** **

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

** **

**FORM 10-K**

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| **x** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND  EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

** **

**For the fiscal year endedDecember 31, 2007**

** **

**or**

** **

| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND  EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------------|

 

**For the transition period from              to              .**

** **

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

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**STONE TAN CHINA ACQUISITION CORP.**

(ExactName of Registrant as Specified in Its Charter)

 

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

 

**Suite 1A, 11th Floor, Tower 1 China Hong KongCity 33 Canton Road Kowloon, Hong Kong******(Address of Principal Executive Offices) (Zip Code)

 

**852-27355493**

Registrant’s telephonenumber, including area code:

 

Securities registered pursuant toSection 12(b) of the Act:  None

 

Securities registered pursuant toSection 12(g) of the Act:

 
| ** ** | **(Title  of Class)**           | ** ** |
|------------|---------------------------------|------------|
|       | Common Stock, $.0001  par value |       |

 
| ** ** | **(Title  of Class)**           | ** ** |
|------------|---------------------------------|------------|
|       | Common Stock Purchase  Warrants |       |

 
|       | **(Title  of Class)**                                                                |       |
|------------|--------------------------------------------------------------------------------------|------------|
| ** ** | Units consisting of one  share of Common Stock and one Common Stock Purchase Warrant | ** ** |

 

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.   Yes o   No x

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes o   No x

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x   No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or 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 the definitions of "large acceleratedfiler," "accelerated filer" and "smaller reportingcompany" in Rule 12b-2 of the Exchange Act.

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

 

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

 

State the aggregate marketvalue of the voting and non-voting stock held by non-affiliates of the Issuer:$240,023,784 (based upon the closing price of Issuer’s Common Stock, $.0001 parvalue, as of March 17, 2008).

 

Indicate the number of sharesoutstanding of each of the Registrant’s classes of common stock, as of thelatest practicable date: 41,212,875 at March 14, 2008.

 

Documents incorporated by reference: None

 

 

 

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**TABLE OF CONTENTS**

 
|     |                                                                                                                |   | **Page** |
|----------|---------------------------------------------------------------------------------------------------------------------|--------|----------|
|     |                                                                                                                |   |     |
| ITEM 1.  | BUSINESS                                                                                                            |   | 3        |
|     |                                                                                                                |   |     |
| ITEM 1A. | RISK FACTORS                                                                                                        |   | 10       |
|     |                                                                                                                |   |     |
| ITEM 1B. | UNRESOLVED STAFF  COMMENTS                                                                                          |   | 26       |
|     |                                                                                                                |   |     |
| ITEM  2. | PROPERTIES                                                                                                          |   | 26       |
|     |                                                                                                                |   |     |
| ITEM  3. | LEGAL PROCEEDINGS                                                                                                   |   | 27       |
|     |                                                                                                                |   |     |
| ITEM 4.  | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |   | 27       |
|     |                                                                                                                |   |     |
| ITEM 5.  | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |   | 27       |
|     |                                                                                                                |   |     |
| ITEM 6.  | SELECTED FINANCIAL  DATA                                                                                            |   | 28       |
|     |                                                                                                                |   |     |
| ITEM 7.  | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         |   | 29       |
|     |                                                                                                                |   |     |
| ITEM 7A. | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |   | 32       |
|     |                                                                                                                |   |     |
| ITEM 8.  | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        |   | 32       |
|     |                                                                                                                |   |     |
| ITEM 9.  | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |   | 32       |
|     |                                                                                                                |   |     |
| ITEM 9A. | (T) CONTROLS AND  PROCEDURES                                                                                        |   | 32       |
|     |                                                                                                                |   |     |
| ITEM 9B. | OTHER INFORMATION                                                                                                   |   | 33       |
|     |                                                                                                                |   |     |
| ITEM 10. | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             |   | 33       |
|     |                                                                                                                |   |     |
| ITEM 11. | EXECUTIVE  COMPENSATION                                                                                             |   | 35       |
|     |                                                                                                                |   |     |
| ITEM 12. | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    |   | 36       |
|     |                                                                                                                |   |     |
| ITEM 13. | CERTAIN RELATIONSHIPS  AND RELATED TRANSACTIONS                                                                     |   | 37       |
|     |                                                                                                                |   |     |
| ITEM 14. | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             |   | 38       |
|     |                                                                                                                |   |     |
| ITEM 15. | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                                         |   | 39       |

 

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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 trustaccount established in connection with our initial public offering. Theremaining proceeds, along with up to $3,300,000 in interest earned on the fundsin the trust account, are available to be used by us to provide for business,legal and accounting due diligence on prospective acquisitions and continuinggeneral and 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 thenet proceeds 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. Webelieve that the background and track record of our management team positionsus to identify target acquisitions and to effect a business combination. 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 evaluating prospects.However, we may decide to enter into a business combination with a targetbusiness or businesses that do not meet some or all of these criteria andguidelines.

 

·                  *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 by numerousrisks inherent in the business and operations of financially unstable and earlystage or potential emerging growth companies. Although our management willendeavor to evaluate the risks inherent in a particular target business, wecannot 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 singlebusiness combination, 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 have significantexperience or knowledge relating to the operations of the particular targetbusiness.

 

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. A 20% threshold has been more typical for blank checkcompanies. We have increased the threshold to reduce the risk of a small groupof stockholders exercising undue influence on the approval process. Votingagainst the business combination alone will not result in redemption of astockholder’s shares into a pro rata share of the trust account. To do so, astockholder must have also exercised the redemption rights described below. Asa result of our higher redemption threshold, we may have less cash available tocomplete a business combination. Because we will not know how many stockholdersmay exercise 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. Accordingly, this increase in the customary redemptionthreshold may hinder our ability to consummate a business combination in themost efficient manner or to optimize our capital structure.

 

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 such businesscombination 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-rata shareof the deferred underwriting discount and any interest earned on the trustaccount, net of income taxes payable on such interest and after release of upto $3,300,000 of interest income earned on the trust account, after tax, tofund working capital requirements (calculated as of two business days prior tothe consummation of the proposed business combination), divided by the numberof shares of common stock sold in our initial public offering. Without takinginto account any interest earned on the trust account, the initial per shareredemption price was approximately $7.88, which includes $0.28 being held inthe trust account attributable to the deferred underwriting discount, or $0.12less than the per unit offering price of $8.00. As of December 31, 2007,the amount held in trust was $7.88 per share. An eligible stockholder mayrequest redemption at any time after the mailing to our stockholders of theproxy statement and prior to the vote taken with respect to a proposed businesscombination at a meeting held for that purpose, but the request will not begranted unless the stockholder votes against the business combination and the 

 

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business combination isapproved and completed. Stockholders will not be requested to tender theirshares of common stock before a business combination is consummated. If abusiness combination is consummated, redeeming stockholders will be sentinstructions on how to tender their shares of common stock and when they shouldexpect to receive the redemption amount. If a stockholder votes against thebusiness combination but fails to properly exercise his or her redemptionrights, such stockholder will not have his or her shares of common stockredeemed for his or her pro rata distribution of the trust account. Any requestfor redemption, once made, may be withdrawn at any time up to the date of themeeting. It is anticipated that the funds to be distributed to stockholdersentitled to redeem their shares of common stock who elect redemption will bedistributed promptly after completion of a business combination. Publicstockholders who redeem their shares of common stock into their share of thetrust account still have the right to exercise the warrants that they receivedas part of the units. We will not complete any business combination if publicstockholders owning 30% or more of the shares of common stock sold in ourinitial public offering exercise their redemption rights. Our initialstockholders are not entitled to redeem any shares of common stock held by themwhether acquired by them prior to, as part of or after our initial publicoffering, for a pro rata share of the trust account in connection with abusiness 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.

 

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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, 2007 was$7.88, or $0.12 less than the per-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 priority than the claims of our publicstockholders. Our executive officer and directors have agreed to indemnify us,jointly and severally pro rata according to their beneficial interest in ourcompany immediately prior to our initial public offering, for our debts tovendors, or to any prospective target business, if we do not obtain a valid andenforceable waiver from that vendor or prospective target business of itsrights or claims to the trust account and only to the extent necessary toensure that such claims do not reduce the amount in the trust account. However,we cannot assure you that they will be able to satisfy those obligations, ifthey are required to do so. As a result, we cannot assure you that theper-share distribution from the trust account, if we liquidate, will not beless 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 amendment couldreduce or eliminate the protection afforded to our stockholders. However, weview the foregoing provisions as obligations to our stockholders, and we willnot 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.

 

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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.

 

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 will devote in any timeperiod will vary 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 not generateany operating revenues until, at the earliest, after the consummation of abusiness combination. We cannot assure you that an initial business combinationwill occur.

 

***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 trustaccount). As of December 31, 2007, the per share liquidation value wouldhave been $7.88 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.

