governing the debt may restrict its ability to pay dividends ormake other payments to us.

*** ***

***Recent regulations relating to offshore investmentactivities by PRC residents may increase the administrative burden we face andcreate regulatory uncertainties that may limit or adversely effect our abilityto acquire PRC companies.***

 

On October 21, 2005, SAFE issued a *Notice on Relevant Issues Concerning Foreign ExchangeAdministration for Domestic Residents to Engage in Overseas Financing and RoundTrip Investment via Overseas Special Purpose Vehicles* (“Circular 75”), which became effectiveon November 1, 2005. Circular75 regulates the foreign exchange matters in relation to the use of a “specialpurpose vehicle” by PRC residents to seek offshore equity financing and conduct“round trip investment” in China. Under Circular75, a “special purpose vehicle” refers an offshore entity established orcontrolled, directly or indirectly, by PRC residents or PRC entities for thepurpose of seeking offshore equity financing using assets or interests owned bysuch PRC residents or PRC entities in onshore companies, while “round tripinvestment” refers to the direct investment in China by the PRC residentsthrough the “special purpose vehicles,” including without limitationestablishing foreign invested enterprises and using such foreign investedenterprises to purchase or control (by way of contractual arrangements) onshoreassets. Circular 75 requiresthat, before establishing or controlling a “special purpose vehicle”, PRCresidents and PRC entities are required to complete foreign exchangeregistration with the local offices of SAFE for their overseas investments.

 

Circular 75 applies retroactively. PRC residents whohave established or acquired control of the “special purpose vehicles” whichhave completed “round-trip investment” before the implementation of the Circular 75 shall register their ownership interestsor control in such “special purpose vehicles” with the local offices of SAFEbefore March 31, 2006. An amendment to the registration is required ifthere is a material change in the “special purpose vehicle,” such as increaseor reduction of share capital and transfer of shares. Failure to comply withthe registration procedures set forth in Circular 75 may result in restrictions on the foreign exchange activities ofthe relevant foreign invested enterprises, including the increase of itsregistered capital, the payment of dividends and other distributions to itsoffshore parent or affiliate and the capital inflow from the offshore parent,and may also subject relevant PRC residents to penalties under PRC foreignexchange administration regulations.

 

SAFE issued implementing rules (“Circular 106”) in relation to Circular 75 on May 29,2007. Circular 106 provides more detailed provisions andrequirements regarding the foreign exchange registration procedures. UnderCircular 106, PRC subsidiary of the offshore “special purpose vehicles” are prohibited fromdistributing their profits and proceeds from any reduction in capital, sharetransfer or liquidation totheir offshore special purpose vehicleparent companies if the special purpose vehicles’ shareholders who are PRC residents have not completed foreign exchangeregistration pursuant to Circular 75.

 

As a result of the foregoing, we cannot assure youthat the PRC residents, the owners of the target business we intend to acquire,as the case may be, will be able to complete the necessary approval, filingsand registrations for a proposed business combination. This may restrict ourability to implement our acquisition strategy and adversely affect ouroperations.

 

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***We are required to deduct Chinese corporatewithholding taxes from dividends we may pay to our stockholders following abusiness combination.***

 

On March 16, 2007, the NPC, approved andpromulgated the PRC Enterprise Income Tax Law (the “New EIT Law”). This New EITLaw has taken effect on January 1, 2008. This New EIT Law has taken effectsince January 1, 2008. Under the New EIT Law, FIEs and domestic companiesare subject to a uniform tax rate of 25%. The New EIT Law provides a five-yeartransition period starting from its effective date for those enterprises whichwere established before the promulgation date of the New EIT Law and which wereentitled to a preferential lower tax rate under the then-effective tax laws orregulations.

 

On December 26, 2007, the State Council issued aNotice on Implementing Transitional Measures for Enterprise Income Tax (the “Notice”),providing that the enterprises that have been approved to enjoy a low tax rateprior to the promulgation of the New EIT Law will be eligible for a five-yeartransition period since January 1, 2008, during which time the tax ratewill be increased step by step to the 25% unified tax rate set out in the NewEIT Law. From January 1, 2008, for the enterprises whose applicable taxrate was 15% before the promulgation of the New EIT Law , the tax rate will beincreased to 18% for year 2008, 20% for year 2009, 22% for year 2010, 24% foryear 2011, 25% for year 2012. For the enterprises whose applicable tax rate was24%, the tax rate will be changed to 25% from January 1, 2008.Furthermore, in accordance with the Notice, the income derived from the PRC ofa foreign enterprise that has no establishment in the PRC is subject to a 10%withholding tax absent a tax treaty between the PRC and the jurisdiction wherethe foreign enterprise is incorporated. As a result, following a businesscombination any of our subsidiaries operating in China will be required todeduct Chinese withholding taxes from dividends distributed to us as the parententity, meaning we would have less funds to use in connection with ouroperations as the parent entity or for distribution to our stockholders.

*** ***

***Dividends we receive fromour subsidiaries located in the PRC may be subject to PRC withholding tax.***

 

The New EIT Law provides thatan income tax rate of 20% may be applicable to dividends payable to non-PRCinvestors that are “non-resident enterprises”. Non-resident enterprises referto enterprises which do not have an establishment or place of business in thePRC, or which have such establishment or place of business in the PRC but therelevant income is not effectively connected with the establishment or place ofbusiness, to the extent such dividends are derived from sources within the PRC.The income tax for the non-resident enterprises shall be subject to withholdingat income source with the payer acting as the obligatory withholder under theNew EIT Law, and therefore, such income tax is generally called “withholdingtax” in practice. The Sate Council of the PRC has reduced the withholding taxrate from 20% to 10% through the Implementation Rules of the New EIT Law.It is currently unclear in what circumstances a source will be considered aslocated within the PRC. We are a U.S. holding company and substantially all ofour income is derived from dividends we receive from our subsidiaries locatedin the PRC. Thus, if we are considered as a “non-resident enterprise” under theNew EIT Law and the dividends paid to us by our subsidiary in China areconsidered income sourced within the PRC, such dividends may be subject to a10% withholding tax.

 

Such 10% withholding tax may be exempted or reduced bythe State Council of the PRC or pursuant to a tax treaty between China and thejurisdictions in which our non-PRC shareholders reside.  For example, the 10% withholding tax has beenreduced to 5% pursuant to the Double Tax Avoidance Agreement between Hong Kongand Mainland China if the beneficial owner in Hong Kong owns more than 25% ofthe registered capital in a company in the PRC. We may set up a subsidiary inHong Kong which in turn owns all of the equity interest in our subsidiaries locatedin the PRC on behalf of our U.S. holding company, and then substantially all ofour income will be derive from dividends we receive from our subsidiaries inthe PRC through our Hong Kong subsidiary. When we declare dividends from suchincome in the PRC, it is unclear whether the income may enjoy a reducedwithholding tax rate of 5% under the Double Tax Avoidance Agreement betweenHong Kong and Mainland China as the PRC tax authorities may regard our HongKong subsidiary as a shell company for tax purpose only and still deem oursubsidiaries in the PRC as the subsidiaries directly owned by our U.S. holdingcompany.

*** ***

***If our management following a business combinationis unfamiliar with United States securities laws, they may have to expend timeand resources becoming familiar with such laws which could lead to variousregulatory issues.***

 

Following a business combination, our executiveofficer may resign from his position and the management of the target businessat the time of the business combination could remain in place. We cannot assureyou that management of the target business will be familiar with United Statessecurities laws. If new management is

 

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unfamiliar with our laws,they may have to expend time and resources becoming familiar with such laws.This could be expensive and time-consuming and could lead to various regulatoryissues which may adversely affect our operations.

*** ***

***Our future PRC subsidiaries are obligated towithhold and pay PRC individual income tax on behalf of our employees who aresubject to PRC individual income tax. If we fail to withhold or pay suchindividual income tax in accordance with applicable PRC regulations, we may besubject to certain sanctions and other penalties and may become subject toliability under PRC laws.***

 

Under PRC laws, our future PRC subsidiaries areobligated to withhold and pay individual income tax on behalf of our employeeswho are subject to PRC individual income tax. If we fail to withhold and/or paysuch individual income tax in accordance with PRC laws, we may be subject tocertain sanctions and other penalties and may become subject to liability underPRC laws.

 

In addition, the State Administration of Taxation hasissued several circulars concerning employee stock options. Under thesecirculars, our employees working in China (which could include both PRCemployees and expatriate employees subject to PRC individual income tax) whoexercise stock options will be subject to PRC individual income tax. Our PRCsubsidiaries have obligations to file documents related to employee stockoptions with relevant tax authorities and withhold and pay individual income taxesfor those employees who exercise their stock options. While tax authorities mayadvise us that our policy is compliant, they may change their policy, and wecould be subject to sanctions.

*** ***

***If the PRC government determines that we failed toobtain requisite PRC governmental approvals for, or register with the PRCgovernment, our future import and export of technologies, we could be subjectto sanctions.***

 

China imposes controls on technology import andexport. The term “technology import and export” is broadly defined to include,without limitation, the transfer or license of patents, software and know-how,and the provision of services in relation to technology. Depending on thenature of the relevant technology, the import and export of technology requireeither approval by, or registration with, the relevant PRC governmentalauthorities. We can make no assurances that we will successfully obtain suchapproval or complete such registration.

 

If we are found to be in violation of PRC laws orregulations, the relevant regulatory authorities have broad discretion indealing with such violation, including, but not limited to, issuing a warning,levying fines, restricting us from remitting royalties or any other fees, ifany, relating to these technologies outside of China, confiscating our earningsgenerated from the import or export of such technology or even restricting ourfuture export and import of any technology. Even if we successfully obtain suchapproval or complete such registration, if the PRC government determines thatour import and export of technology is inconsistent with, or insufficient for,the proper operation of our business, we could be subject to similar sanctions.Any of these or similar sanctions could cause significant disruption to ourbusiness operations or render us unable to conduct a substantial portion of ourbusiness operations and may adversely affect our business and result ofoperations.

## ** **

## **Item 1B.**                     Unresolved Staff Comments

 

Not Applicable.

# ** **

# **Item 2.**                              Properties

 

We maintain our executive offices at Suite 1A,11th Floor, Tower 1, China Hong Kong City, 33 Canton Road, Kowloon, Hong Kong.The cost for this space, which is provided by Pacific Millennium, an affiliateof Mr. Tan, our Chief Executive Officer, is $7,500 per month and includescertain other additional services provided by Pacific Millennium pursuant to aletter agreement between us and Pacific Millennium. We believe that the feecharged by Pacific Millennium is at least as favorable as we could haveobtained from an unaffiliated person. We consider our current office spaceadequate for our current operations.

 

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# **Item 3.**                              Legal Proceedings

 

To the knowledge of management, there is no litigationcurrently pending or contemplated against us or any of our officer or directorsin their capacity as such.

# ** **

# **Item 4.**                              Submission of Matters toa Vote of Security Holders

 

During the fourth quarter of our fiscal year ended December 31,2008, there were no matters submitted to a vote of security holders.

** **

**PART II**

 

# **Item 5.**                              Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities

 

Our units, common stock and warrants have been tradedon the OTC Bulletin Board under the symbol “STTAU,” since October 16, 2007and under the symbols “STTA” and “STTAW,” since November 7, 2007,respectively. The following table sets forth the high and low bid informationfor our securities from the commencement of trading through December 31,2008 as reported by the OTC Bulletin Board. The OTC Bulletin Board quotationsreflect inter-dealer prices, are without retail markup, markdowns orcommissions, and may not represent actual transactions.

 
| ** **      | ** ** | **Common Stock** | ** ** | **Warrants** | ** ** | **Units** | ** ** |
|-----------------|------------|-----------------------|------------|--------------|------------|-----------|------------|
| ** **      | ** ** | **High**              | ** ** | **Low**      | ** ** | **High**  | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| **2007**        |       |                  |       |         |       |      |       |   |   |   |   |   |   |
| First Quarter*  |       | —                |       | —       |       | —    |       | — |   | — |   | — |   |
| Second Quarter* |       | —                |       | —       |       | —    |       | — |   | — |   | — |   |
| Third Quarter*  |       | —                |       | —       |       | —    |       | — |   | — |   | — |   |
| Fourth Quarter  |       | $                     | 7.29       |         | $          | 7.22      |       | $ | 0.98 |   | $ | 0.83 |   | $ | 8.25 |   | $ | 8.00 |   |
| **2008**        |       |                  |       |         |       |      |       |   |   |   |   |   |   |
| First Quarter   |       | $                     | 7.34       |         | $          | 7.25      |       | $ | 0.87 |   | $ | 0.43 |   | $ | 8.13 |   | $ | 7.70 |   |
| Second Quarter  |       | $                     | 7.45       |         | $          | 7.25      |       | $ | 0.67 |   | $ | 0.40 |   | $ | 8.10 |   | $ | 7.61 |   |
| Third Quarter   |       | $                     | 7.50       |         | $          | 7.20      |       | $ | 0.49 |   | $ | 0.19 |   | $ | 7.89 |   | $ | 7.32 |   |
| Fourth Quarter  |       | $                     | 7.36       |         | $          | 6.90      |       | $ | 0.20 |   | $ | 0.03 |   | $ | 7.49 |   | $ | 6.81 |   |

 

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* Nofigures are included as our units commenced trading on the OTC Bulletin Boardon October 16, 2007, and our common stock and warrants commenced tradingon November 7, 2007.