 

***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 $7.88 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.

 

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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 $7.88 per share held in the trust accountdue to claims of such creditors. If we are unable to complete a businesscombination and dissolve the company, our executive officer and directors willbe personally liable to the extent of their pro rata beneficial interest in ourcompany immediately prior to this offering, if we did not obtain a valid andenforceable waiver from any vendor, prospective target business or other entityof any rights or claims by such creditors to the trust account, to ensure thatthe proceeds in the trust account are not reduced by the claims of variousvendors, prospective target businesses or other entities that are owed money byus for services rendered or products sold to us, to the extent necessary toensure that such claims do not reduce the amount in the trust account. Ourdirectors and executive officer are of substantial means and capable of fundingany shortfall in our trust account, even though we have not asked them toreserve for such an eventuality. However, we cannot assure you that they willsatisfy those obligations. In the event we obtain a valid and enforceablewaiver of any right, title, interest or claim of any kind in or to any moniesheld in the trust account for the benefit of our stockholders from a vendor,prospective target business or other entity, the indemnification will not beavailable. In the event that a plan of dissolution and liquidation adopted byus is subsequently determined to have insufficient reserves for claims andliabilities, stockholders who received a return of funds from our trust accountas part of its liquidation could be liable for claims made by creditors.

 

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, rather than the20% threshold of most other blank check companies, may hinder our ability toconsummate a business combination in the most efficient manner or to optimizeour 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 under the U.S. securities laws. However, since we have net tangibleassets in excess of $5,000,000 and filed a Current Report on Form 8-K withthe Securities and Exchange Commission upon consummation of our initial publicoffering, including an audited balance sheet demonstrating this fact, we areexempt from rules promulgated by the Securities and Exchange Commission toprotect investors of blank check companies, such as Rule 419.

 

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***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 period duringwhich the corporation may reject any claims brought, and an additional 150-daywaiting period before any liquidating distributions are made to stockholders,any liability of stockholders with respect to a liquidating distribution islimited to the lesser of such stockholder’s pro rata share of the claim or theamount distributed to the stockholder, and any liability of the stockholderwould be barred after the third anniversary of the dissolution. However, it isour intention to make liquidating distributions to our stockholders within 10business days after the 24 month period and, therefore, we do not intend tocomply with those procedures. Because we will not be complying with thoseprocedures, we are required, pursuant to Section 281 of the DelawareGeneral Corporation Law, to adopt a plan that will provide for our payment,based on facts known to us at such time, of (i) all existing claims, (ii) allpending claims and (iii) all claims that may be potentially broughtagainst us within the subsequent 10 years. Accordingly, we would be required toprovide for any creditors known to us at that time or those that we believecould be potentially brought against us within the subsequent 10 years prior todistributing the funds held in the trust to stockholders. We cannot assure youthat we will properly assess all claims that may be potentially brought againstus. As such, our stockholders could potentially be liable for any claims to theextent of distributions received by them and any liability of our stockholdersmay extend well beyond the third anniversary of such dissolution. Accordingly,we cannot assure you that third parties will not seek to recover from ourstockholders amounts owed to them by us.

 

Additionally, if we are forced to file a bankruptcy caseor an involuntary bankruptcy case is filed against us which is not dismissed,any distributions received by stockholders could be viewed under applicabledebtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a“fraudulent conveyance.” As a result, a bankruptcy court could seek to recoverall amounts received by our stockholders in our dissolution. Furthermore,because we intend to distribute the proceeds held in the trust account to ourpublic stockholders promptly after October 15, 2009, this may be viewed orinterpreted as giving preference to our public stockholders over any potentialcreditors with respect to access to or distributions from our assets.Additionally, our board may be viewed as having breached their fiduciary dutiesto our creditors and/or may have acted in bad faith, and thereby exposingitself and our company to claims of punitive damages, by paying publicstockholders from the trust account prior to addressing the claims ofcreditors. We cannot assure you that claims will not be brought against us forthese 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 risksassociated with that industry. Although our management will endeavor toevaluate the risks inherent in a particular industry or target business, wecannot assure you that we will properly ascertain or assess all of thesignificant risk factors. We also cannot assure you that an investment in ourunits will not ultimately prove to be less favorable to investors in ourcompany than a direct investment, if an opportunity were available, in a targetbusiness.

 

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***Because there are numerous companies with abusiness plan similar to ours seeking to effectuate a business combination, itmay be more difficult for us to do so.***

* *

As of February 26, 2008, based upon publiclyavailable information, we have identified approximately 153 blank checkcompanies that have gone public since 2003, many of which have and are focusingon doing a business combination in the PRC and/or Asia. Of these companies,only 47 have completed a business combination, while 8 have liquidated or willbe liquidating. The remaining approximately 98 blank check companies have morethan $16.0 billion in trust and are seeking to complete business acquisitions.Of these companies, only 24 have announced that they have entered intodefinitive agreements or letters of intent with respect to potential businesscombinations but have not yet consummated business combinations. In addition,there are 74 blank check companies seeking to raise approximately $12.8 billionin trust that have filed registration statements and will be seeking tocomplete business combinations. Furthermore, the fact that only 47 of suchcompanies have completed business combinations and only 24 other of suchcompanies have entered into definitive agreements or letters of intent forbusiness combinations, and eight have liquidated or will be liquidating, may bean indication that there are only a limited number of attractive targetsavailable to such entities or that many targets are not inclined to enter intoa transaction with a blank check company, and therefore we also may not be ableto consummate a business combination within the prescribed time period. If weare unable to consummate a business combination within the prescribed timeperiod, our purpose will be limited to dissolving, liquidating and winding up.

 

***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.

 

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***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 fully ascertained.It is likely that we may employ other personnel following the businesscombination. While we intend to closely scrutinize any additional individualswe engage after a business combination, we cannot assure you that ourassessment of these individuals will prove to be correct. These individuals maybe unfamiliar with the requirements of operating a public company as well asU.S. securities laws which could cause us to have to expend time and resourceshelping them become familiar with such laws. This could be expensive andtime-consuming and could lead to various regulatory issues which may adverselyaffect our operations. Moreover, our current management will only remain withthe combined company if they negotiate to do so in connection with thenegotiation 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.

 

***All of our existing executive officer anddirectors, or their respective affiliates, own shares of our common stock whichwill not participate in liquidation distributions and therefore they may have aconflict of interest in determining whether a particular target business isappropriate for 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 

 

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warrants in a privateplacement immediately prior to the closing of this offering. The shares ofcommon stock and warrants owned by our executive officer and directors prior tothis offering and their affiliates will be worthless if we do not consummate abusiness combination. The personal and financial interests of our executiveofficer and directors may influence their motivation in identifying andselecting a target business and completing a business combination on a timelybasis. Consequently, our executive officer’s and directors’ discretion inidentifying and selecting a suitable target business may result in a conflictof interest when determining whether the terms, conditions and timing of aparticular business combination are appropriate and in our stockholders’ bestinterest.

 

***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 foroperations and to consummate a business combination, and those estimates mayprove to be inaccurate. The financial interest of our executiveofficer and directors could influence their motivation in selecting atarget business as certain business combinations may involve the repayment ofexpenses while others may not. For instance, our executive officer anddirectors may, as part of any such combination, negotiate the repayment of someor all of their out-of-pocket expenses in excess of the amount in the trustaccount, which if not agreed to by the target business’ owners, could cause ourexecutive officer and directors to view such potential business combinationunfavorably, thereby resulting in a conflict of interest. As a result, our executiveofficer and directors may have a potential conflict of interest whendetermining whether or not a particular business combination is in thestockholders’ 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.

 

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***We will be dependent upon interest earned on thetrust account to fund our search for a target company and consummation of abusiness combination.***

* *

We will be dependent upon sufficient interest beingearned on the funds held in the trust account to provide us with the additionalworking capital we will need to search for a target company and consummate abusiness combination. As of December 31, 2007, we had $1,214,280 availableto us outside of the trust account to fund our working capital requirements tofund our business. While we are entitled to withdraw up to an additional$669,834 of the interest earned on the trust account, net of taxes, to fund ourbusiness if interest rates were to decline substantially, 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 be forced toliquidate.

 

***Because of our limited resources and the significantcompetition for business combination opportunities, we may not be able toconsummate 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 ouravailable financial resources. This inherent competitive limitation givesothers an advantage in pursuing the acquisition of certain target businesses.Further, our obligation to seek stockholder approval of a business combinationmay delay the consummation of a transaction, and our obligation to redeem forcash the shares of common stock held by public stockholders in certaininstances may reduce the resources available for a business combination.Additionally, our outstanding warrants, and the future dilution theypotentially represent, may not be viewed favorably by certain targetbusinesses. Any of these obligations may place us at a competitive disadvantagein successfully negotiating a business combination.