 

**Number of Holdersof Common Stock**

 

The number of holders of record of our common stock onMarch 6, 2009 was 5, which does not include individual participants insecurity position listings.

** **

**Dividends**

 

There were no cash dividends or other cashdistributions made by us during the fiscal year ended December 31, 2008.Future dividend policy will be determined by our Board of Directors based onour earnings, financial condition, capital requirements and other then existingconditions. It is anticipated that cash dividends will not be paid to theholders of our common stock in the foreseeable future.

 

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**Recent Sales ofUnregistered Securities**

 

We did not engage in the sale of any unregisteredsecurities during the three months ended December 31, 2008.

 

**Use of Proceeds from our Initial PublicOffering**

 

On October 19, 2007, we consummated our initialpublic offering of 30,000,000 units. Each unit consisted of one share of commonstock, $.0001 par value per share, and one warrant to purchase one share ofcommon stock. On October 30, 2007, the underwriters of our initial publicoffering exercised their over-allotment option to sell an additional 2,970,300units. We received aggregate gross proceeds of $240,000,000 from the sale ofthe units. The offering was registered under the Securities Act of 1933, asamended, pursuant to a registration statement on Form S-1 (File No. 333-142729),which was declared effective by the Securities and Exchange Commission on October 15,2007.

 

The underwriters of the offering were Morgan Joseph &Co. Inc., Southwest Securities, Inc., Maxim Group LLC, Brean Murray,Carret & Co., LLC, GunnAllen Financial, Inc., Legend MerchantGroup. Each of our units commenced trading its component share of common stockand warrant separately on November 7, 2007.

 

Immediately prior to the consummation of our initialpublic offering, we sold 6,200,000 warrants to the Company’s foundingstockholders for $1.00 per warrant for aggregate gross proceeds of $6,200,000.

 

The net proceeds from the sale of our units (includingthe underwriters’ over-allotment option) and the insider warrants, after deductingcertain offering expenses of approximately $9,592,000, including underwritingdiscounts of approximately $9,232,000, and the repayment of the note payable toa stockholder 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.

 

No expenses of the offering were paid to our officerand directors or any of their respective affiliates. We did, however, repay anaffiliate of our officer for a loan in the principal amount of $500,000  made to us prior to the consummation of theinitial public offering, together with interest at the rate of 4%.

 

On September 29, 2008, all the funds held in thetrust account were transferred into a money market fund that is invested solelyin U.S. treasuries.

** **

**Repurchases ofEquity Securities**

 

None.

** **

**EquityCompensation Plan Information**

 

None.

# ** **

# **Item 6.**                              Selected Financial Data

 

The selected financial data presented below summarizescertain financial data which has been derived from and should be read inconjunction with our financial statements and notes thereto included in thesection beginning on page F-1. See also “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations.”

 

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| **Statement of Operations Data:**                                     | ** ** | **Year   Ended   December 31,   2008** | ** ** | **Period from   January 24, 2007   (Inception) to   December 31,   2007** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                 |       |                                                       |       |                                                                                                                   |       |
| Operating expenses                                                                   |       | $                                                          | 1,438,696  |                                                                                                                   | $          | 205,740 |   |
| Interest income                                                                      |       | $                                                          | 6,880,294  |                                                                                                                   | $          | 2,642,630 |   |
| Provision for income tax                                                             |       | $                                                          | 1,948,000  |                                                                                                                   | $          | 881,000 |   |
| Income before allocation of trust account  interest                                  |       | $                                                          | 3,493,598  |                                                                                                                   | $          | 1,542,904 |   |
| Allocation of trust account interest to  common stock subject to possible redemption |       | $                                                          | (982,477   | )                                                                                                                      | $          | — |   |
| Net income available to common stockholders                                          |       | $                                                          | 2,511,121  |                                                                                                                   | $          | 1,542,904 |   |
| Basic net income per share                                                           |       | $                                                          | 0.06       |                                                                                                                   | $          | 0.10 |   |
| Diluted net income per share                                                         |       | $                                                          | 0.05       |                                                                                                                   | $          | 0.09 |   |

 
| **Balance Sheet Data:**           | ** ** | **December 31,   2008** | ** **  | **December 31,   2007** | ** ** |
|---------------------------------------------|------------|-----------------------------------|-------------|-----------------------------------|------------|
|                                        |       |                              |        |                              |       |
| Cash and cash equivalents                   |       | $                                 | 1,473,753   |                              | $          | 1,214,280 |   |
| Money market funds – held in trust     |       | $                                 | 263,192,125 |                              | $          | 260,800,695 |   |
| Total assets                                |       | $                                 | 264,883,425 |                              | $          | 262,218,161 |   |
| Total liabilities                           |       | $                                 | 10,376,286  |                              | $          | 10,222,143 |   |
| Common stock subject to possible redemption |       | $                                 | 75,308,773  |                              | $          | 75,308,773 |   |
| Total stockholders’ equity             |       | $                                 | 179,198,366 |                              | $          | 176,687,245 |   |

 

# **Item 7.**                              Management’s Discussionand Analysis of Financial Condition and Results of Operations

 

**Forward-Looking Statements**

 

This Annual Report on Form 10-K includesforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. We have based these forward-lookingstatements on our current expectations and projections about future events.These forward-looking statements are subject to known and unknown risks,uncertainties and assumptions about us that may cause our actual results,levels of activity, performance or achievements to be materially differentfrom any future results, levels of activity, performance or achievementsexpressed or implied by such forward-looking statements. In some cases, you canidentify forward-looking statements by terminology such as “may,” “should,” “could,”“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” orthe negative of such terms or other similar expressions. Factors that mightcause or contribute to such a discrepancy include, but are not limited to,those described in our other Securities and Exchange Commission filings. Thefollowing discussion should be read in conjunction with our FinancialStatements and related Notes thereto included elsewhere in this report.

 

**Overview**

 

We were formed on January 24, 2007 to serve as avehicle to effect a merger, asset acquisition, stock exchange or other similarbusiness combination, or control through contractual arrangements, an operatingbusiness having its primary operations in the People’s Republic of China. Ourinitial business combination must be with a target business or businesses whosefair market value is at least equal to 80% of our net assets at the time ofsuch acquisition. Since our initial public offering in October 2007, wehave been actively searching for a suitable business combination candidate. Wecurrently have not entered into any definitive agreement with any potentialtarget businesses. We are not presently engaged in, and will not engage in, anysubstantive commercial business until we consummate an initial transaction. Weintend to utilize cash derived from the proceeds of our private placement and initialpublic offering, our capital stock, debt or a combination of cash, capitalstock and debt, in effecting a business combination.

 

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**Going Concern**

 

Our financial statements have been prepared assumingthat we will continue as a going concern. Our amended and restated certificate of incorporation provides that ifwe are not able to complete a business combination by October 15, 2009,our corporate existence will cease, except for the process of winding up andliquidating.  We cannot assure ourinvestors that we will be able to find a suitable business combination by October 15,2009.  Our independent registered publicaccounting firm, in their report on our 2008 financial statements, have raisedsubstantial doubt about our ability to continue as a going concern.  The consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

**Critical Accounting Policies**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the financial statements and thereported amounts of expenses during the reporting period. Actual results coulddiffer from those estimates.

 

*Share-Based Payments*

 

We account for share-based payments pursuant toStatement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-BasedPayment” (“SFAS No. 123R”). SFAS No. 123R requires all share-basedpayments, including grants of stock options to employees, to be recognized inthe financial statements based on their fair values. We adopted SFAS No. 123Ron January 24, 2007 (inception) and expect that it could have a materialimpact on our financial statements to the extent that we grant stock-basedcompensation in future periods.

 

*Deferred Interest on Funds Held in Trust*

 

Deferred interest on funds held in the trust accountconsists of the 30% less one share portion of the interest earned on the fundsheld in trust reduced by certain permitted withdrawals, including income taxes,by us, which is the maximum amount that we would be obligated to pay tostockholders who elect to have their stock redeemed by us without resulting ina rejection of a business combination.

 

*Income Taxes*

 

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

 

Effective January 24, 2007 (inception), weadopted the provisions of FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes, an interpretation of FASB Statement No. 109”(“FIN 48”), which provides criteria for the recognition, management,presentation and disclosure of uncertain tax positions. A tax benefit from anuncertain position may be recognized only if it is “more likely than not” thatthe position is sustainable based on its technical merits.

 

**Recent Accounting Pronouncements**

 

In December 2007, the FASB issued SFAS No. 141(R),“Business Combinations” (“SFAS No. 141(R)”), which requires an acquirer torecognize in 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.

 

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141(R) makessignificant amendments to other Statements and other authoritative guidance toprovide additional guidance or to conform the guidance in that literature tothat provided in SFAS No. 141(R). SFAS No. 141(R) also providesguidance as to what information is to be disclosed to enable users of financialstatements to evaluate the nature and financial effects of a businesscombination. SFAS No. 141(R) is effective for financial statementsissued for fiscal years beginning on or after December 15, 2008. Earlyadoption is prohibited. The adoption of SFAS No. 141(R) will affecthow the Company accounts for a business combination concluded after December 31,2008.

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements — an amendmentof ARB No. 51” (“SFAS No. 160”), which requires that ownershipinterests in subsidiaries held by parties other than the parent, and the amountof consolidated net income, be clearly identified, labeled and presented in theconsolidated financial statements.  SFAS No. 160also requires that once a subsidiary is deconsolidated, any retainednoncontrolling equity investment in the former subsidiary be initially measuredat fair value.  Sufficient disclosuresare required to clearly identify and distinguish between the interests of theparent and the interests of the noncontrolling owners.  SFAS No. 160 amends FASB No. 128 toprovide that the calculation of earnings per share amounts in the consolidatedfinancial statements will continue to be based on the amounts attributable tothe parent. SFAS No. 160 is effective for financial statements issued forfiscal years, and interim periods within those fiscal years, beginning on orafter December 15, 2008, and requires retroactive adoption of thepresentation and disclosure requirements for existing minority interests.  All other requirements are appliedprospectively.  Early adoption isprohibited.  The Company does notcurrently anticipate that the adoption of SFAS No. 160 will have anyimpact on its financial statement presentation or disclosures.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities — an amendmentof FASB Statement No. 133” (“SFAS No. 161”).  SFAS No. 161 amends and expands thedisclosure requirements of SFAS No. 133, “Accounting for Derivative Instrumentsand Hedging Activities” (“SFAS No. 133”). The objective of SFAS No. 161is to provide users of financial statements with an enhanced understanding ofhow and why an entity uses derivative instruments, how derivative instrumentsand related hedged items are accounted for under SFAS No. 133 and itsrelated interpretations, and how derivative instruments and related hedgeditems affect an entity’s financial position, financial performance, and cashflows.  SFAS No. 161 requiresqualitative disclosures about objectives and strategies for using derivatives,quantitative disclosures about fair value amounts of and gains and losses onderivative instruments, and disclosures about credit-risk-related contingentfeatures in derivative agreements.  SFAS No. 161applies to all derivative financial instruments, including bifurcatedderivative instruments (and nonderivative instruments that are designed andqualify as hedging instruments pursuant to paragraphs 37 and 42 of SFAS No. 133)and related hedged items accounted for under SFAS No. 133 and its relatedinterpretations.  SFAS No. 161 alsoamends certain provisions of SFAS No. 131. SFAS No. 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early application encouraged.  SFAS No. 161 encourages, but does notrequire, comparative disclosures for earlier periods at initial adoption.  The Company does not currently anticipatethat the adoption of SFAS No. 161 will have any impact on its financialstatement presentation or disclosures.

 

In June 2008, the FASB ratified Emerging IssuesTask Force (“EITF”) Issue No. 07-05, “Determining Whether an Instrument(or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF 07-05”). EITF07-05 mandates a two-step process for evaluating whether an equity-linkedfinancial instrument or embedded feature is indexed to the entity’s own stock.Warrants that a company issues that contain a strike price adjustment feature,upon the adoption of EITF 07-05, results in the instruments no longer beingconsidered indexed to the company’s own stock. Accordingly, adoption of EITF07-05 will change the current classification (from equity to liability) and therelated accounting for such warrants outstanding at that date. EITF 07-05 iseffective for fiscal years beginning after December 15, 2008, and interimperiods within those fiscal years. The Company is currently evaluating theimpact the adoption of EITF 07-05 will have on its financial statementpresentation and disclosures.