 

***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 in searchof a target business, or because we become obligated to redeem into cash asignificant number of shares from dissenting stockholders (which in our casemay be up to 30% of the shares held by public stockholders, which may make iteasier for us to receive stockholder approval for a business combination,rather than the 20% threshold of many other blank check companies), we will berequired to seek additional financing. We cannot assure you that such financingwould be available on acceptable terms, if at all. To the extent thatadditional financing proves to be unavailable when needed to consummate aparticular business combination, we would be compelled to restructure thetransaction or abandon that particular business combination and seek an alternativetarget business candidate. If we were unable to secure additional financing, wewould most likely fail to consummate a business combination in the allottedtime and would dissolve and liquidate the trust as part of our plan ofdissolution and liquidation. In addition, if we consummate a businesscombination, we may require additional financing to fund the operations orgrowth of the target business. The failure to secure additional financing couldhave a material adverse effect on the continued development or growth of thetarget business. None of our executive officer, directors or stockholders isrequired to provide any financing to us in connection with or after a businesscombination.

 

***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. 

 

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Therefore, the entireboard of directors acts as our audit committee and there will be no independentreview of our financial statements by anyone other than our auditors.

 

***Our initial stockholders consisting of ourexecutive officer and directors, control a substantial interest in us and thusmay influence certain actions requiring stockholder vote.***

* *

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.

 

**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 plannedeconomy to a more market-oriented economy. Although in recent years the PRCgovernment has implemented measures emphasizing the use of market forces foreconomic reform, 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.

 

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***Deterioration of China’s political relations withthe U.S., Europe, or other Asian 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 inChina and changes in the state of foreign relations are difficult to predictand could 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 Asian nations and China could have a material adverse effect on ouroperations even after the successful completion of a business combination.

 

***If relations between the United States and the PRCdeteriorate, potential target businesses or their goods or services couldbecome less attractive.***

* *

The relationship between the United States and the PRCis subject to sudden fluctuation and periodic tension. For instance, if theUnited States imposes quotas on Chinese imports, such import quotas mayadversely affect political relations between the two countries and result inretaliatory countermeasures by the PRC in industries that may affect ourultimate target business. Relations may also be compromised if the U.S. becomesa more vocal advocate of Taiwan or proceeds to sell certain military weaponsand technology to Taiwan. Changes in political conditions in the PRC andchanges in the state of Sino-U.S. relations are difficult to predict and couldadversely affect our operations or cause potential target businesses or theirgoods and services to become less attractive.

 

***If the PRC enacts regulations in more industrysegments which forbid or restrict foreign investment, our ability to consummatea business combination could be severely impaired.***

* *

Many of the rules and regulations that companiesface in China are not explicitly communicated. If new laws or regulationsforbid foreign investment in industries in which we want to complete a businesscombination, they could severely impair our choice of candidate pool ofpotential target businesses. Additionally, if the relevant Chinese authoritiesfind us or the target business with which we ultimately complete a businesscombination to be in violation of any existing or future Chinese laws orregulations, they would have broad discretion in dealing with such a violation,including, without limitation:

 

·                  levyingfines;

 

·                  revokingour business and other licenses;

 

·                  requiringthat we restructure our ownership or operations; 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 our financialsituation.

 

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***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, advertising, food production, and heavyequipment 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, may exempt the transaction from the merger and acquisitionregulations, including the application process required thereunder. However,since there has been limited implementation guidance provided with respect tothe merger and acquisition regulations, there can be no assurance that therelevant government agency would not apply them to a business combinationeffected through contractual arrangements. If such an agency determines thatsuch an application should have been made, the consequences may include,without limitation, confiscating relevant incomes, levying fines, revokingbusiness and other licenses, requiring restructure of ownership or operationsand requiring discontinuation of any portion of all of the acquired business.These agreements likely also would provide for increased ownership or fullownership and control by us when and if permitted under PRC law and regulation.If we choose to effect a business combination that employs the use of thesetypes of control arrangements, we may have difficulty in enforcing our rights.Therefore these contractual arrangements may not be as effective in providingus with the same economic benefits, accounting consolidation or control over atarget business as would direct ownership. For example, if the target businessor any other entity fails to perform its obligations under these contractualarrangements, we may have to incur substantial costs and expend substantialresources to enforce such arrangements, and rely on legal remedies underChinese law, including seeking specific performance or injunctive relief, andclaiming damages, which we cannot assure will be sufficient to off-set the costof enforcement and may adversely affect the benefits we expect to receive fromthe 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.

 

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***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 25 years has significantlyimproved the protection afforded to various forms of foreign investment andcontractual arrangements in China, these laws, regulations and legal requirementsare relatively new and their interpretation and enforcement involveuncertainties, which could limit the legal protection available to us, andforeign investors, including you. The inability to enforce or obtain a remedyunder 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.

 

***As a result of merger and acquisition regulationsimplemented on September 8, 2006 relating to acquisitions of assets andequity interests of Chinese companies by foreign persons, 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 whichmust be made within strict time limits and depending on approvals from one orthe other 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 atransaction must be completed. Also, completed transactions must be reported toMOFCOM and some of the other agencies within a short period after closing or besubject to an unwinding of the transaction. It is expected that compliance withthe regulations will be more time consuming than in the past, will be morecostly for the Chinese parties and will permit the government much moreextensive evaluation 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.

 

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***Because the September 8, 2006 PRC merger andacquisition regulations permit the government agencies to have scrutiny overthe economics of an acquisition transaction and require consideration in atransaction to be paid within stated time limits, we may not be able tonegotiate a transaction that is acceptable to our stockholders or sufficientlyprotect their interests in a transaction.***

* *

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 in certain transactionstructures, the consideration must be paid within strict time periods,generally not in excess of a year. Because the Chinese authorities have beenconcerned with offshore transactions which converted domestic companies intoforeign investment enterprises (FIEs) in order to take advantage of certainbenefits, including reduced taxation, in China, the new regulations require newforeign sourced capital of not less than 25% of the domestic company’spost—acquisition capital in order to obtain FIE treatment. Accordingly, if asufficient amount of foreign capital is not infused into the domestic company,it will not be eligible to obtain FIE treatment. In asset transactions theremust be no harm of third parties and the public interest in the allocation ofassets and liabilities being assumed or acquired. These aspects of theregulations will limit our ability to negotiate various terms of theacquisition, including aspects of the initial consideration, contingentconsideration, holdback provisions, indemnification provisions and provisionsrelating to the assumption and allocation of assets and liabilities.Transaction structures involving trusts, nominees and similar entities arerestricted. Therefore, we may not be able to negotiate a transaction with termsthat will satisfy our investors and protect our stockholders interests in anacquisition of a Chinese business or assets.

 

***The PRC merger and acquisition regulations of September 8,2006 have introduced industry protection and anti-trust aspects to theacquisition of Chinese companies and assets which may limit our ability toeffect an acquisition.***

* *

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 reviewrequirements for certain large transactions or transactions involving largecompanies and roll-up transactions with the same effect in the relevant Chinesemarket. In addition, certain mergers and acquisitions among foreign companiesoccurring outside of the PRC could also be subject to antitrust review in Chinawhich is similar to United States anti-trust law concepts. Exemptions may besought from the MOFCOM and SAIC. Notwithstanding the September 8, 2006,regulations, there is a draft anti-monopoly law being considered which mayreplace or supplement the above provisions. Any transaction that we contemplatewill have to comply with these regulations and may require additional approvalor abandonment if we are not able to satisfy the requirements of thegovernmental authorities. When we evaluate a potential transaction, we willconsider the need to comply with these regulations which may result in ourmodifying 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 limit thetype of businesses we will be able to acquire.***

* *

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 

 

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be subject to priorapproval by the MII, and it is expected that approval for investment may not beeasily obtained for foreign investment in these businesses unless in strictcompliance. Therefore, investment by us in this sector may not be activelypursued because certain assets may not be acquirable and accountingconsolidation may be restricted or not permitted as a result of an unfavorablebut permitted transaction structure.

 

***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. To theextent that a proposed target business does not have financial statements whichhave been prepared with, or which can be reconciled to, U.S. GAAP, we will notbe able to acquire that proposed target business. These financial statementsmay limit the pool of potential 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 facilitieslocated in the PRC, and because substantially all revenues and income followinga business combination would be received in a foreign currency such asRenminbi, the main currency used in the PRC, the dollar equivalent of our netassets and distributions, if any, would be adversely affected by reductions inthe value of the Renminbi. The value of the Renminbi fluctuates and is affectedby, among other things, changes in the PRC’s political and economic conditions.To the extent that we need to convert United States dollars into ChineseRenminbi for our operations, appreciation of this currency against the UnitedStates dollar could have a material adverse effect on our business, financialcondition and results of operations. Conversely, if we decide to convert ourRenminbi into United States dollars for other business purposes and the UnitedStates dollar appreciates against this currency, the United States dollarequivalent of the Renminbi we convert would be reduced. The conversion of Renminbiinto foreign currencies such as the United States dollar has been generallybased on rates set by the People’s Bank of China, which are set daily based onthe previous day’s interbank foreign exchange market rates and current exchangerates on the world financial markets. Historically, China “pegged” its currencyto the United States dollar. This meant that each unit of Chinese currency hada set ratio for which it could be exchanged for United States currency, asopposed to having a floating value like other countries’ currencies. Manycountries argued that this system of keeping the Chinese currency low whencompared to other countries gave Chinese companies an unfair price advantageover foreign companies. Due to mounting pressure from other countries, the PRCrecently reformed its economic policies to establish a floating value for itscurrency. However, since July 21, 2005, RMB has been re-pegged to a basketof currencies, and is permitted to fluctuate within a managed band. As of December 31,2007, the exchange rate of the Renminbi was 7.23 against the United Statesdollar, amounting to a 13.6% appreciation of the Renminbi since July 21,2005. This floating exchange rate, and any appreciation of the Renminbi thatmay result from such rate, could cause the cost of a target business asmeasured in dollars to increase. Further, target companies may be adverselyaffected since the competitive advantages that existed as a result of theformer policies will cease. We cannot assure you that a target business withwhich we consummate a business combination will be able to compete effectivelywith 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, foreign investmententerprises (“FIEs”) are required to apply to the SAFE for “Foreign ExchangeRegistration Certificates for FIEs.” Following a business combination, theentity in which we invest in China will likely be a FIE as a result of ourownership structure. FIEs holding such registration certificates, which must berenewed annually, are allowed to open foreign currency accounts including a“basic account” and “capital account.” Currency translation within the scope ofthe “basic account,” such as remittance of foreign currencies for payment ofdividends, can be effected without requiring the approval of the 

 

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SAFE. However, conversionof currency in the “capital account,” including capital items such as directinvestments, loans, and securities, require approval of the SAFE. We cannotassure you that the Chinese regulatory authorities will not impose furtherrestrictions on the convertibility of the Chinese Renminbi. Any futurerestrictions on currency exchanges may limit our ability to use our cash flowfor the distribution of dividends to our stockholders or to fund operations wemay have outside of China.

 

***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 fact convertedinto U.S. dollars. Thus, if the value of the foreign currency decreases beforeyou actually convert the currency into U.S. dollars, you will be taxed on alarger amount in U.S. dollars than the U.S. dollar amount that you willactually ultimately receive. We have not sought a tax opinion regardingtaxation of dividends.

 

***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.***

* *

Regulations were issued on January 24, 2005, on April 8,2005 and on October 21, 2005, by the SAFE, that will require approvalsfrom, and registrations with, PRC government authorities in connection withdirect or indirect offshore investment activities by PRC residents and PRCcorporate entities; however, there has been a recent announcement that suchregulations may be partially reversed. The SAFE regulations retroactivelyrequire approval and registration of direct or indirect investments previouslymade by PRC residents in offshore companies. In the event that a PRCstockholder with a direct or indirect stake in an offshore parent company failsto obtain the required SAFE approval and make the required registration, the PRCsubsidiaries of such offshore parent company may be prohibited from makingdistributions of profit to the offshore parent and from paying the offshoreparent proceeds from any reduction in capital, share transfer or liquidation inrespect of the PRC subsidiaries. Further, failure to comply with the variousSAFE approval and registration requirements described above, as currentlydrafted, could result in liability under PRC law for foreign exchange evasion.More recently, however, new regulations have been drafted that would partiallyreverse the policy that requires Chinese companies to obtain permission fromSAFE to own overseas corporate entities.

 

As a result of the lack of implementing rules, theuncertainty as to when the new draft regulations will take effect, anduncertainty concerning the reconciliation of the new regulations with otherapproval requirements, it remains unclear how these existing regulations, andany future legislation concerning offshore or cross-border transactions, willbe interpreted, amended and implemented by the relevant government authorities.We are committed to complying with the relevant rules. As a result of theforegoing, we cannot assure you that we or the owners of the target business weintend to acquire, as the case may be, will be able to complete the necessary 

 

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approval, filings andregistrations for a proposed business combination. This may restrict ourability to implement our acquisition strategy and adversely affect ouroperations.

 

***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 since 1 January, 2008. Under the New EIT Law, FIEs anddomestic companies are subject to a uniform tax rate of 25%. The New EIT Lawprovides a five-year transition period starting from its effective date forthose enterprises which were established before the promulgation date of theNew EIT Law and which were entitled to a preferential lower tax rate under thethen-effective tax laws or regulations.

 

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 alow tax rate prior to the promulgation of the New EIT Law will be eligible fora five-year transition period since 1 January, 2008, during which time the taxrate will be increased step by step to the 25% unified tax rate set out in theNew EIT Law. From 1 January, 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 1 January, 2008. Furthermore, inaccordance with the Notice, the income derived from the PRC of a foreignenterprise that has no establishment in the PRC is subject to a 10% withholdingtax absent a tax treaty between the PRC and the jurisdiction where the foreignenterprise is incorporated. As a result, following a business combination anyof our subsidiaries operating in China will be required to deduct Chinesewithholding taxes from dividends distributed to us as the parent entity,meaning we would have less funds to use in connection with our operations asthe parent entity or for distribution to our stockholders.

 

***The PRC government has enacted a new law onenterprise income tax, and as it implements this law the tax and fee benefitsprovided to foreign investors and companies to encourage development within thecountry may be lessened or removed with the consequence that expenses may riseimpacting margins and net income.***

* *

Under the currently effective PRC Foreign InvestmentEnterprise and Foreign Enterprise Income Tax Law adopted by the NationalPeople’s Congress (NPC) on April 9, 1991 and the implementation rules applicableto an FIE, an income tax rate of 33% is generally imposed on an FIE, consistingof a 30% national income tax and a 3% local surcharge, for their domestic andoverseas incomes. If the FIE is engaged in manufacturing with an operatingperiod of more than 10 years, it could further be exempted from enterpriseincome tax for two years beginning from its first profitable year, and alloweda 50% reduction in enterprise income tax for a period of three yearsthereafter.

 

A company might receive certain additionalpreferential enterprise income tax treatment if it qualifies as a companyespecially supported by the PRC government. FIEs in certain areas (e.g., somefree trade zones and some technology parks) might also receive furtherreductions in their enterprise income tax rate. The PRC government authorities,however, could reduce or eliminate these incentives at any time in the future.

 

Since China joined the World Trade Organization (WTO),in November 2001, this preferential tax treatment has been criticized asnot being WTO-compliant. On March 16, 2007, the NPC, approved andpromulgated a new tax law: the PRC Enterprise Income Tax Law. This new tax lawwill take effect on January 1, 2008. Under the new tax law, FIEs anddomestic companies are subject to a uniform tax rate of 25%. The new tax lawprovides a five-year transition period starting from its effective date forthose enterprises which were established before the promulgation date of thenew tax law and which were entitled to a preferential lower tax rate under thethen-effective tax laws or regulations. In accordance with regulations issuedby the State Council, the tax rate of such enterprises may gradually transitionto the uniform tax rate within the transition period. For those enterpriseswhich are enjoying tax holidays, such tax holidays may continue until theirexpiration in accordance with the regulations issued by the State Council, butwhere the tax holiday has not yet started because of losses, such tax holidayshall be deemed to commence from the first effective year of the new tax law.Although the new tax law equalizes the tax rates for FIEs and domesticcompanies, preferential tax treatment would continue to be given to both FIEsand domestic companies in certain encouraged sectors and to entities classifiedas high-technology companies supported by the PRC government. According to thenew tax law, entities that qualify as high-technology

 

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companies especiallysupported by the PRC government are expected to benefit from a tax rate of 15%as compared to the uniform tax rate of 25%. Nevertheless, there can be noassurances that any particular company will continue to qualify as ahigh-technology company supported by the PRC government in the future, andbenefit from such preferential tax rate. Following the effectiveness of the newtax law, a company’s effective tax rate may increase, unless it is otherwiseeligible for preferential treatment.

 

Additionally, under the new tax law, an income taxrate for dividends payable to non-PRC investors and derived from sources withinthe PRC may be increased to 20%. It is currently unclear in what circumstancesa source will be considered as located within the PRC.

 

Investors should note that the new tax law providesonly a framework of the enterprise tax provisions, leaving many details on thedefinitions of numerous terms as well as the interpretation and specificapplications of various provisions unclear and unspecified. Any increase in ourtax rate in the future could have a material adverse effect on our financialconditions and results of operations.

 

***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.***

* *

Regulations were issued on January 24, 2005, on April 8,2005 and on November 21, 2005, by the SAFE, that will require approvalsfrom, and registrations with, PRC government authorities in connection withdirect or indirect offshore investment activities by PRC residents and PRCcorporate entities; however, there has been a recent announcement that suchregulations may be partially reversed. The SAFE regulations retroactivelyrequire approval and registration of direct or indirect investments previouslymade by PRC residents in offshore companies. In the event that a PRC stockholderwith a direct or indirect stake in an offshore parent company fails to obtainthe required SAFE approval and make the required registration, the PRCsubsidiaries of such offshore parent company may be prohibited from makingdistributions of profit to the offshore parent and from paying the offshoreparent proceeds from any reduction in capital, share transfer or liquidation inrespect of the PRC subsidiaries. Further, failure to comply with the variousSAFE approval and registration requirements described above, as currentlydrafted, could result in liability under PRC law for foreign exchange evasion.More recently, however, new regulations have been drafted that would partiallyreverse the policy that requires Chinese companies to obtain permission fromSAFE to own overseas corporate entities.