 

Management does not believe that any other recentlyissued, but not yet effective, accounting standards, if currently adopted,would have a material effect on the Company’s financial statements.

 

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**Results of Operations for the Year Ended December 31,2008 and the Period from January 24, 2007 (Inception) to December 31,2007**

 

For the year ended December 31, 2008, we had netincome available to common stockholders of approximately $2,511,100, comprisedof interest income of approximately $6,880,300, less operating expenses ofapproximately $1,438,700, income tax expense of approximately $1,948,000, and interestallocable to common shares subject to possible redemption of approximately$982,500. Operating expenses consisted of approximately $534,000 forprofessional fees incurred relating to potential acquisitions, $196,400 forother professional fees, $194,300 for travel expenses, $132,500 for insurance,$220,500 for other operating costs, and $161,000 for capital based taxes.

 

For the period from January 24, 2007 (inception)to December 31, 2007, we had net income available to common stockholdersof approximately $1,542,900, comprised of interest income of approximately$2,642,600, less operating expenses of approximately $205,700, income taxexpense of approximately $881,000 and interest expense with respect to a notepayable to one of our initial stockholders of $13,000.  Operating expenses consisted of approximately$16,800 for professional fees, $98,700 for formation and other operating costs,$50,200 of travel expenses, and $40,000 of costs related to capital basedtaxes.

 

Commencing on October 15, 2007 and ending uponthe acquisition of a target business, we began incurring a fee of $7,500 permonth for office space and certain other additional services from PacificMillennium, an affiliate of Mr. Tan, our Chief Executive Officer.  During the year ended December 31, 2008and for the period from January 24, 2007 (inception) to December 31,2007, we incurred $90,000 and $15,000 of costs, respectively, under thisagreement.

 

From time to time Pacific Millennium makes payments onour behalf to third parties for expenses incurred by us in the pursuit of apotential business combination for which we reimburse Pacific Millennium.  Such reimbursements amounted to $310,044 and$77,233 during the year ended December 31, 2008 and the period from January 24,2007 (inception) to December 31, 2007, respectively.  Pacific Millennium does not receive anybenefit from these transactions.

 

**Liquidity and Capital Resources**

 

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

 

The net proceeds from the sale of our units (includingthe underwriters’ over-allotment option) and the insider warrants, afterdeducting certain offering expenses of approximately $9,592,000, includingunderwriting discounts of approximately $9,232,000, and the repayment of thenote payable to a stockholder of approximately $513,000, including accruedinterest, were approximately $259,875,000, of which approximately $259,746,000was deposited into the trust account. The remaining proceeds were depositedinto the Company’s operating account, which along with up to $3,300,000 ininterest earned on the funds in the trust account, are available to be used byus to provide for business, legal and accounting due diligence on prospectiveacquisitions and continuing general and administrative expenses. We expect touse substantially all of the net proceeds of the offering to acquire a targetbusiness, including identifying and evaluating prospective acquisition candidates,selecting the target business, and structuring, negotiating and consummating abusiness combination. To the extent that our capital stock is used in whole orin part as consideration to effect a business combination, the proceeds held inthe trust account, as well as any other net proceeds not expended, is expectedto be used to finance the operations of the target business.

 

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

 

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

 

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

 

·                  duediligence of prospective target businesses;

 

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

 

·                  administrativefees ($7,500 per month); and

 

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

 

As of December 31, 2008, we had $1,473,753available to us outside of the trust account to fund our working capitalrequirements to fund our business. While we are entitled to withdraw up to anadditional $170,396 of the interest earned on the trust account, net of taxes,to fund our business, in light of declining interest rates, we may not havesufficient funds available to complete a business combination. In such event,we would need to borrow funds from our insiders or others or seek favorable paymentterms with our professionals and we may not be successful in these efforts.

 

We may use all or substantially all of the proceedsheld in trust other than the deferred portion of the underwriter’s fee toacquire one or more target businesses. We may not use all of the proceeds heldin the trust account in connection with a business combination, either becausethe consideration for the business combination is less than the proceeds intrust or because we finance a portion of the consideration with capital stockor debt securities that we can issue. In that event, the proceeds held in thetrust account, as well as any other net proceeds not expended, will be used tofinance the operations of the target business or businesses. The operatingbusinesses that we acquire in such business combination must have, individuallyor collectively, a fair market value equal to at least 80% of our net assets atthe time of such acquisition. If we consummate multiple business combinationsthat collectively have a fair market value of 80% of our net assets, then wewould require that such transactions are consummated simultaneously.

 

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

 

**Off Balance-Sheet Arrangements**

 

We do not have any off-balance sheet arrangements.

 

**Contractual Obligations**

 

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

 

## **Item 7A.**                     Quantitative and QualitativeDisclosures About Market Risk

 

Market risk is the sensitivity of income to changes ininterest rates (with respect to both interest income on the trust funds andinterest expense on any future debt obligations), foreign exchanges, commodityprices, equity prices, and other market-driven rates or prices.  We are not presently engaged in and, if asuitable business target is

 

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not identified by usprior to the prescribed liquidation date of the trust account, we may notengage in, any substantive commercial business. Accordingly, we are not and, until such time as we consummate a businesscombination, we will not be, exposed to risks associated with foreign exchangerates, commodity prices, equity prices or other market-driven rates orprices.  The net proceeds of our initialpublic offering held in the trust account have been invested only in moneymarket funds meeting certain conditions under Rule 2a-7 promulgated underthe Investment Company Act of 1940, as amended. Given our limited risk in ourexposure to money market funds, we do not view the interest rate risk to besignificant.

 

# **Item 8.**                              Financial Statements andSupplementary Data

 

The following financial statements and the footnotesthereto are included in the section beginning on page F-1:

 

1.  Report ofIndependent Registered Public Accounting Firm.

2.  ConsolidatedBalance Sheets as of December 31, 2008 and 2007.

3.  ConsolidatedStatements of Operations for the year ended December 31, 2008 and for theperiod January 24, 2007 (inception) to December 31, 2007, and for theperiod January 24, 2007 (inception) to December 31, 2008.

4.  ConsolidatedStatement of Stockholders’ Equity for the period from January 24, 2007(inception) to December 31, 2008.

5.  ConsolidatedStatements of Cash Flows for the year ended December 31, 2008 and for theperiod January 24, 2007 (inception) to December 31, 2007, and for theperiod January 24, 2007 (inception) to December 31, 2008.

6.  Notes toConsolidated Financial Statements.

 

# **Item 9.**                              Changes in andDisagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

## **Item 9A.**                     Controls and Procedures

 

**Disclosure Controls and Procedures**

 

An evaluation of the effectiveness of our disclosurecontrols and procedures as of December 31, 2008 was made under thesupervision and with the participation of our management, including our chiefexecutive and principal financial officer. Based on that evaluation, our chiefexecutive and principal financial officer concluded that our disclosurecontrols and procedures are effective as of the end of the period covered bythis report to ensure that information required to be disclosed by us in reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and that suchinformation is accumulated and communicated to our management, including ourchief executive and principal financial officer, as appropriate to allow timelydecisions regarding required disclosure.

 

**Management’s Annual Report onInternal Control over Financial Reporting**

 

Management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Rules 13a-15(f) and 15d-15(f) of the ExchangeAct.  Internal control over financialreporting is defined under the Exchange Act as a process designed by, or underthe supervision of, our chief executive and principal financial officer andeffected by our board of directors and management to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles and includes those policies and procedures that:

 

·                  Pertainto the maintenance of records that in reasonable detail accurately and fairlyreflect the transactions and dispositions of our assets;

 

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·                  Providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that our receipts and expenditures are being madeonly in accordance with authorizations of our management and directors; and

 

·                  Providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of our assets that could have a material effecton the financial statements.

 

Internal control over financial reporting has inherentlimitations and may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risks that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Under the supervision and with the participation ofour management, including our chief executive and principal financial officer,we conducted an evaluation of the effectiveness of our internal control overfinancial reporting based on the framework in Internal Control - IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Based on our evaluation, our chief executive and principalfinancial officer has concluded that during the period covered by this annualreport, our internal controls over financial reporting were effective.

 

Our independent registered public accounting firm,Gumbiner & Savett Inc., who also audited our consolidated financialstatements, independently assessed the effectiveness of our internal controlover financial reporting as of December 31, 2008, as stated in theirreport which is included in this annual report on Form 10-K.

 

**Changes in Internal Control over FinancialReporting**

 

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

 

## **Item 9B.**                     Other Information

 

None.

 

**PART III**

 

# **Item 10.**                       Directors, Executive Officersand Corporate Governance

 

Our current directors and executive officer are asfollows:

 
| **Name**        | ** ** | **Age** | ** ** | **Position**                                     |
|-----------------|------------|---------|------------|--------------------------------------------------|
| Richard  Tan    |       | 53      |       | Chief  Executive Officer, President and Director |
| Roger  W. Stone |       | 74      |       | Non-Executive  Chairman of the Board             |

 

***Richard Tan***hasbeen our Chief Executive Officer since our inception. Mr. Tan has servedas the President and Chief Executive Officer of Pacific Millennium HoldingsCorporation, an investment and operating group involved over the years invarious industries including pulp and paper, forest plantation, informationtechnology, and development and global joint ventures in Asia, since he foundedsuch company in 1977. Mr. Tan has been a member of the board of directorsof Samling Global Limited, a Hong Kong public company, and Domtar Inc., apublic company in U.S. and Canada, since March 2007. In March 2008, Mr. Tanwas appointed as a consultant to the National People’s Congress of the PRC. Mr. Tanreceived a B.S. in Civil and Mechanical Engineering from San Diego StateUniversity, an M.B.A. from the University of Southern California andparticipated in Stanford University’s Executive Program.

 

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***Roger W. Stone***hasbeen our non-executive Chairman of the Board since our inception. Mr. Stonehas been the Chairman and Chief Executive Officer of KapStone Paper andPackaging Corporation (formerly known as Stone Arcade Acquisition Corporation)since April 2005. Stone Arcade was incorporated in April 2005 as ablank check company formed to acquire a business in the paper, packaging,forest products and related industries. In January 2007, Stone Arcadeacquired a division of International Paper and changed its name to KapStonePaper and Packaging Corporation. Mr. Stone has been Manager ofStone-Kaplan Investments, LLC, a private investment company (which is no longeroperating) since July 2004. He was Chairman and Chief Executive Officer ofBox USA Holdings, Inc., a corrugated box manufacturer, from July 2000until the sale of that company in July 2004. Mr. Stone was Chairman,President and Chief Executive Officer of Stone Container Corporation, amultinational paper company primarily producing and selling pulp, paper andpackaging products, from March 1987 to November 1998 when StoneContainer Corporation merged with Jefferson Smurfit Corporation, at which timehe became President and Chief Executive Officer of Smurfit-Stone ContainerCorporation until March 1999. Mr. Stone has served on the board ofdirectors of McDonald’s Corporation since 1989. Mr. Stone received a B.S.in Economics from the Wharton School at the University of Pennsylvania.

 

There is no family relationship between any directoror executive officer and any of our directors.

 

Prior to a business combination, Mr. Tan will beinvolved in our day-to-day business operation and actively involved in locatingtarget businesses, while Mr. Stone, who is a major stockholder and ourChairman, will be involved in the analysis of any potential businesscombination and the business strategy of our operations. Both Messrs. Stoneand Tan have business, financial and indemnification obligations to us. It isunclear what role Messrs. Stone and Tan will play in our operationspost-business combination. Depending on the target business and other factorsat the time of the business combination, it is possible that neither Mr. Stonenor Mr. Tan will have any responsibilities with respect to our operationspost-business combination, although we expect that each will have at least somerole in our management.

 

Our board of directors is divided into three classeswith only one class of directors being elected in each year and each classserving a three-year term. The term of office of the first class of directors,consisting of Richard Tan, will expire at our first annual meeting ofstockholders. The term of office of the second class of directors, consistingof Roger W. Stone, will expire at the second annual meeting. Since we currentlyhave only two directors, one of the classes does not currently have anydirectors in it. These individuals will play a key role in identifying andevaluating prospective acquisition candidates, selecting the target business,and structuring, negotiating and consummating its acquisition.