 

As a result of the lack of implementing rules, theuncertainty as to when the new draft regulations will take effect, anduncertainty concerning the reconciliation of the new regulations with otherapproval requirements, it remains unclear how these existing regulations, andany future legislation concerning offshore or cross-border transactions, willbe interpreted, amended and implemented by the relevant government authorities.We are committed to complying with the relevant rules. As a result of theforegoing, we cannot assure you that we or the owners of the target business weintend to acquire, as the case may be, will be able to complete the necessaryapproval, filings and registrations for a proposed business combination. Thismay restrict our ability to implement our business combination strategy andadversely affect our operations.

 

***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 unfamiliar with our laws, they may haveto expend time and resources becoming familiar with such laws. This could beexpensive and time-consuming and could lead to various regulatory issues whichmay adversely affect our operations.

 

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***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. While tax authorities may adviseus that our policy is compliant, they may change their policy, and we could besubject to sanctions.

 

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 incometaxes for those employees who exercise their stock options. While taxauthorities may advise us that our policy is compliant, they may change theirpolicy, and we could 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 InvestmentCorporation, an affiliate of Mr. Tan, our Chief Executive Officer, is$7,500 per month and includes certain other additional services provided byPacific Millennium pursuant to a letter agreement between us and Pacific Millennium.We believe that the fee charged by Pacific Millennium is at least as favorableas we could have obtained from an unaffiliated person. We consider our currentoffice space adequate for our current operations.

 

26

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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 to aVote of Security Holders

# ** **

During the fourth quarter of our fiscal year ended December 31,2007, 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 Over-the-Counter Bulletin Board, or OTC Bulletin Board, under the symbol“STTAU,” since October 16, 2007 and under the symbols “STTA” and “STTAW,”since November 7, 2007, respectively. The following table sets forth thehigh and low bid information for our securities from the commencement oftrading through December 31, 2007 as reported by the OTC Bulletin Board.The OTC Bulletin Board quotations reflect inter-dealer prices, are withoutretail markup, markdowns or commissions, and may not represent actualtransactions.

 

 
| ** **      | ** ** | **Common Stock** | ** ** | **Warrants** | ** ** | **Units**  | ** ** |
|-----------------|------------|------------------|------------|--------------|------------|------------|------------|
| ** **      | ** ** | **High**         | ** ** | **Low**      | ** ** | **High**   | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter*  | ** ** | **—**       | ** ** | **—**   | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Second Quarter* | ** ** | **—**       | ** ** | **—**   | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Third Quarter*  | ** ** | **—**       | ** ** | **—**   | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** | **—** | ** ** |
| Fourth Quarter  |       | $                | 7.29       |         | $          | 7.22       |       | $ | 0.98 |   | $ | 0.83 |   | $ | 8.25 |   | $ | 8.00 |   |
|                 |            |                  |            |              |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

* 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 Holders of Common Stock**

 

The number of holders of record of our common stock onMarch 17, 2008 was 5, which does not include individual participants insecurity position listings.

 

**Dividends**

 

There were no cash dividends or other cash distributionsmade by us during the fiscal year ended December 31, 2007. Future dividendpolicy will be determined by our Board of Directors based on our earnings,financial condition, capital requirements and other then existing conditions.It is anticipated that cash dividends will not be paid to the holders of ourcommon stock in the foreseeable future.

 

**Recent Sales of Unregistered Securities**

 

We did not engage in the sale of any unregisteredsecurities during the three months ended December 31, 2007.

 

**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. 

 

27

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On October 30, 2007,the underwriters of our initial public offering exercised their over-allotmentoption to sell an additional 2,970,300 units. We received aggregate grossproceeds of $240,000,000 from the sale of the units. The offering wasregistered under the Securities Act of 1933, as amended, pursuant to aregistration statement on Form S-1 (File No. 333-142729), which wasdeclared effective by the Securities and Exchange Commission on October 15,2007.

 

The underwriters of 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, afterdeducting certain offering expenses of approximately $9,592,000, includingunderwriting discounts of approximately $9,232,000, and the repayment of thenote payable to a stockholder of approximately $513,000, including accruedinterest, were approximately $259,875,000. Of this amount, approximately$259,746,000 is being held in the trust account and the remaining proceeds arebeing held outside of the trust account. The remaining proceeds, along with upto $3,300,000 in interest earned on the funds in the trust account, areavailable to be used by us to provide for business, legal and accounting duediligence on prospective acquisitions and continuing general and administrativeexpenses.

 

No expenses of the offering were paid to any of ourofficer and directors or any of their respective affiliates. We did, however,repay certain of our officer and directors for loans they made to us prior tothe consummation of the initial public offering. These loans had an annualinterest rate of 4%. The aggregate amount of principal and interest on suchloans that we repaid were $500,000 and $12,821, respectively. All the fundsheld in the trust account have been invested in either Treasury Bills or MoneyMarket Accounts.

 

**Repurchases of Equity Securities**

 

None

 

**Equity Compensation 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.”

 
| ** **                                  | ** ** | **Period from January 24,   2007  (Date of Inception) through  December 31, 2007** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
|                                        |       |                                                                                         |       |
| **Statement of Operations Data:**           | ** ** | ** **                                                                                   | ** ** |
| Formation and operating costs               |       | $                                                                                            | (205,740   | ) |
| Other income (interest and dividend income) |       | $                                                                                            | 2,642,630  |   |
| Net income                                  |       | $                                                                                            | 1,542,904  |   |
| Basic net income per share                  |       | $                                                                                            | 0.10       |   |
| Diluted net income per share                |       | $                                                                                            | 0.09       |   |

 

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|                                                                                     | ** ** | **As of  December 31,   2007** | ** **  |
|------------------------------------------------------------------------------------------|------------|-------------------------------------|-------------|
| ** **                                                                               | ** ** | ** **                          | ** **  |
| **Balance Sheet Data:**                                                                  | ** ** | ** **                          | ** **  |
| Cash and cash equivalents                                                                |       | $                                   | 1,214,280   |   |
| Total assets                                                                             |       | $                                   | 262,218,161 |   |
| Common stock subject to possible redemption — 9,891,089 shares at  redemption value |       | 75,308,773                          |        |
| Total stockholders’ equity                                                          |       | $                                   | 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 offering, we have been actively searching for asuitable business combination candidate. We currently have not entered into anydefinitive agreement with any potential target businesses. We are not presentlyengaged in, and will not engage in, any substantive commercial business untilwe consummate an initial transaction. We intend to utilize cash derived fromthe proceeds of our recently completed private placement and initial publicoffering, our capital stock, debt or a combination of cash, capital stock anddebt, in effecting a business combination.

 

We cannot assure investors that we will find asuitable business combination in the allotted time.

 

**Critical Accounting Policies**

 

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities at the date of the financial statements andthe reported amounts of expenses during the reporting period. Actual resultscould differ from those estimates.

 

*Share-BasedPayments*

 

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

 

*IncomeTaxes*

 

Weaccount for income taxes pursuant to Statement of Financial AccountingStandards No. 109, “Accounting for Income Taxes (“SFAS 109”), whichestablishes financial accounting and reporting standards for the effects ofincome taxes that result from an enterprise’s activities during the current andpreceding years. SFAS 109 requires an asset and liability approach forfinancial accounting and reporting for income taxes.

 

InJuly 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes, aninterpretation of  FASB Statement No. 109”(“FIN 48”), which 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. The provisions ofFIN 48 are effective for fiscal years beginning after December 15, 2006.

 

**Recent Accounting Pronouncements**

 

In December 2007, the FASB issued Statement ofFinancial Accounting Standards No. 141 (revised 2007), “BusinessCombinations” (“FAS 141R”). FAS 141R replaces Statement of Financial AccountingStandards No. 141, “Business Combinations” (“FAS 141”), although itretains the fundamental requirement in FAS 141 that the acquisition method ofaccounting be used for all business combinations. FAS 141R establishesprinciples and requirements for how the acquirer in a business combination (a) recognizesand measures the assets acquired, liabilities assumed and any non-controllinginterest in the acquiree, (b) recognizes and measures the goodwillacquired in a business combination or a gain from a bargain purchase and (c) determineswhat information to disclose regarding the business combination. FAS 141Rapplies prospectively to business combinations for which the acquisition dateis on or after the beginning of our 2009 fiscal year. We are currentlyassessing the potential effect of FAS 141R on our financial statements.

 

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**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 warrantentitles the holder to purchase from us one share of our common stock at anexercise price of $5.50. On October 30, 2007, the underwriters exercisedtheir over-allotment option and purchased an additional 2,970,300 Units. Ourcommon stock and warrants started trading separately as of November 7,2007.

 

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

 

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

 

·                  legal,accounting and other 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);

 

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

 

We may use all 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 

 

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account in connectionwith a business combination, either because the consideration for the businesscombination is less than the proceeds in trust or because we finance a portionof the consideration with capital stock or debt securities that we can issue.In that event, the proceeds held in the trust account as well as any other netproceeds not expended will be used to finance the operations of the targetbusiness or businesses. The operating businesses that we acquire in suchbusiness combination must have, individually or collectively, a fair marketvalue equal to at least 80% of our net assets at the time of such acquisition.If we consummate multiple business combinations that collectively have a fairmarket value of 80% of our net assets, then we would require that suchtransactions are consummated simultaneously.

 

If we are 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. Under Delawarelaw, our stockholders who have received distributions from us may be heldliable for claims by third parties to the extent such claims are not beenpaid by us. Furthermore, our warrants will expire worthless if we liquidatebefore the completion of a business combination.

 

**Results of Operations for the period January 24,2007 (date of inception) to December 31, 2007**

 

For the period from January 24, 2007 (date ofinception) through December 31, 2007, we had net income of $1,542,904,derived from interest income less operating expenses.

 

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. Inaddition, on February 27, 2007, we issued an unsecured promissory note of$500,000 to one of our initial stockholders. The note, which bore interest atthe rate of 4% per annum, was paid on October 19, 2007.

 

For the period from January 24, 2007 (date ofinception) to December 31, 2007, we incurred $50,232 of travel expenses,$16,845 for professional fees, $98,664 for other formation and operating costs,$40,000 of costs related to capital based taxes, $881,000 related to incomebased taxes, and interest expense of $12,986, offset by interest income of$2,642,630.

 

**Off Balance-Sheet Arrangements**

 

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

 

31

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**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, foreign exchanges, commodity prices, equity prices, and othermarket-driven rates or prices. We are not presently engaged in and, if asuitable business target is not identified by us prior to the prescribedliquidation date of the trust account, we may not engage in, any substantivecommercial business. Accordingly, we are not and, until such time as weconsummate a business combination, we will not be, exposed to risks associatedwith foreign exchange rates, commodity prices, equity prices or othermarket-driven rates or prices. The net proceeds of our initial public offeringheld in the trust account have been invested only in money market funds meetingcertain conditions under Rule 2a-7 promulgated under the InvestmentCompany Act of 1940, as amended. Given our limited risk in our exposure tomoney market funds, we do not view the interest rate risk to be significant.

 

# **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.  BalanceSheet as of December 31, 2007.

3.  Statement ofOperations for the period from January 24, 2007 (date of inception) to December 31,2007.

4.  Statement ofStockholders’ for the period from January 24, 2007 (date of inception) to December 31,2007.

5.  Statement ofCash Flows for the period from January 24, 2007 (date of inception) to December 31,2007.

6.  Notes toFinancial Statements.

 

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

# ** **

None.

 

## **Item 9A.**                     (T) Controls and Procedures

## ** **

**Compliance with Section 404 of theSarbanes-Oxley Act of 2002**

 

This annual report does not include a report ofmanagement’s assessment regarding internal control over financial reporting oran attestation report of our registered public accounting firm due to atransition period established by the rules of the Securities and ExchangeCommission for newly public companies.

 

Pursuant to Section 404 of the Sarbanes-Oxley Actof 2002 (the Act), beginning with our Annual Report on Form 10-K for thefiscal year ending December 31, 2008, we will be required to furnish a reportby our management on our internal control over financial reporting. This reportwill contain, among other matters, an assessment of the effectiveness of ourinternal control over financial reporting as of the end of our fiscal year,including a statement as 

 

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to whether or not ourinternal control over financial reporting is effective. This assessment mustinclude disclosure of any material weaknesses in our internal control overfinancial reporting identified by management. If we identify one or morematerial weaknesses in our internal control over financial reporting, we willbe unable to assert our internal control over financial reporting is effective.This report will also contain a statement that our independent registeredpublic accountants have issued an attestation report on management’s assessmentof such internal controls and conclusion on the operating effectiveness ofthose controls.

 

Management acknowledges its responsibility for internalcontrols over financial reporting and seeks to continually improve thosecontrols. In order to achieve compliance with Section 404 of the Actwithin the prescribed period, we are currently performing the system andprocess documentation and evaluation needed to comply with Section 404,which is both costly and challenging. We believe our process, which began in2007 and continues in 2008 for documenting, evaluating and monitoring ourinternal control over financial reporting is consistent with the objectives of Section 404of the Act.

 

## **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    |       | 52      |       | Chief Executive  Officer, President and Director |
| Roger W. Stone |       | 73      |       | 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.

 

***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.

 

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 

 

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involved in the analysisof any potential business combination and the business strategy of ouroperations. Both Messrs. Stone and Tan have business, financial andindemnification obligations to us. It is unclear what role Messrs. Stoneand Tan will play in our operations post-business combination. Depending on thetarget business and other factors at the time of the business combination, itis possible that neither Mr. Stone nor Mr. Tan will have anyresponsibilities with respect to our operations post-business combination,although we expect that each will have at least some role 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 China MacroEconomic Academy. Mr. Zhou received a degree in Finance from the CentralCommunist Party 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 

 

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the Shanghai Universityof Finance and Economics in 1985 and his Bachelor degree in Engineering fromthe 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,consider 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, each SPAC Trust, Richard Tan and RogerW. Stone failed to file one Form 4 timely during the year ended December 31,2007.

 

# **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, will be 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.

 

35

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

# ** **

The following table sets forth, as of March 17,2008, 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 Partners II L.P., HBK Management LLC  and HBK Master Fund L.P (3) |       | 3,770,333                                           |       | 9.1                                              | %          |
| QVT  Financial LP, QVT Financial GP LLC, QVT Fund LP and QVT Associates GP LLC (4)                            |       | 2,633,734                                           |       | 6.4                                              | %          |
| Fir  Tree, Inc., Fir Tree Recovery Master Fund, L.P. and Sapling, LLC (5)                                |       | 2,350,000                                           |       | 5.7                                              | %          |
| Weiss  Asset Management, LLC, Weiss Capital, LLC and Andrew M. Weiss (6)                                      |       | 2,208,183                                           |       | 5.4                                              | %          |
|                                                                                                          |       |                                                |       |                                             |       |
| All  directors and executive officers as a group (2 persons)                                                  |       | 8,242,575                                           |       | 20                                               | %          |

 

----

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

 

(2)                 The 4,945,545 shares beneficially ownedby Richard Tan and Chih-Chun Tan are owned by SPAC Trust, a family trust formedfor personal financial and estate planning purposes. Chih-Chun Tan (RichardTan’s father) is settlor and Richard Tan is Trustee of the trust. Chih-Chun Tanwill not have any active role in regard to our company.  The address for Mr. Richard Tan and Mr. Chih-ChunTan is c/o Stone Tan China Acquisition Corp., Suite 1A, 11th Floor, Tower1, China Hong Kong City, 33 Canton Road Kowloon, Hong Kong.

 

(3)                 Based on information contained in aSchedule 13G filed by HBK Investments L.P, HBK Services LLC, HBK Partners IIL.P., HBK Management LLC and HBK Master Fund L.P. on February 11, 2008.The business address of HBK Investments L.P., HBK Services LLC, HBK Partners IIL.P. and HBK Management LLC is 300 Crescent Court, Suite 700, Dallas,Texas 75201. The business address of HBK Master Fund L.P. is c/o HBK ServicesLLC, 300 Crescent Court, Suite 700, Dallas, Texas 75201. HBK InvestmentsL.P. has delegated discretion to vote and dispose of our common stock to HBKServices LLC (“Services”). Services may, from time to time, delegate discretionto vote and dispose of certain of our common stock to HBK New York LLC, HBKVirginia LLC, HBK Europe Management LLP, and/or HBK Hong Kong Ltd.(collectively, the “Subadvisors”). Each of Services and the Subadvisors isunder common control with HBK Investments L.P.

 

(4)                 Based on information contained in aSchedule 13G/A filed by QVT Financial LP, QVT Financial GP LLC, QVT Fund LP andQVT Associates GP LLC on February 27, 2008. The business address of QVTFinancial LP, QVT Financial GP LLC, QVT Fund LP and QVT Associates GP LLC is1177 Avenue of the Americas, 9th Floor, New York, New York 10036. QVT FinancialLP is the investment manager for QVT Fund LP, which beneficially owns 2,170,035shares of our common stock, and for Quintessence Fund L.P., which beneficiallyowns 234,658 shares of our common stock. QVT Financial LP is also theinvestment manager for 

 

36

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a separate discretionary account managed for Deutsche Bank AG, whichholds 229,041 shares of our common stock. QVT Financial LP has the power todirect the vote and disposition of the shares of our common stock held by QVTFund LP, Quintessence Fund L.P. and the separate account managed for DeutscheBank AG. Accordingly, QVT Financial LP may be deemed to be the beneficial ownerof an aggregate amount of 2,633,734 shares of our common stock, consisting ofthe shares owned by QVT Fund LP, Quintessence Fund L.P. and the shares held inthe separate account managed for Deutsche Bank AG. QVT Financial GP LLC, asgeneral partner of QVT Financial LP, may be deemed to beneficially own the samenumber of shares of our common stock reported by QVT Financial LP. QVTAssociates GP LLC, as general partner of QVT Fund LP and Quintessence FundL.P., may be deemed to beneficially own the aggregate number of shares ofCommon Stock owned by QVT Fund LP and Quintessence Fund L.P., and accordingly,QVT Associates GP LLC may be deemed to be the beneficial owner of an aggregateamount of 2,404,693 shares of our common stock.