 

**Advisors**

 

We also currently have three advisors with expertisein commerce and finance in China as well as broad business experience. Althoughwe do not intend to rely substantially on these advisors in order to accomplishour business purpose, we anticipate that they will advise us concerning ouracquisition of a target business. Our advisors are employed by or affiliatedwith organizations other than us and have other commitments that may conflictor compete with our interests. We do not have any written agreements with ouradvisors, and, therefore, they are not obligated to render any advice orassistance to us and there are no arrangements regarding compensation to ouradvisors other than the understanding that they will be reimbursed forout-of-pocket expenses incurred on behalf of us. Each of our advisors has along-standing business or personal relationship with the Tan family, and theyhave expressed their intention to act in an advisory capacity for us.

 

Their biographies are set forth below:

 

***Daojiong Zhou***has been our advisor since March 1, 2007. Mr. Zhou has been the vicechairman of the China Pacific Economic Cooperation Council since August 2000.Mr. Zhou served as the Chairman of the supervisory committee of the ChinaConstruction Bank Committee from April 1994 to August 2000. Prior tothat time, he served as the Chairman of China Securities Regulatory Committeefrom May 1995 to June 1997. Mr. Zhou also holds severalhonorable positions at prominent Chinese financial institutions and academies,including Honorable Chairman of the China Society of Urban Economy, Chairman ofthe China Taoxingzhi Fund, Honorary Director of the China Investment Society,Advisor of the China Finance Academy, and Executive Director of the

 

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China Macro EconomicAcademy. Mr. Zhou received a degree in Finance from the Central CommunistParty School in 1983.

 

***Guangsheng Zhang***has been our advisor since December 1, 2006. Mr. Zhang is currently aresearcher for Shanghai Pudong Development Bank. Mr. Zhang was theChairman of the Board of Shanghai Pudong Development Bank from October 2000to October 2005. From March 1996 to October 2000, he was thedirector of the Shanghai Commerce Commission. Mr. Zhang holds manyhonorable positions including being a board member of Fudan University andbeing an honorary director of the Shanghai Circulating Economics Institute. Hehas published articles on commerce, finance and business reforms and wasawarded the “2003/2004 Mundell World Manager Achievement Award” by WorldManager Weekly Magazine. Mr. Zhang received his EMBA from Arizona StateUniversity in 2005. He also received his Bachelor degree in IndustrialMerchandising from Heilongjiang Business College in 1964.

 

***Dawei Xia***has been our advisor since March 16, 2007. He has been the President ofShanghai National Accounting Institute since 2000, the Deputy Chief and aconsultant at China Association of Industrial Economics Research andDevelopment since September 2006, the Vice President of the ChinaAccounting Society since June 2006 and a member of and consultant at theResearch Council for Listed Companies of the Shanghai Stock Exchange Committeesince October 2001. Mr. Xia was the Executive Vice President ofShanghai University of Finance and Economics from October 1998 to October 2000.Mr. Xia received his Master degree in Economics from the ShanghaiUniversity of Finance and Economics in 1985 and his Bachelor degree inEngineering from the Changchun University of Technology in 1982.

 

**Code of Ethics**

 

We currently do not have a formalized code of ethics.Upon consummation of a business combination, we intend to adopt a code ofethics that would apply to our principal executive officer, principal financialofficer, principal accounting officer or controller or persons performingsimilar functions.

 

**Audit Committee**

 

Our board of directors intends to establish an auditcommittee after the consummation of the business combination. Until such time,our board of directors will act as our audit committee and will review anddiscuss the audited financial statements with management and the independentauditors, discuss with the independent auditors the matters required to bediscussed by Statement of Auditing Standard No. 61, as currently ineffect, receive written disclosures and the letter from the independentauditors required by Independence Standard Board Standard No. 1,Independence Discussions with Audit Committees, as currently in effect,considers whether the provision of non-audit services by the independentauditors to us is compatible with maintaining the auditor’s independence anddiscuss with the auditors the auditors’ independence. Since we are a blankcheck company, our financial statements are not complicated and, therefore, wedo not have a financial expert as defined in federal securities laws andregulation on our board of directors.

 

**Section 16(a) Beneficial OwnershipReporting Compliance**

 

Section 16(a) of the Securities Exchange Actrequires our directors, executive officer and persons who own more than 10% ofour common stock to file reports of ownership and changes in ownership of ourcommon stock with the Securities and Exchange Commission. Our directors,executive officer and persons who own more than 10% of our common stock arerequired by Securities and Exchange Commission regulations to furnish to uscopies of all Section 16(a) forms they file. To our knowledge, basedsolely upon a review of Forms 3, 4 and 5 and amendments to these formsfurnished to the Company by our directors, executive officer and persons whoown more than 10% of our common stock, no person failed to file to make atimely filing during the year ended December 31, 2008.

 

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# **Item 11.**                       Executive Compensation

 

No officer has received any cash compensation forservices rendered. Commencing on the effective date of our initial publicoffering through the acquisition of a target business, Pacific Millennium, anaffiliate of Mr. Tan, our Chief Executive Officer, is paid $7,500 permonth for office space and general and administrative services includingsecretarial support. This arrangement was agreed to by Pacific Millennium forour benefit and is not intended to provide Mr. Tan compensation in lieu ofa salary. We believe that such fees are at least as favorable as we could haveobtained from an unaffiliated person. Our other director does not have arelationship with or interest in Pacific Millennium. Other than this $7,500per-month fee, no compensation of any kind, including finder’s and consultingfees, will be paid to any of our initial stockholders, our officer ordirectors, or any of their respective affiliates, for services rendered priorto or in connection with a business combination. However, our officer anddirectors will be reimbursed for any out-of-pocket expenses incurred inconnection with activities on our behalf such as identifying potential targetbusinesses and performing due diligence on suitable business combinations.There is no limit on the amount of these out-of-pocket expenses and there willbe no review of the reasonableness of the expenses by anyone other than ourboard of directors, which includes persons who may seek reimbursement, or acourt of competent jurisdiction if such reimbursement is challenged.

 

Since our formation, we have not granted any stockoptions or stock appreciation rights or any awards under long-term incentiveplans.

 

# **Item 12.**                       Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth, as of March 3,2009, certain information regarding beneficial ownership of our common stock byeach person who is known by us to beneficially own more than 5% of our commonstock. The table also identifies the stock ownership of each of our directors,our officer, and all directors and our officer as a group. Except as otherwiseindicated, the stockholders listed in the table have sole voting and investmentpowers with respect to the shares indicated.

 

Shares of common stock which an individual or grouphas a right to acquire within 60 days pursuant to the exercise or conversion ofoptions, warrants or other similar convertible or derivative securities aredeemed to be outstanding for the purpose of computing the percentage ownershipof such individual or group, but are not deemed to be outstanding for thepurpose of computing the percentage ownership of any other person shown in thetable.

 
| **Name and Address of Beneficial Owner**                                                                                                                                           | ** ** | **Amount and  Nature of  Beneficial  Ownership** | ** ** | **Percentage of  Outstanding  Common  Stock** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------------------------------|------------|
| Roger Stone (1)                                                                                                                                                                                             |       | 3,297,030                                                  |       | 8                                                  | %          |
| Richard Tan (2)                                                                                                                                                                                             |       | 4,945,545                                                  |       | 12                                                 | %          |
| Chih-Chun Tan (2)                                                                                                                                                                                           |       | 4,945,545                                                  |       | 12                                                 | %          |
| HBK Investments L.P, HBK Services LLC, HBK  New York, LLC, HBK Partners II L.P., HBK Management LLC, HBK Master Fund L.P  and HBK Special Opportunity Fund I LP(3)                                          |       | 4,921,200                                                  |       | 11.9                                               | %          |
| Integrated Core Strategies (US) LLC,  Cognizant Holdings, Ltd., Millennium International Management LP, Millennium  International Management GP LLC, Millennium Management LLC and Israel A.  Englander (4) |       | 4,198,460                                                  |       | 10.2                                               | %          |
| QVT Financial LP, QVT Financial GP LLC, QVT  Fund LP and QVT Associates GP LLC (5)                                                                                                                          |       | 4,079,306                                                  |       | 9.9                                                | %          |
| Fir Tree, Inc., Fir Tree Recovery  Master Fund, L.P. and Sapling, LLC (6)                                                                                                                              |       | 2,350,000                                                  |       | 5.7                                                | %          |
| Weiss Asset Management, LLC, Weiss Capital,  LLC and Andrew M. Weiss (7)                                                                                                                                    |       | 1,937,083                                                  |       | 4.7                                                | %          |
|                                                                                                                                                                                                        |       |                                                       |       |                                               |       |
| All directors and executive officers as a  group (2 persons)                                                                                                                                                |       | 8,242,575                                                  |       | 20                                                 | %          |

 

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(1)                  Includesshares held by the Stone 2007 Family Trust. Mr. Stone has voting anddispositive control over the shares held by the trust. The address for Mr. Stoneis c/o Stone Tan China Acquisition Corp., Suite 1A, 11th Floor, Tower 1,China Hong Kong City, 33 Canton Road Kowloon, Hong Kong.

 

(2)                  The4,945,545 shares beneficially owned by Richard Tan and Chih-Chun Tan are ownedby SPAC Trust, a family trust formed for personal financial and estate planningpurposes. Chih-Chun Tan (Richard Tan’s father) is settlor and Richard Tan isTrustee of the trust. Chih-Chun Tan will not have any active role in regard toour company.  The address for Mr. RichardTan and Mr. Chih-Chun Tan is c/o Stone Tan China Acquisition Corp., Suite 1A,11th Floor, Tower 1, China Hong Kong City, 33 Canton Road Kowloon, Hong Kong.

 

(3)                Based oninformation contained in a Schedule 13D filed by HBK Investments L.P (“Investments”),HBK Services LLC (“Services”), HBK New York LLC (“NY”), HBK Partners II L.P. (“Partners”),HBK Management LLC (“HBK Management”), HBK Master Fund L.P. (“Master Fund”) andHBK Special Opportunity Fund I LP (“SOFI”) on January 7, 2009. Thebusiness address of Investments, Services, Partners and HBK Management is 300Crescent Court, Suite 700, Dallas, Texas 75201. The business address ofMaster Fund and SOFI is c/o HBK Services LLC, 300 Crescent Court, Suite 700,Dallas, Texas 75201. The business address of NY is 350 Park Avenue, New York,New York, 10022.  Investments, asinvestment advisor, has discretionary power to vote and dispose of the sharesheld by Master Fund and SOFI.. Investments has delegated discretion to vote anddispose of investments over which it has discretion to Services which, in turn,may from time to time delegate and/or share discretion to vote and dispose ofinvestments over which it has discretion to NY. Partners is the general partnerof Investments. HBK Management is the general partner of Partners and themanaging member of Services and NY.  andRichard L. Booth, Laurence H. Lebowitz, William E. Rose, David C. Haley andJamiel A. Akhtar.  HBK Fund L.P. and HBKOffshore Fund Ltd. are general partners of Master Fund. HBK Capital L.P. is thegeneral partner of HBK Fund.  Richard L.Booth, Laurence H. Lebowitz, William E. Rose, David C. Haley and Jamiel A.Akhtar (the “HBK Managers”) serve as managing directors of Investments and aremembers of, and may be deemed to control, HBK Management.

 

(4)                Based oninformation contained in a Schedule 13G filed by Integrated Core Strategies(US) LLC (“Integrated”), Cognizant Holdings, Ltd. (“Cognizant”), MillenniumInternational Management LP (“Millennium International Management”), MillenniumInternational Management GP LLC (“Millennium International Management GP”),Millennium Management LLC (“Millennium Management”) and Israel A. Englander on December 23,2008. The business address of Integrated, Millennium International Management,Millennium International Management GP and Millennium Management is 666 FifthAvenue, New York, New York 10103.  Thebusiness address of Cognizant and Mr. Englander is c/o MillenniumManagement, 666 Fifth Avenue, New York, New York 10103. Integrated beneficiallyowns 3,987,950 shares and Cognizant beneficially owns 210,510 shares of ourcommon stock.  Millennium InternationalManagement is the investment manager to Cognizant, and consequently may bedeemed to have shared voting control and investment discretion over securitiesowned by Cognizant. Millennium International Management GP is the generalpartner of Millennium International Management, and consequently may be deemedto have shared voting control and investment discretion over securities ownedby Cognizant. Millennium Management is the general partner of the 100%shareholder of Cognizant, and consequently may be deemed to have shared votingcontrol and investment discretion over securities owned by Cognizant.Millennium Management is also the general partner of the managing member ofIntegrated, and consequently may be deemed to have shared voting control andinvestment discretion over securities owned by Integrated. Mr. Englanderis the managing member of Millennium Management and of Millennium InternationalManagement GP, and consequently may be deemed to be the beneficial owner of anysecurities beneficially owned by Cognizant and/or Integrated, as the case maybe.