 

(5)                 Based on information contained in aSchedule 13G filed by Sapling, LLC, Fir Tree, Inc. and Fir Tree RecoveryMaster Fund, L.P. on October 26, 2007. The business address of both FirTree, Inc. and Sapling, LLC is 505 Fifth Avenue, 23rd Floor, New York, NewYork 10017. The address of Fir Tree Recovery Master Fund, L.P. is c/o AdmiralAdministration Ltd., Admiral Financial Center, 5th Floor, 90 Fort Street, Box32021 SMB, Grand Cayman, Cayman Islands. Sapling, LLC is the beneficial ownerof and may direct the vote and dispose of 1,970,700 shares of our common stock.Fir Tree Recovery Master Fund, L.P. is the beneficial owner of and may directthe vote and dispose of 379,300 shares of our common stock. Fir Tree, Inc.has been granted investment discretion over the shares of our common stock heldby Sapling, LLC and Fir Tree Recovery Master Fund, L.P.

 

(6)                 Based on information contained in aSchedule 13G jointly filed by Weiss Asset Management, LLC, Weiss Capital, LLCand Andrew M. Weiss on March 6, 2008. The business address for Weiss AssetManagement, LLC, Weiss Capital, LLC and Mr. Weiss is 29 CommonwealthAvenue, 10th Floor, Boston, MA 02116. The reported shares of our common stockinclude shares beneficially owned by a private investment partnership of whichWeiss Asset Management, LLC is the sole general partner and which may be deemedto be controlled by Mr. Weiss, who is the managing member of Weiss AssetManagement, LLC, and also includes shares held by a private investmentcorporation which may be deemed to be controlled by Mr. Weiss, who is themanaging member of Weiss Capital, LLC, the investment manager of such privateinvestment corporation.

 

# **Item 13.**                     Certain Relationships and RelatedTransactions

# ** **

On January 31, 2007 (after giving effect to astock split effected in May 2007),we issued to the following directors andour executive officer (or their respective affiliates) the number of shares ofcommon 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.

 

37

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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 tothe date on which these shares of common stock are released from escrow. Wewill bear the expenses incurred in connection with the filing of any suchregistration statements.

 

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.

 

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, 2007,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.

 

***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 year 2007 for assurance and related services in connectionwith the audits or reviews of our financial statements.

 

38

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***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.

 

***All Other Fees***

* *

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

 

***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.

 

# **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*                                    |

 

39

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| 31.1 |   | Certification of the Principal Executive Officer  pursuant to Rule 13-14(a) of the Securities Exchange of 1934                                                               |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1 |   | Certificate of the Principal Executive Officer and  Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

----

*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.

 

40

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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 19, 2008 |   | 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 19, 2008 |   | By:    | /s/ Richard Tan |
|---------------------|--------|--------|-----------------|
|                |   |   | Name:           | Richard Tan |
|                |   |   | Title:          | Chief Executive Officer and Director (Principal  Executive, Accounting and Financial Officer) |

 

 
| March 19, 2008 |   | By:    | /s/ Roger W. Stone |
|---------------------|--------|--------|--------------------|
|                |   |   | Name:              | Roger W. Stone |
|                |   |   | Title:             | Chairman of the Board of Directors |

 

 

41

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** **

**STONETAN CHINA ACQUISITION CORP.**(a corporation inthe development stage)

 

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

 

**INDEX**

 

 

 
| ** **                                                                                                               | **Page** |
|--------------------------------------------------------------------------------------------------------------------------|----------|
| Report  of Independent Registered Public Accounting Firm                                                                 | F-2      |
| Financial  Statements                                                                                                    | F-3      |
| Balance Sheet as of  December 31, 2007                                                                              | F-3      |
| Statement of  Operations for the period from January 24, 2007 (inception) to  December 31, 2007                | F-4      |
| Statement of  Stockholders’ Equity for the period from January 24, 2007 (inception) to  December 31, 2007 | F-5      |
| Statement  of Cash Flows for the period from January 24, 2007 (inception) to  December 31, 2007                | F-6      |
| Notes to Financial  Statements                                                                                           | F-7      |

 

 

 

 

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

To theBoard of Directors and Stockholders ofStone Tan China Acquisition Corp.

 

We have audited the accompanying balance sheet ofStone Tan China Acquisition Corp. (a corporation in the development stage) asof December 31, 2007, and the related statements of operations,stockholders’ equity and cash flows for the period from January 24, 2007(inception) to December 31, 2007. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position of StoneTan China Acquisition Corp. as of December 31, 2007, and the results ofits operations and its cash flows for the period from January 24, 2007(inception) to December 31, 2007, in conformity with United Statesgenerally accepted accounting principles.

 

 

 

**/s/ GUMBINER SAVETT INC.**

 

GUMBINERSAVETT INC.

 

SantaMonica, California

March19, 2008

 

 

 

 

F-2

----

 

**STONETAN CHINA ACQUISITION CORP.**(a corporation inthe development stage)

 

**BALANCE SHEET**

 

**DECEMBER 31, 2007**

 
| **ASSETS**                                                                                                                                                                          | ** ** | ** **  | ** **  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|-------------|
| Current  assets:                                                                                                                                                                    |       |        |        |
| Cash  and cash equivalents                                                                                                                                                          |       | $           | 1,214,280   |   |
| Money  market funds - held in trust                                                                                                                                                 |       | 260,800,695 |        |
| Prepaid  expenses                                                                                                                                                                   |       | 203,186     |        |
| Total current assets                                                                                                                                                                |       | 262,218,161 |        |
|                                                                                                                                                                                |       |        |        |
| Total assets                                                                                                                                                                        |       | $           | 262,218,161 |   |
| ** **                                                                                                                                                                          | ** ** | ** **  | ** **  |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                       | ** ** | ** **  | ** **  |
| Current  liabilities:                                                                                                                                                               |       |        |        |
| Accounts  payable and accrued expenses                                                                                                                                              |       | $           | 109,459     |   |
| Deferred  underwriting fees payable                                                                                                                                                 |       | 9,231,684   |        |
| Income  tax payable                                                                                                                                                                 |       | 881,000     |        |
|                                                                                                                                                                                |       |        |        |
| Total current liabilities                                                                                                                                                           |       | 10,222,143  |        |
|                                                                                                                                                                                |       |        |        |
| Common  stock subject to possible redemption — 9,891,089 shares at redemption value                                                                                            |       | 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       |        |
| Additional  paid-in capital                                                                                                                                                         |       | 175,140,220 |        |
| Retained  earnings                                                                                                                                                                  |       | 1,542,904   |        |
| Total stockholders’ equity                                                                                                                                                     |       | 176,687,245 |        |
| Total liabilities and stockholders’ equity                                                                                                                                     |       | $           | 262,218,161 |   |

 

See accompanying notes tofinancial statements.

 

 

F-3

----

 

**STONETAN CHINA ACQUISITION CORP.**(a corporation inthe development stage)

 

**STATEMENT OF OPERATIONS**

** **

**PERIOD FROM JANUARY 24, 2007 (INCEPTION) TO DECEMBER31, 2007**

 
| Operating  expenses                                |   | $          | (205,740  | )      |
|----------------------------------------------------|--------|------------|-----------|--------|
| Interest income                                    |   | 2,642,630  |      |
| Interest  expense—stockholder                 |   | (12,986    | )         |
| Net income before  provision for income tax        |   | 2,423,904  |      |
| Provision for income tax                           |   | 881,000    |      |
| Net income                                         |   | $          | 1,542,904 |   |
|                                               |   |       |      |
| Net income per common  share —                |   |       |      |
| Basic                                              |   | $          | 0.10      |   |
| Diluted                                            |   | $          | 0.09      |   |
| Weighted average common  shares outstanding — |   |       |      |
| Basic                                              |   | 15,630,961 |      |
| Diluted                                            |   | 17,681,826 |      |

 

Seeaccompanying notes to financial statements.

 

 

 

F-4

----

**STONETAN CHINA ACQUISITION CORP.**

(a corporation inthe development stage)

 

**STATEMENT OF STOCKHOLDERS’ EQUITY**

 

**PERIOD FROM JANUARY 24, 2007 (INCEPTION) TO DECEMBER31, 2007**

 
| ** **                                                                                                        | ** ** | **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 cash  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 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 |   |

 

See accompanying notes tofinancial statements.