 

(5)                Based oninformation contained in a Schedule 13G/A filed by QVT Financial LP (“Financial”),QVT Financial GP LLC (“Financial GP”), QVT Fund LP (“QVT Fund”) and QVTAssociates GP LLC (“Associates”) on February 47, 2009. The businessaddress of Financial, Financial and Associates is 1177 Avenue of the Americas,9th Floor, New York, New York 10036. The business address for QVT Fund isWalkers SPV, Walkers House, Mary Street, George Town, Grand Cayman KY1-9002,Cayman Islands. Financial is the investment manager for QVT Fund, whichbeneficially owns 3,476,167 shares of our common stock, and for QuintessenceFund L.P. (“Quintessence”), which beneficially owns 359,984 shares of ourcommon stock. Financial is also the investment manager for a separatediscretionary account managed by a third party (the “Separate Account”), whichholds 243,245 shares of our common stock. Financial has the power to direct thevote and disposition of the shares of our common stock held by QVT Fund,Quintessence and the Separate Account and, accordingly, may be deemed to be thebeneficial owner of an aggregate amount of 4,079,306 shares of our common stockheld by such entities. Financial GP, as general partner of Financial, may bedeemed to beneficially own the same number of shares of our common stockreported by Financial. Associates, as general partner of QVT Fund andQuintessence, may be deemed to beneficially own the aggregate amount of3,836,061 shares of our common stock owned by QVT Fund. Each of Financial andFinancial GP disclaims beneficial ownership of the shares held by QVT Fund,Quintessence and the Separate Account. Associates disclaims beneficial ownership of the shares owned by QVTFund and Quintessence, except to the extent of its pecuniary interest therein.

 

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(6)                  Basedon information contained in a Schedule 13G filed by Sapling, LLC, Fir Tree, Inc.and Fir Tree Recovery Master Fund, L.P. on October 26, 2007. The businessaddress of both Fir Tree, Inc. and Sapling, LLC is 505 Fifth Avenue, 23rdFloor, New York, New York 10017. The address of Fir Tree Recovery Master Fund,L.P. is c/o Admiral Administration Ltd., Admiral Financial Center, 5th Floor,90 Fort Street, Box 32021 SMB, Grand Cayman, Cayman Islands. Sapling, LLC isthe beneficial owner of and may direct the vote and dispose of 1,970,700 sharesof our common stock. Fir Tree Recovery Master Fund, L.P. is the beneficialowner of and may direct the vote and dispose of 379,300 shares of our commonstock. Fir Tree, Inc. has been granted investment discretion over theshares of our common stock held by Sapling, LLC and Fir Tree Recovery MasterFund, L.P.

 

(7)                  Basedon information contained in a Schedule 13G filed by Weiss Asset Management, LLC(“Asset Management”), Weiss Capital, LLC (“Capital”) and Andrew M. Weiss on July 8,2008. The business address for Asset Management, Capital and Mr. Weiss is29 Commonwealth Avenue, 10th Floor, Boston, MA 02116. The reported shares ofour common stock include shares beneficially owned by a private investmentpartnership of which Asset Management is the sole general partner and which maybe deemed to be controlled by Mr. Weiss, who is the managing member ofAsset Management, and also includes shares held by a private investmentcorporation which may be deemed to be controlled by Mr. Weiss, who is themanaging member of Capital, the investment manager of such private investmentcorporation.

 

# **Item 13.**                       Certain Relationships andRelated Transactions, and Director Independence

 

On January 31, 2007 (after giving effect to astock split effected in May 2007), we issued to the following directorsand our executive officer (or their respective affiliates) the number of sharesof common stock set forth opposite their respective names for consideration of$0.008 per share.

 
| **Name**    | ** ** | **Number of  Shares** | ** ** | **Relationship to Us**                          | ** ** |
|-------------|------------|----------------------------|------------|-----------------------------------------------------------|------------|
| Roger Stone |       | 3,450,000                  |       | Non-Executive  Chairman and Director                      |       |
| SPAC Trust  |       | 5,175,000                  |       | Richard Tan  is the trustee of SPAC Trust, a family trust |       |

 

(1) In November 2007, in connection with thepartial exercise by the underwriters of their over-allotment option, RogerStone and the SPAC Trust redeemed 152,970 and 229,455 shares, respectively, tous.

 

Immediately prior to the completion of our initialpublic offering, on October 19, 2007, our founding stockholders purchased6,200,000 warrants from us at a price of $1.00 per warrant. The aggregateproceeds of the private placement of $6,200,000 are being held in a trustaccount. Our founding stockholders agreed that they will not sell or otherwisetransfer these warrants until after we consummate a business combination,except in certain limited circumstances. In addition, these warrants will beexercisable on a cashless basis and will be nonredeemable so long as ourfounding stockholders hold them.

 

The holders of the majority of the aggregate of theshares of common stock and the shares underlying the warrants sold in theprivate placement are entitled to make up to two demands that we register theseshares. They may elect to exercise these registration rights at any time afterthe date on which these shares of common stock are released from escrow, which,except in limited circumstances, is not before one year after the consummationof a business combination. In addition, these stockholders have certain “piggy-back”registration rights on registration statements filed subsequent to the date onwhich these shares of common stock are released from escrow. We will bear theexpenses incurred in connection with the filing of any such registrationstatements.

 

We have agreed to pay Pacific Millennium, an affiliateof Mr. Tan, our Chief Executive Officer, a monthly service fee of $7,500.Such fee is to cover general and administrative services provided by theaffiliate, including office space and utilities.

 

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On February 27, 2007, the SPAC Trust, anaffiliate of Richard Tan, loaned us $500,000 evidenced by a promissory note,which bore interest at 4% per annum. The proceeds of the loan evidenced by thenote were used to pay a portion of the expenses related to our initial publicoffering. The note, including related accrued interest of $12,821, was repaidon October 19, 2007.

 

We will reimburse members of our management team forany reasonable out-of-pocket business expenses incurred by them in connectionwith certain activities on our behalf such as identifying and investigatingpossible target businesses and business combinations. Subject to availabilityof proceeds not placed in the trust account and interest income of up to$3,300,000 (subject to the tax holdback) on the balance in the trust account,there is no limit on the amount of accountable out-of-pocket expensesreimbursable by us, which will be reviewed only by our board or a court ofcompetent jurisdiction if such reimbursement is challenged. To the extent suchout-of-pocket expenses exceed the available proceeds not deposited in the trustaccount and the interest income of up to $3,300,000 on the balance of the trustaccount (subject to the tax holdback), such out-of-pocket expenses would not bereimbursed by us unless we consummate a business combination.

 

All ongoing and future transactions between us and ourexecutive officer and directors or their respective affiliates, including loansby our executive officer and directors, will be on terms believed by us to beno less favorable than are available from unaffiliated third parties and suchtransactions or loans, including any forgiveness of loans, will require priorapproval in each instance by a majority of our uninterested “independent”directors, to the extent we have independent directors, or the members of ourboard who do not have an interest in the transaction, in either case who hadaccess, at our expense, to our attorneys or independent legal counsel.

 

**Director Independence**

 

Our board of directors has determined that none of ourdirectors constitute “independent directors” as such term is defined in Rule 10A-3of the Exchange Act.

 

# **Item 14.**                       Principal Accountant Fees andServices

 

During the fiscal year ended December 31, 2008,our independent registered public accountants were Gumbiner Savett Inc., theservices of which were provided in the following categories and amount:

 

***Audit Fees***

 

The aggregate fees billed by Gumbiner Savett Inc. forprofessional services rendered for the audits of our financial statementsduring 2007 and for services performed in connection with our registrationstatement on Form S-1 filed in 2007 were $150,611.

 

The aggregate fees billed by Gumbiner Savett Inc. forprofessional services rendered for review of the Company’s interim financialstatements and the audit of the Company’s financial statements for the yearended December 31, 2008 were $71,890.

 

***Audit Related Fees***

* *

Other than the fees described under the caption “AuditFees” above, Gumbiner Savett Inc. did not bill any fees for services renderedto us during fiscal years 2007 and 2008 for assurance and related services inconnection with the audit or review of our financial statements.

 

***Tax Fees***

* *

There were no fees billed by Gumbiner Savett Inc. forprofessional services rendered during the fiscal year ended December 31,2007 for tax compliance, tax advice, and tax planning.

 

The aggregate fees billed by Gumbiner Savett Inc. forprofessional services rendered during the fiscal year ended December 31,2008 for tax compliance, tax advice, and tax planning were $9,622.

 

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***All Other Fees***

* *

There were no fees billed by Gumbiner Savett Inc. forother professional services rendered during the fiscal years ended December 31,2007 and 2008.

 

***Pre-Approval Of Services***

* *

We do not have an audit committee and as a result ourboard of directors performs the duties of an audit committee. Our board ofdirectors evaluates and approves in advance the scope and cost of theengagement of an auditor before the auditor renders audit and non-auditservices.

 

**PART IV**

 

# **Item 15.**                       Exhibits and Financial StatementSchedules

 

(a)(1) FinancialStatements

 

The financial statements filed as part of this reportare listed in “Item 8 - Financial Statements and Supplementary Data.”

 

(b) Exhibits

 

The following Exhibits are filed as part of thisreport:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                         |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                  |       | Form of Amended and Restated Certificate of  Incorporation*                                                                                                                        |
| 3.2                  |       | By-laws*                                                                                                                                                                                |
| 4.1                  |       | Specimen Unit Certificate*                                                                                                                                                              |
| 4.2                  |       | Specimen Common Stock Certificate*                                                                                                                                                      |
| 4.3                  |       | Specimen Warrant Certificate*                                                                                                                                                           |
| 4.4                  |       | Form of Warrant Agreement between Continental  Stock Transfer & Trust Company and Stone Tan China Acquisition  Corp.*                                                     |
| 4.5                  |       | Form of Unit Purchase Option to be granted to  Morgan Joseph & Co. Inc.*                                                                                                  |
| 10.1                 |       | Letter Agreement dated October 4, 2007 among  Stone Tan China Acquisition Corp., Morgan Joseph & Co. Inc. and  Richard Tan*                                               |
| 10.2                 |       | Letter Agreement dated October 4, 2007 among  Stone Tan China Acquisition Corp., Morgan Joseph & Co. Inc. and  Roger Stone*                                               |
| 10.3                 |       | Letter Agreements among Stone Tan China Acquisition  Corp., Morgan Joseph & Co. Inc. and each of SPAC Trust and Stone  2007 Family Trust*                                      |
| 10.4                 |       | Form of Investment Management Trust Agreement  between Continental Stock Transfer & Trust Company and Stone Tan  China Acquisition Corp.*                                 |
| 10.5                 |       | Form of Securities Escrow Agreement between  Stone Tan China Acquisition Corp., Continental Stock Transfer &  Trust Company and Richard Tan, Roger Stone and SPAC Trust** |
| 10.6                 |       | Services Agreement with Pacific Millennium  Investment Corporation*                                                                                                                     |
| 10.7                 |       | Form of Registration Rights Agreement among  Stone Tan China Acquisition Corp., Morgan Joseph & Co. Inc. and  Richard Tan, Roger Stone and SPAC Trust*                    |
| 10.8                 |       | Form of Warrant Purchase Agreement between  Richard Tan, Roger Stone and Stone Tan China Acquisition Corp.*                                                                        |
| 10.9                 |       | Promissory Note, dated February 27, 2007,  issued to SPAC Trust*                                                                                                                   |
| 10.10                |       | Form of Securities Purchase Agreement among  Stone Tan China Acquisition Corp., Morgan Joseph & Co. Inc., SPAC  Trust and Roger Stone*                                    |
| 31.1                 |       | Certification of the Principal Executive and  Financial Officer pursuant to Rule 13(a)-14(a) of the Securities  Exchange of 1934                                              |

 

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| 32.1 |   | Certificate of the Principal Executive and Financial  Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906  of the Sarbanes-Oxley Act of 2002 |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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*Incorporated by reference to our Registration Statement on Form S-1 (File No. 333-142729and 333-146722).

 

**Incorporated by reference to our Current Report on Form 8-K filed on October 25,2007.

 

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SIGNATURES

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

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

 

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 

 
| March 10, 2009 | By:    | /s/ Richard Tan |
|---------------------|--------|-----------------|
|                |   | Name:           | Richard Tan |
|                |   | Title:          | Chief Executive Officer and Director (Principal  Executive, Accounting and Financial Officer) |

 

 
| March 10, 2009 | By:    | /s/ Roger W. Stone |
|---------------------|--------|--------------------|
|                |   | Name:              | Roger W. Stone |
|                |   | Title:             | Chairman of the Board of Directors |

 

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**STONE TAN CHINA ACQUISITION CORP.**********(a corporation in thedevelopment stage)

 

**CONSOLIDATED FINANCIAL STATEMENTSANDREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

**INDEX**

 
| ** **                                                                                                                                                                                                  | **Page**   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                  | ** ** |
| Report of Independent Registered Public Accounting  Firm                                                                                                                                                    | F-2        |
|                                                                                                                                                                                                        |       |
| Consolidated Financial Statements                                                                                                                                                                           | F-4        |
|                                                                                                                                                                                                        |       |
| Balance Sheets as of December 31, 2008 and 2007                                                                                                                                                             | F-4        |
|                                                                                                                                                                                                        |       |
| Statements  of Operations for the year ended December 31, 2008 and for the period January 24,  2007 (inception) to December 31, 2007, and for the period January 24, 2007  (inception) to December 31, 2008 | F-5        |
|                                                                                                                                                                                                        |       |
| Statement of Stockholders’ Equity for the period from  January 24, 2007 (inception) to December 31, 2008                                                                                               | F-6        |
|                                                                                                                                                                                                        |       |
| Statements of  Cash Flows for the year ended December 31, 2008 and for the period January 24,  2007 (inception) to December 31, 2007, and for the period January 24, 2007  (inception) to December 31, 2008 | F-7        |
|                                                                                                                                                                                                        |       |
| Notes to Consolidated Financial Statements                                                                                                                                                                  | F-8        |

 

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**STONE TAN CHINA ACQUISITION CORP.****  AND SUBSIDIARY******(a corporation in thedevelopment stage)

** **

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To theBoard of Directors and Stockholders

StoneTan China Acquisition Corp.

 

Wehave audited the accompanying consolidated balance sheets of Stone Tan ChinaAcquisition Corp. and Subsidiary (a corporation in the development stage)(collectively referred to as the “Company”) as of December 31, 2008 and 2007,and the related consolidated statements of operations, stockholders’ equity andcash flows for the years ended December 31, 2008 and 2007, and for the periodfrom January 24, 2007 (inception) to December 31, 2008.  We also have audited the Company’s internalcontrol over financial reporting as of December 31, 2008, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). The Company’smanagement is responsible for these consolidated financial statements, formaintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting,included in the accompanying Controls and Procedures.  Our responsibility is to express an opinionon these consolidated financial statements and an opinion on the company’sinternal control over financial reporting based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement and whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our audits of the financial statements included examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk. Our audits also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audits provide areasonable basis for our opinions.

 

Acompany’s internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of the Company as of December31, 2008 and 2007, and the results of its operations and its cash flows for theyears ended December 31, 2008 and 2007, and for the period from January 24,2007 (inception) to December 31, 2008, in conformity with accounting principlesgenerally accepted in the United States of America. Also in our opinion, theCompany maintained, in all material respects, effective internal control overfinancial 

 

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reportingas of December 31, 2008, based on criteria established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).

 

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, theCompany may face a mandatory liquidation by October 15, 2009, if a business combinationis not consummated, which raises substantial doubt about the Company’s abilityto continue as a going concern.  Theconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

/s/Gumbiner Savett Inc.

 

SantaMonica, California

March 3,2009

 

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**STONE TAN CHINA ACQUISITION COR****P.  ANDSUBSIDIARY******(a corporation in thedevelopment stage)

 

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                   | ** ** | **December 31,** | ** **  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|-------------|
| ** **                                                                                                                                                                   | ** ** | **2008**         | ** **  | **2007** | ** ** |
| ** **                                                                                                                                                                   |       |             |        |   |   |
| **ASSETS**                                                                                                                                                                   |       |             |        |   |   |
| Current assets:                                                                                                                                                              |       |             |        |   |   |
| Cash and cash equivalents                                                                                                                                                    |       | $                | 1,473,753   |   | $ | 1,214,280 |   |
| Money market funds - held in trust                                                                                                                                           |       | 263,192,125      |        | 260,800,695 |   |
| Prepaid expenses                                                                                                                                                             |       | 55,815           |        | 203,186 |   |
| Income tax refundable                                                                                                                                                        |       | 161,732          |        | — |   |
| Total current assets                                                                                                                                                         |       | 264,883,425      |        | 262,218,161 |   |
| Total assets                                                                                                                                                                 |       | $                | 264,883,425 |   | $ | 262,218,161 |   |
|                                                                                                                                                                         |       |             |        |   |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                |       |             |        |   |   |
| Current liabilities:                                                                                                                                                         |       |             |        |   |   |
| Accounts payable and accrued expenses                                                                                                                                        |       | $                | 162,125     |   | $ | 109,459 |   |
| Deferred underwriting fees payable                                                                                                                                           |       | 9,231,684        |        | 9,231,684 |   |
| Deferred interest on funds held in trust                                                                                                                                     |       | 982,477          |        | — |   |
| Income tax payable                                                                                                                                                           |       | —           |        | 881,000 |   |
| Total current liabilities                                                                                                                                                    |       | 10,376,286       |        | 10,222,143 |   |
|                                                                                                                                                                         |       |             |        |   |   |
| Common stock subject to possible redemption  - 9,891,089 shares at redemption value                                                                                          |       | 75,308,773       |        | 75,308,773 |   |
|                                                                                                                                                                         |       |             |        |   |   |
| Commitments and contingencies                                                                                                                                                |       |             |        |   |   |
|                                                                                                                                                                         |       |             |        |   |   |
| Stockholders’ equity:                                                                                                                                                   |       |             |        |   |   |
| Preferred stock, $0.0001 par value;  authorized - 1,000,000 shares; issued - none                                                                                            |       | —           |        | — |   |
| Common stock, $0.0001 par value; authorized  - 139,000,000 shares; issued and outstanding - 41,212,875 shares, inclusive  of 9,891,089 shares subject to possible redemption |       | 4,121            |        | 4,121 |   |
| Additional paid-in capital                                                                                                                                                   |       | 175,140,220      |        | 175,140,220 |   |
| Retained earnings                                                                                                                                                            |       | 4,054,025        |        | 1,542,904 |   |
| Total stockholders’ equity                                                                                                                                              |       | 179,198,366      |        | 176,687,245 |   |
| Total liabilities and stockholders’ equity                                                                                                                              |       | $                | 264,883,425 |   | $ | 262,218,161 |   |

 

*Seeaccompanying notes to**consolidated**financial statements.*

 

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**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                                                                    | ** ** | **Year  Ended  December 31,  2008** | ** ** | **Period from  January 24,  2007  (Inception) to  December 31,  2007** | ** ** | **Period from  January 24,  2007  (Inception) to  December 31,  2008  (Cumulative)** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                                                    |       |                                |       |                                                                   |       |                                                                                 |       |
| Revenues                                                                                      |       | $                                   | —     |                                                                   | $          | —                                                                               |       | $ | — |   |
| Operating expenses                                                                            |       | 904,768                             |       | 205,740                                                                |       | 1,110,508                                                                            |       |
| Professional fees incurred relating to  potential acquisitions                                |       | 533,928                             |       | —                                                                 |       | 533,928                                                                              |       |
| Total operating expenses                                                                      |       | 1,438,696                           |       | 205,740                                                                |       | 1,644,436                                                                            |       |
| Operating loss                                                                                |       | (1,438,696                          | )          | (205,740                                                               | )          | (1,644,436                                                                           | )          |
| Interest income                                                                               |       | 6,880,294                           |       | 2,642,630                                                              |       | 9,522,924                                                                            |       |
| Interest expense — stockholder                                                           |       | —                              |       | (12,986                                                                | )          | (12,986                                                                              | )          |
| Income before provision for income tax                                                        |       | 5,441,598                           |       | 2,423,904                                                              |       | 7,865,502                                                                            |       |
| Provision for income tax                                                                      |       | 1,948,000                           |       | 881,000                                                                |       | 2,829,000                                                                            |       |
| Income before allocation of trust account  interest                                           |       | 3,493,598                           |       | 1,542,904                                                              |       | 5,036,502                                                                            |       |
| Allocation of trust account interest  relating to common stock subject to possible redemption |       | (982,477                            | )          | —                                                                 |       | (982,477                                                                             | )          |
| Net income available to common stockholders                                                   |       | $                                   | 2,511,121  |                                                                   | $          | 1,542,904                                                                            |       | $ | 4,054,025 |   |
|                                                                                          |       |                                |       |                                                                   |       |                                                                                 |       |
| Net income per common share —                                                            |       |                                |       |                                                                   |       |                                                                                 |       |
| Basic                                                                                         |       | $                                   | 0.06       |                                                                   | $          | 0.10                                                                                 |       |   |   |
| Diluted                                                                                       |       | $                                   | 0.05       |                                                                   | $          | 0.09                                                                                 |       |   |   |
| Weighted average common shares outstanding  —                                            |       |                                |       |                                                                   |       |                                                                                 |       |
| Basic                                                                                         |       | 41,212,875                          |       | 15,630,961                                                             |       |                                                                                 |       |
| Diluted                                                                                       |       | 50,871,305                          |       | 17,681,826                                                             |       |                                                                                 |       |

 

**See accompanying notes toconsolidated financial statements.**

 

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**STONE TAN CHINA ACQUISITION COR****P.  ANDSUBSIDIARY******(a corporation in thedevelopment stage)

 

**CONSOLIDATEDSTATEMENT OF STOCKHOLDERS’ EQUITY**

 

**FOR THE PERIOD FROM JANUARY 24, 2007 (INCEPTION) TO DECEMBER 31, 2008**

 
| ** **                                                                                                                    | ** ** | **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 |   |

 

**Seeaccompanying notes to consolidated financial statements**.

 

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**STONE TAN CHINA ACQUISITION COR****P.  ANDSUBSIDIARY******(a corporation in thedevelopment stage)

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                    | ** ** | **Year  Ended  December 31,  2008** | ** ** | **Period from  January 24,  2007  (Inception) to  December 31,  2007** | ** ** | **Period from  January 24,  2007  (Inception) to  December 31,  2008  (Cumulative)** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
|                                                                                          |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Cash flows from operating activities:                                                         |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Net income available to common stockholders                                                   |       | $                                        | 2,511,121  |                                                                                       | $          | 1,542,904                                                                                                |       | $ | 4,054,025 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:            |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Changes in operating assets and  liabilities:                                                 |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| (Increase) decrease in -                                                                      |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Prepaid expenses                                                                              |       | 147,371                                  |       | (203,186                                                                                   | )          | (55,815                                                                                                  | )          |
| Income tax refundable                                                                         |       | (161,732                                 | )          | —                                                                                     |       | (161,732                                                                                                 | )          |
| Increase (decrease) in -                                                                      |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Accounts payable and accrued expenses                                                         |       | 52,666                                   |       | 109,459                                                                                    |       | 162,125                                                                                                  |       |
| Income tax payable                                                                            |       | (881,000                                 | )          | 881,000                                                                                    |       | —                                                                                                   |       |
| Net cash provided by operating activities                                                     |       | 1,668,426                                |       | 2,330,177                                                                                  |       | 3,998,603                                                                                                |       |
|                                                                                          |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Cash flows from investing activities:                                                         |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Increase in trust account from interest  earned on funds held in trust                        |       | (5,833,900                               | )          | (2,630,166                                                                                 | )          | (8,464,066                                                                                               | )          |
| Funds placed in trust account from  offerings                                                 |       | —                                   |       | (259,745,716                                                                               | )          | (259,745,716                                                                                             | )          |
| Withdrawals from trust account                                                                |       | 4,424,947                                |       | 1,575,187                                                                                  |       | 6,000,134                                                                                                |       |
| Net cash used in investing activities                                                         |       | (1,408,953                               | )          | (260,800,695                                                                               | )          | (262,209,648                                                                                             | )          |
|                                                                                          |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Cash flows from financing activities:                                                         |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Proceeds from initial sale of common stock                                                    |       | —                                   |       | 25,000                                                                                     |       | 25,000                                                                                                   |       |
| Gross proceeds from private placement                                                         |       | —                                   |       | 6,200,000                                                                                  |       | 6,200,000                                                                                                |       |
| Gross proceeds from public offering                                                           |       | —                                   |       | 263,762,399                                                                                |       | 263,762,399                                                                                              |       |
| Payments of offering costs                                                                    |       | —                                   |       | (10,302,701                                                                                | )          | (10,302,701                                                                                              | )          |
| Proceeds from underwriter’s purchase option                                              |       | —                                   |       | 100                                                                                        |       | 100                                                                                                      |       |
| Proceeds from stockholder loans                                                               |       | —                                   |       | 500,000                                                                                    |       | 500,000                                                                                                  |       |
| Repayment of stockholder loans                                                                |       | —                                   |       | (500,000                                                                                   | )          | (500,000                                                                                                 | )          |
| Net cash provided by financing activities                                                     |       | —                                   |       | 259,684,798                                                                                |       | 259,684,798                                                                                              |       |
|                                                                                          |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Net increase in cash and cash equivalents                                                     |       | 259,473                                  |       | 1,214,280                                                                                  |       | 1,473,753                                                                                                |       |
| Balance at beginning of period                                                                |       | 1,214,280                                |       | —                                                                                     |       | —                                                                                                   |       |
| Balance at end of period                                                                      |       | $                                        | 1,473,753  |                                                                                       | $          | 1,214,280                                                                                                |       | $ | 1,473,753 |   |
|                                                                                          |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Cash paid for:                                                                                |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Interest                                                                                      |       | $                                        | 165        |                                                                                       | $          | 12,821                                                                                                   |       | $ | 12,986 |   |
| Income taxes                                                                                  |       | $                                        | 2,990,732  |                                                                                       | $          | —                                                                                                   |       | $ | 2,990,732 |   |
|                                                                                          |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Supplemental schedule of non-cash investing  and financing activities:                        |       |                                     |       |                                                                                       |       |                                                                                                     |       |
| Increase in accrued offering costs and  placement fees, net                                   |       | $                                        | —     |                                                                                       | $          | 9,231,684                                                                                                |       | $ | 9,231,684 |   |
| Common stock subject to possible redemption                                                   |       | $                                        | —     |                                                                                       | $          | 75,308,773                                                                                               |       | $ | 75,308,773 |   |
| Fair value of unit purchase option issued  to underwriters                                    |       | $                                        | —     |                                                                                       | $          | 7,689,369                                                                                                |       | $ | 7,689,369 |   |
| Allocation of trust account interest  relating to common stock subject to possible redemption |       | $                                        | 982,477    |                                                                                       | $          | —                                                                                                   |       | $ | 982,477 |   |

 

**Seeaccompanying notes to consolidated financial statements.**

 

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**STONE TAN CHINA ACQUISITION COR****P.  ANDSUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**December 31, 2008**

 

**1.****Organization and Proposed Business Operations**

 

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

 

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

 

At December 31,2008, the Company had not yet commenced any business operations and istherefore considered a “corporation in the development stage.”  Allactivity through December 31, 2008 is related to the Company’s formation,capital raising efforts (as described below), and efforts to acquire abusiness. The Company is subject to the risks associated with development stagecompanies.

 

The Company’sability to acquire an operating business was contingent upon obtaining adequatefinancial resources through a private placement in accordance with Regulation Dunder the Securities Act of 1933, as amended (the “Private Placement”), and aninitial public offering (the “Public Offering”, and together with the PrivatePlacement, the “Offerings”), which are discussed in Note 3. The Company’smanagement has broad discretion with respect to the specific application of thenet proceeds of the Offerings, although substantially all of the net proceedsof the Offerings are intended to be generally applied toward consummating abusiness combination with an operating company. As used herein, a “targetbusiness” shall include one or more operating businesses or assets with primaryoperations in the People’s Republic of China, and a “business combination”shall mean the acquisition by the Company of such a target business. There canbe no assurances that the Company will be able to successfully effect abusiness combination.

 

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern. The Company’s Amended and Restated Certificate of Incorporation providesthat if the Company is not able to complete a business combination by October 15,2009, its corporate existence will cease, except for the process of winding upand liquidating.  The Company cannotassure its investors that it will be able to find a suitable businesscombination by October 15, 2009. This condition raises substantial doubt about the Company’s ability tocontinue as a going concern.  Theconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

**2. Summaryof Significant Accounting Policies**

 

***Principles of Consolidation***

 

Theaccompanying consolidated financial statements include the financial statementsof Stone Tan Acquisition Corp. and its wholly owned subsidiary, Stone Tan ChinaAcquisition (Hong Kong) Company Limited (the “Company”). All intercompanybalances and transactions have been eliminated in consolidation.

 

***Cash and Cash Equivalents***

 

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

 

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** **

**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

***Income Taxes***

 

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

 

EffectiveJanuary 24, 2007 (inception), the Company adopted FASB Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an interpretation of FASBStatement No. 109, Accounting for Income Taxes” (“FIN 48”). FIN 48addresses the determination of whether tax benefits claimed or expected to beclaimed on a tax return should be recorded in the financial statements. UnderFIN 48, the Company may recognize the tax benefit from an uncertain taxposition only if it is more likely than not that the tax position will besustained on examination by the taxing authorities, based on the technicalmerits of the position. The tax benefits recognized in the financial statementsfrom such a position are measured based on the largest benefit that has agreater than fifty percent likelihood of being realized upon ultimatesettlement. FIN 48 also provides guidance on de-recognition, classification,interest and penalties on income taxes, accounting in interim periods andrequires increased disclosures.  The adoption of the provisions of FIN 48did not have a material effect on the Company’s financial statements. As of December 31,2008, no liability 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 provisions as income tax expense. As of December 31,2008, the Company has no accrued interest or penalties related to uncertain taxpositions.

 

***Earnings Per Common Share***

 

The Companycomputes earnings per common share (“EPS”) in accordance with Statement ofFinancial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”)and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  SFAS No. 128requires companies with complex capital structures to present basic and dilutedEPS.  Basic EPS is measured as the income available to common shareholdersdivided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a pershare basis of potential common shares (e.g., convertible securities, optionsand warrants) as if they had been converted at the beginning of the periodspresented, or issuance date, if later.  Potential common shares that havean anti-dilutive effect (i.e., those that increase income per share or decreaseloss per share) are excluded from the calculation of diluted EPS.

 

The calculationof net income per common share is summarized below. The calculation of dilutedweighted average common shares outstanding for the year ended December 31,2008, and for the period from January 24, 2007 (inception) to December 31,2007 is based on the average of the closing price of the Company’s commonstock, as quoted on the OTC Bulletin Board for the applicable period.

 
| ** **                                          | ** ** | **Year  Ended  December 31,** | ** ** | **Period from  January 24,  2007  (Inception) to  December 31,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | **2008**                           | ** ** | **2007**                                                                             | ** ** |
| **Basic:**                                          |       |                               |       |                                                                                 |       |
| Net income available to common stockholders         |       | $                                  | 2,511,121  |                                                                                 | $          | 1,542,904 |   |
| Weighted average common shares outstanding          |       | 41,212,875                         |       | 15,630,961                                                                           |       |
| Net income per common share — basic            |       | $                                  | 0.06       |                                                                                 | $          | 0.10 |   |
| ** **                                          |       |                               |       |                                                                                 |       |
| **Diluted:**                                        |       |                               |       |                                                                                 |       |
| Net income available to common stockholders         |       | $                                  | 2,511,121  |                                                                                 | $          | 1,542,904 |   |
| Weighted average common shares outstanding          |       | 41,212,875                         |       | 15,630,961                                                                           |       |
| Effect of dilutive warrants                         |       | 9,658,430                          |       | 2,050,865                                                                            |       |
| Diluted weighted average common shares  outstanding |       | 50,871,305                         |       | 17,681,826                                                                           |       |
| Net income per common share — diluted          |       | $                                  | 0.05       |                                                                                 | $          | 0.09 |   |

 

 

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** **

**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in the developmentstage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

At December 31,2008 and 2007, potentially dilutive securities consisted of outstandingwarrants and options to acquire an aggregate of 44,170,300 shares of common stock,as follows, of which options to acquire 5,000,000 shares were anti-dilutive atsuch dates.

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

 

***Use of Estimates***

 

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

 

***Fair Value of FinancialInstruments***

 

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

 

***Share-Based Payments***

 

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

 

***Deferred Interest on Funds Heldin 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.

 

***Adoption of New AccountingPolicies***

 

In September 2006,the FASB issued Statement of Financial Accounting Standards No. 157, “FairValue Measurements” (“SFAS No. 157”), which establishes a formal frameworkfor measuring fair value under Generally Accepted Accounting Principles (“GAAP”).  SFAS No. 157 defines and codifies themany definitions of fair value included among various other authoritativeliterature, clarifies and, in some instances, expands on the guidance for 

 

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** **

**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

implementing fair valuemeasurements, and increases the level of disclosure required for fair valuemeasurements.  Although SFAS No. 157applies to and amends the provisions of existing FASB and American Institute ofCertified Public Accountants (“AICPA”) pronouncements, it does not, of itself,require any new fair value measurements, nor does it establish valuationstandards.  SFAS No. 157 applies toall other accounting pronouncements requiring or permitting fair valuemeasurements, except for: SFAS No. 123R, share-based payment and relatedpronouncements, the practicability exceptions to fair value determinationsallowed by various other authoritative pronouncements, and AICPA Statements ofPosition 97-2 and 98-9 that deal with software revenue recognition. The Companyadopted SFAS No. 157 on January 1, 2008. Additional disclosurerequired as a result of the Company’s implementation of SFAS No. 157 in2008 is presented at Note 4.

 

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.

 

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.

 

On October 10,2008, the FASB issued FASB Staff Position “Determining the Fair Value of aFinancial Asset When the Market for That Asset Is Not Active” (“FSP FAS No. 157-3”).FSP FAS No. 157-3 clarifies the application of SFAS No. 157, “FairValue Measurements”, in a market that is not active and provides an example toillustrate key considerations in determining the fair value of a financialasset when the market for that financial asset is not active. FSP FAS No. 157-3became effective immediately, and includes prior period financial statementsthat have not yet been issued, and therefore the Company became subject to theprovisions of FSP FAS No. 157-3 on October 10, 2008.

 

Except withrespect to the implementation of SFAS No. 157, the adoption and/orimplementation of the other aforementioned accounting pronouncements did nothave any effect on the Company’s consolidated financial statement presentationor disclosures.

 

***Recent AccountingPronouncements***

 

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 

 

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**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

the services are received,except that costs to issue debt or equity securities will be recognized inaccordance with other applicable GAAP. SFAS No. 141(R) makessignificant amendments to other Statement of Financial Accounting Standards andother authoritative guidance to provide additional guidance or to conform theguidance in that literature to that provided in SFAS No. 141(R). SFAS No. 141(R) alsoprovides guidance as to what information is to be disclosed to enable users offinancial statements to evaluate the nature and financial effects of a businesscombination. SFAS No. 141(R) is effective for financial statementsissued for fiscal years beginning on or after December 15, 2008. Earlyadoption is prohibited. The adoption of SFAS No. 141(R) will affecthow the Company accounts for a business combination concluded after December 31,2008.

 

In December 2007,the FASB issued 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.  Early adoption is prohibited.  The Companydoes not currently anticipate that the adoption of SFAS No. 160 will haveany impact on its 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. 131. 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 does not currently anticipate that the adoption ofSFAS No. 161 will have any impact on its consolidated financial statementpresentation 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 is currentlyevaluating the impact the adoption of EITF 07-05 will have on its financialstatement presentation and disclosures.

 

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**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

Managementdoes not believe that any other recently issued, but not yet effective,accounting standards, if currently adopted, would have a material effect on theCompany’s financial statements.

 

***Reclassification***

 

Certainreclassifications have been made to prior year balances to conform to thepresentation for the year ended December 31, 2008. Such reclassificationsdid not have any effect on results of operations.

 

**3. PrivatePlacement and Public Offering**

 

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

 

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

 

On October 19,2007, the closing date of the Offerings, $236,815,000 of the proceeds of theOfferings, including $8,400,000 of contingent underwriting compensation whichwill be paid to Morgan if a business combination is consummated, but which willbe forfeited in part if the public stockholders elect to have their 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 

 

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** **

**STONE TAN CHINA ACQUISITION COR****P.  ANDSUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

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.

 

After theCompany signs a definitive agreement for the acquisition of a target business,it will submit such transaction for stockholder approval. In the event thatholders of the shares sold in the Public Offering (the “Public Stockholders”)owning 30% or more of the outstanding stock sold in the Public Offering voteagainst the business combination and elect to have the Company redeem theirshares for cash, the business combination will not be consummated. All of theCompany’s stockholders prior to the Offerings, including the officer anddirectors 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 votingsafeguards will no longer be applicable.

 

With respectto the 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 ofholders of a majority of all outstanding shares entitled to vote.

 

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

 

Money marketfunds held in trust at December 31, 2007 consisted of an investment inCiti Institutional Liquid Reserves Class A Funds with a market value of$260,800,695 and annualized taxable yield of 4.94%.  The money market fundinvested in high quality, short-term money market instruments denominated inUnited States dollars.

 

On September 29,2008, the Company determined, in light of current market uncertainties, toauthorize the transfer of the funds being held in the Trust Account into amoney market fund invested solely in U.S. treasuries. The transfer of the fundswas effected at par. Accordingly, as of December 31, 2008, money marketfunds held in 

 

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**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

trust consisted of aninvestment in Citi Institutional US Treasury Reserves Class A Funds with amarket value of $263,192,125 and annualized taxable yield of 0.56%.

 

**5.  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. 157 establishes a framework formeasuring fair value, and expands disclosures about fair valuemeasurements.  SFAS No. 157establishes a fair value hierarchy that prioritizes the inputs to valuationtechniques used to measure fair value into three levels, and requires thatassets and liabilities carried at fair value are classified and disclosed inone of the following three categories:

 

Level 1:  quoted prices (unadjusted) in active marketsfor an identical asset or liability that the Company has the ability to accessas of the measurement date.  Financialassets and liabilities utilizing Level 1 inputs include active-exchange tradedsecurities and exchange-based derivatives.

 

Level 2:  inputs other than quoted prices includedwithin Level 1 that are directly observable for the asset or liability orindirectly observable through corroboration with observable market data.  Financial assets and liabilities utilizingLevel 2 inputs include fixed income securities, non-exchange based derivatives,mutual funds, and fair-value hedges.

 

Level 3:  unobservable inputs for the asset orliability are only used when there is little, if any, market activity for theasset or liability at the measurement date. 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 accordancewith SFAS No. 157, the Company determines the level in the fair valuehierarchy within which each fair value measurement falls in its entirety, basedon the lowest level input that is significant to the fair value measurement inits entirety.  In determining theappropriate levels, the Company performs an analysis of the assets andliabilities that are subject to SFAS No. 157 at each reporting period end.

 

Money marketfunds are the only financial instrument that is measured and recorded at fairvalue on the Company’s balance sheet on a recurring basis.  The following table presents money marketfunds at their level within the fair value hierarchy at December 31, 2008.

 
| ** **                                                        | ** ** | **Total** | ** **  | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-------------------------------------------------------------------|------------|-----------|-------------|------------------|------------|------------------|------------|------------------|------------|
|                                                              |       |      |        |             |       |             |       |             |       |
| 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      |       | $                | —     |   | $ | — |   |

 

**6. RelatedParty 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.

 

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**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

***Management Fees and Other Costs***

 

The Companyhas agreed to pay Pacific Millennium Investment Corporation (“Pacific Millennium”), an affiliate ofthe Company’s Chief Executive Officer, $7,500 per month for 24 months, foroffice space and reimbursement of general and administrative expenses pursuantto a letter agreement, commencing on the date of the Public Offering andterminating upon the date the Company consummates a business combination orliquidates. During the year ended December 31, 2008 and for the periodfrom January 24, 2007 (inception) to December 31, 2007, the Companyincurred $90,000 and $15,000 of costs, respectively, under this agreement.

 

From time to time, Pacific Millennium makes payments on the Company’sbehalf to third parties for expenses incurred in the pursuit of a potentialbusiness combination for which it is reimbursed by the Company.  Such reimbursements amounted to $310,044 and$77,233 during the year ended December 31, 2008 and the period from January 24,2007 (inception) to December 31, 2007, respectively.

 

**7. CommonStock**

 

The Companywas initially authorized to issue 39,000,000 shares of its common stock with apar value $0.0001 per share. On October 15, 2007, the authorized commonshares were 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 eventthat holders 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.

 

**8.Preferred Stock**

 

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

 

**9. IncomeTaxes**

 

The provisionfor income tax consists of U.S. federal income tax currently payable. TheCompany has its executive office in Hong Kong and accordingly is not subject tostate income tax.

 

Deferredincome taxes reflect the net tax effects of temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes andthe amounts used for income tax purposes. The Company’s deferred tax assets asof December 31, 2008 and 2007 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 

 

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**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

a 180-month period. Organization costs must be deferred and written off over a 180-month periodstarting with the date that the Company is formed.  Because of theuncertainty associated with the realization of the Company’s deferred taxassets, a 100% valuation allowance has been recorded.

 

The tax effectof temporary differences that give rise to the deferred tax assets at December 31,2008 and 2007 are as follows:

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2008**              | ** ** | **2007** | ** ** |
| Start-up and organization costs |       | $                     | 109,000    |   | $ | 50,000 |   |
| Less valuation allowance        |       | (109,000              | )          | (50,000 | ) |
| Net deferred tax assets         |       | $                     | —     |   | $ | — |   |

 

Thereconciliation between the income tax rate computed by applying the U.S.federal statutory rate and the effective rate for the year ended December 31,2008 and the period from January 24, 2007 (inception) to December 31,2007 is as follows:

 
| ** **                    | ** ** | **Year  Ended  December 31,** | ** ** | **Period from  January 24,  2007  (Inception) to  December 31,** | ** ** |
|-------------------------------|------------|------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                    | ** ** | **2008**                           | ** ** | **2007**                                                                             | ** ** |
| U.S. federal statutory rate   |       | 34.0                               | %          | 34.0                                                                                 | %          |
| Non-deductible expenses       |       | 0.3                                | %          | 0.3                                                                                  | %          |
| Change in valuation allowance |       | 1.5                                | %          | 2.0                                                                                  | %          |
| Effective tax rate            |       | 35.8                               | %          | 36.3                                                                                 | %          |

 

**10.Commitments and Contingencies**

 

The Companywill not proceed with a business combination if Public Stockholders owning 30%or more 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.

 

F-17

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Table of Contents

 

**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

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

 

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

 

**11.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 eventthat a registration statement is not effective at the time of exercise, theholder of such warrant shall not be entitled to exercise such warrant and in noevent will the Company be required to net cash settle the warrant exercise.Consequently, the warrants may expire unexercised.

 

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

 

F-18

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Table of Contents

 

**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

**12.****  QuarterlyResults of Operations (Unaudited)**

 

The followingtable sets forth unaudited quarterly results of operations for the period forthe year ended December 31, 2008 and for the period from January 24,2007 (inception) to December 31, 2007. This unaudited quarterlyinformation has been derived from the Company’s unaudited financial statementsand, in the Company’s opinion, includes all adjustments, including normalrecurring adjustments, necessary for a fair presentation of the information forthe periods covered. The operating results for any quarter are not necessarilyindicative of the operating results for any future period.

 

**Year endedto December 31, 2008:**

 
| ** **                                                                                    | ** ** | **Three Months Ended** | ** ** | **Year  Ended**         | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                                                                    | ** ** | **March 31,  2008**         | ** ** | **June 30,  2008** | ** ** | **September 30,  2008** | ** ** | **December 31,  2008** | ** ** | **December 31,  2008** | ** ** |
| Revenue                                                                                       | ** ** | $                                | —     |                    | $          | — |   | $ | — |   | $ | — |   | $ | — | ** ** |
| Operating expenses                                                                            |       | 211,261                          |       | 281,182                 |       | 187,947 |   | 224,378 |   | 904,768 |   |
| Professional fees incurred relating to  potential acquisitions                                |       | —                           |       | 39,606                  |       | 494,322 |   | — |   | 533,928 |   |
| Total operating expenses                                                                      |       | 211,261                          |       | 320,788                 |       | 682,269 |   | 224,378 |   | 1,438,696 |   |
| Operating loss                                                                                |       | (211,261                         | )          | (320,788                | )          | (682,269 | ) | (224,378 | ) | (1,438,696 | ) |
| Interest income                                                                               |       | 2,670,774                        |       | 1,924,507               |       | 1,751,594 |   | 533,419 |   | 6,880,294 |   |
| Interest expense - stockholder                                                                |       | —                           |       | —                  |       | — |   | — |   | — |   |
| Income before provision for income tax                                                        |       | 2,459,513                        |       | 1,603,719               |       | 1,069,325 |   | 309,041 |   | 5,441,598 |   |
| Provision for income tax (benefit)                                                            |       | 896,000                          |       | 553,000                 |       | 550,000 |   | (51,000 | ) | 1,948,000 |   |
| Income before allocation of trust account  interest                                           |       | 1,563,513                        |       | 1,050,719               |       | 519,325 |   | 360,041 |   | 3,493,598 |   |
| Allocation of trust account interest  relating to common stock subject to possible redemption |       | (48,668                          | )          | (407,705                | )          | (354,024 | ) | (172,080 | ) | (982,477 | ) |
| Net income available to common stockholders                                                   |       | $                                | 1,514,845  |                    | $          | 643,014 |   | $ | 165,301 |   | $ | 187,961 |   | $ | 2,511,121 |   |
|                                                                                          |       |                             |       |                    |       |   |   |   |   |   |   |
| Net income per common share -                                                                 |       |                             |       |                    |       |   |   |   |   |   |   |
| Basic                                                                                         |       | $                                | 0.04       |                    | $          | 0.02 |   | $ | 0.00 |   | $ | 0.00 |   | $ | 0.06 |   |
| Diluted                                                                                       |       | $                                | 0.03       |                    | $          | 0.01 |   | $ | 0.00 |   | $ | 0.00 |   | $ | 0.05 |   |
|                                                                                          |       |                             |       |                    |       |   |   |   |   |   |   |
| Weighted average common shares outstanding  -                                                 |       |                             |       |                    |       |   |   |   |   |   |   |
| Basic                                                                                         |       | 41,212,875                       |       | 41,212,875              |       | 41,212,875 |   | 41,212,875 |   | 41,212,875 |   |
| Diluted                                                                                       |       | 50,930,274                       |       | 51,104,642              |       | 51,309,403 |   | 50,252,175 |   | 50,871,305 |   |

 

F-19

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Table of Contents

 

**STONE TAN CHINA ACQUISITION COR****P.  AND SUBSIDIARY******(a corporation in thedevelopment stage)

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (continued)**

** **

**December 31, 2008**

 

**Periodfrom January 24, 2007 (inception) to December 31, 2007:**

 
| ** **                                                                                    | ** ** | **Period from  January 24,  2007  (inception) to** | ** ** | **Three Months Ended** | ** ** | **Period from  January 24,  2007  (inception) to** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **March 31,  2007**                                          | ** ** | **June 30,  2007**          | ** ** | **September 30,  2007**                                      | ** ** | **December 31,  2007** | ** ** | **December 31,  2007** | ** ** |
| Revenue                                                                                       |       | $                                                                 | —     |                             | $          | —                                                            |       | $ | — |   | $ | — |   | $ | — |   |
| Operating expenses                                                                            |       | 15,019                                                            |       | —                           |       | —                                                            |       | 190,721 |   | 205,740 |   |
| Professional fees incurred relating to  potential acquisitions                                |       | —                                                            |       | —                           |       | —                                                            |       | — |   | — |   |
| Total operating expenses                                                                      |       | 15,019                                                            |       | —                           |       | —                                                            |       | 190,721 |   | 205,740 |   |
| Operating loss                                                                                |       | (15,019                                                           | )          | —                           |       | —                                                            |       | (190,721 | ) | (205,740 | ) |
| Interest income                                                                               |       | 1,821                                                             |       | 3,905                            |       | 1,468                                                             |       | 2,635,436 |   | 2,642,630 |   |
| Interest expense - stockholder                                                                |       | (1,918                                                            | )          | (4,986                           | )          | (5,041                                                            | )          | (1,041 | ) | (12,986 | ) |
| Income (loss) before provision for income  tax                                                |       | (15,116                                                           | )          | (1,081                           | )          | (3,573                                                            | )          | 2,443,674 |   | 2,423,904 |   |
| Provision for income tax                                                                      |       | —                                                            |       | —                           |       | —                                                            |       | 881,000 |   | 881,000 |   |
| Income (loss) before allocation of trust  account interest                                    |       | (15,116                                                           | )          | (1,081                           | )          | (3,573                                                            | )          | 1,562,674 |   | 1,542,904 |   |
| Allocation of trust account interest  relating to common stock subject to possible redemption |       | —                                                            |       | —                           |       | —                                                            |       | — |   | — |   |
| Net income (loss) available to common  stockholders                                           |       | $                                                                 | (15,116    | )                                | $          | (1,081                                                            | )          | $ | (3,573 | ) | $ | 1,562,674 |   | $ | 1,542,904 |   |
|                                                                                          |       |                                                              |       |                             |       |                                                              |       |   |   |   |   |
| Net income (loss) per common share -                                                          |       |                                                              |       |                             |       |                                                              |       |   |   |   |   |
| Basic                                                                                         |       | $                                                                 | (0.00      | )                                | $          | (0.00                                                             | )          | $ | (0.00 | ) | $ | 0.05 |   | $ | 0.10 |   |
| Diluted                                                                                       |       | $                                                                 | (0.00      | )                                | $          | (0.00                                                             | )          | $ | (0.00 | ) | $ | 0.04 |   | $ | 0.09 |   |
|                                                                                          |       |                                                              |       |                             |       |                                                              |       |   |   |   |   |
| Weighted average common shares outstanding  -                                                 |       |                                                              |       |                             |       |                                                              |       |   |   |   |   |
| Basic                                                                                         |       | 8,625,000                                                         |       | 8,625,000                        |       | 8,625,000                                                         |       | 34,668,898 |   | 15,630,961 |   |
| Diluted                                                                                       |       | 8,625,000                                                         |       | 8,625,000                        |       | 8,625,000                                                         |       | 42,292,767 |   | 17,681,826 |   |

 

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