 

 

 

F-5

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**STONETAN CHINA ACQUISITION CORP.**(a corporation inthe development stage)

 

**STATEMENTOF CASH FLOWS**

** **

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

 
| Cash flows from operating  activities:                                         |   |         |       |
|--------------------------------------------------------------------------------|--------|--------------|------------|
| Net income                                                                     |   | $            | 1,542,904  |   |
| Adjustments to reconcile  net income to net cash used in operating activities: |   |         |       |
| (Increase) decrease in -                                                       |   |         |       |
| Prepaid expenses                                                               |   | (203,186     | )          |
| Increase (decrease) in -                                                       |   |         |       |
| Accounts payable and accrued expenses                                          |   | 109,459      |       |
| Income tax payable                                                             |   | 881,000      |       |
| Net cash provided by  operating activities                                     |   | 2,330,177    |       |
|                                                                           |   |         |       |
| Cash flows from investing  activities:                                         |   |         |       |
| Funds placed in trust account from offerings                                   |   | (259,745,716 | )          |
| Increase in trust account from interest earned on funds held in trust          |   | (2,630,166   | )          |
| Withdrawals from trust account                                                 |   | 1,575,187    |       |
| Net cash used in investing  activities                                         |   | (260,800,695 | )          |
|                                                                           |   |         |       |
| Cash flows from financing  activities:                                         |   |         |       |
| Proceeds from initial sale of common stock                                     |   | 25,000       |       |
| Gross proceeds from private placement                                          |   | 6,200,000    |       |
| Gross proceeds from public offering                                            |   | 263,762,399  |       |
| Payment of offering costs                                                      |   | (10,302,701  | )          |
| Proceeds from underwriter’s purchase option                               |   | 100          |       |
| Proceeds from stockholder loan                                                 |   | 500,000      |       |
| Repayment of stockholder loan                                                  |   | (500,000     | )          |
| Net cash provided by  financing activities                                     |   | 259,684,798  |       |
|                                                                           |   |         |       |
| Net increase in cash and  cash equivalents                                     |   | 1,214,280    |       |
| Cash and cash equivalents  at beginning of period                              |   | —       |       |
| Cash and cash equivalents  at end of period                                    |   | $            | 1,214,280  |   |
|                                                                           |   |         |       |
| Cash paid for:                                                                 |   |         |       |
| Interest                                                                       |   | $            | 12,821     |   |
| Income taxes                                                                   |   | $            | —     |   |
|                                                                           |   |         |       |
| Supplemental schedule of  non-cash investing and financing activities:         |   |         |       |
| Deferred underwriting fees payable                                             |   | $            | 9,231,684  |   |
| Common stock subject to possible redemption                                    |   | $            | 75,308,773 |   |
| Fair value of unit purchase option issued to underwriters                      |   | $            | 7,689,369  |   |

 

See accompanying notes tofinancial statements.

 

 

 

F-6

----

** **

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

** **

**NOTES TOFINANCIAL STATEMENTS**

** **

**DECEMBER 31, 2007**

** **

1.                                       Organizationand Proposed Business Operations

 

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

 

At December 31, 2007, the Company had not yetcommenced any business operations and is therefore considered a “corporation inthe development stage.”  All activity through December 31, 2007related to the Company’s formation, capital raising efforts, as describedbelow, and seeking to acquire a business. The Company is subject to the risksassociated with development stage companies. The Company has selected December 31as its fiscal year-end.

 

The Company’s ability to acquire an operating businesswas contingent upon obtaining adequate financial resources through a privateplacement in accordance with Regulation D under the Securities Act of 1933, asamended (the “Private Placement”), and an initial public offering (the “PublicOffering”, and together with the Private Placement, the “Offerings”), which arediscussed in Note 3. The Company’s management has broad discretion with respectto the specific application of the net proceeds of the Offerings, although substantiallyall of the net proceeds of the Offerings are intended to be generally appliedtoward consummating a business combination with an operating company. As usedherein, a “target business” shall include one or more operating businesses orassets with primary operations in the People’s Republic of China, and a“business combination” shall mean the acquisition by the Company of such atarget business. There can be no assurances that the Company will be able tosuccessfully effect a business combination.

 

2.                                       Summaryof Significant Accounting Policies

 

***Cash and Cash Equivalents***

* *

The Company considers all highly liquid investmentswith an original maturity of three months or less when purchased to be cashequivalents. Such cash and equivalents, at times, may exceed federally insuredlimits. The Company maintains its accounts with financial institutions withhigh credit ratings.

 

***Income Taxes***

* *

The Company accounts for income taxes pursuant toStatement of Financial Accounting Standards No. 109, “Accounting forIncome Taxes” (“SFAS No. 109”), which establishes financial accounting andreporting standards for the effects of income taxes that result from anenterprise’s activities during the current and preceding years. SFAS No. 109requires an asset and liability approach for financial accounting and reportingfor income taxes.

 

In July 2006, the Financial Accounting StandardsBoard (“FASB”) issued FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes, an interpretation of FASB Statement No. 109”(“FIN 48”), which provides criteria for the recognition, measurement,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. The provisions ofFIN 48 are effective for fiscal years beginning after December 15,2006.

 

F-7

----

** **

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

***Earnings Per Common Share***

* *

The Company computes earnings per common share inaccordance with SFAS No. 128, “Earnings per Share” and SEC StaffAccounting Bulletin No. 98 (“SAB 98”).  SFAS No. 128 requirescompanies 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.  At December 31, 2007, potentiallydilutive securities consisted of outstanding warrants to acquire an aggregateof 41,670,300 shares of common stock, of which warrants to acquire 2,500,000shares were anti-dilutive as of such date.

 

The calculation of diluted weighted average commonshares outstanding 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 common stockfor the period it was quoted on the OTC Bulletin Board.

 

***Use of Estimates***

* *

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.

 

***Fair Value of Financial Instruments***

* *

The carrying amounts of cash and cash equivalents,money market funds - held in trust, prepaid expenses, accounts payable andaccrued expenses, deferred underwriting fees payable, and income tax payable approximatetheir respective fair values, due to the short-term nature of these items.

 

***Share-Based Payments***

* *

The Company accounts for share-based payments pursuantto Statement of Financial Accounting Standards No. 123R, “Share-BasedPayments” (“SFAS No. 123R”). SFAS No. 123R requires all share-basedpayments, including grants of employee stock options to employees, to berecognized in the financial statements based on their fair values. The Companyadopted SFAS No. 123R on January 24, 2007 (inception) and expectsthat it could have a material impact on the Company’s financial statements tothe extent that the Company grants stock-based compensation in future periods.

 

***Recent Accounting Pronouncements***

* *

In December 2007, the FASB issued SFAS No. 141(R),“Business Combinations” (“SFAS No. 141(R)”), which requires anacquirer to recognize 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 the acquirer incurs to effect abusiness combination, will be accounted for as expenses in the periods in whichthe costs are incurred and the services are received, except that costs toissue debt or equity securities will be recognized in accordance with otherapplicable GAAP.SFAS No. 141(R) makes significant amendments to otherStatements and other authoritative guidance to provide additional guidance orto conform the guidance in that literature to that 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) iseffective for financial statements issued for fiscal years beginning on orafter December 15, 2008. Early adoption is prohibited. The adoption ofSFAS No. 141(R) will affect how the Company accounts for theacquisition of a business after December 31, 2008.

 

F-8

----

 

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

Except for the aforementioned accounting standard,management does not believe that any other recently issued, but not yeteffective, accounting standards, if currently adopted, would have a materialeffect on the Company’s financial statements.

 

3.                                       PrivatePlacement and Public Offering

 

On October 19, 2007, the Company completed itsPublic Offering of 30,000,000 units at a price of $8.00 per unit. Each unitconsisted of one share of the Company’s common stock, $0.0001 par value, andone redeemable common stock purchase warrant. Each warrant entitles the holderto purchase from the Company one share of common stock at an exercise price of$5.50 per share commencing the later of the completion of a businesscombination with a target business, or October 15, 2008, and expires on October 15,2011. The warrants will be redeemable at a price of $0.01 per warrant upon 30days notice after the warrants become exercisable, only in the event that thelast sale price of the common stock is at least $11.50 per share for any 20trading days within a 30 trading day period ending on the third day prior todate on which notice of redemption is given.

 

The Company paid the underwriters in the PublicOffering an underwriting discount of 3.5% of the gross proceeds and upon theconsummation of a business combination, the underwriters will receive anadditional underwriting discount equal to 3.5% of the gross proceeds. TheCompany also issued a unit purchase option, for $100, upon consummation of thePublic Offering, to Morgan Joseph & Co. Inc. (“Morgan”) , therepresentative of the underwriters, to purchase up to a total of 2,500,000units at $10.00 per unit. The units issuable upon exercise of this option areotherwise identical to those sold in the Public Offering, except that theexercise price of the warrants underlying the units is $7.00. This option isexercisable for cash, or on a cashless basis, commencing October 15, 2007and expiring October 15, 2012. Since the warrants underlying the optionare 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 will bethe $100 cash payment to be received by the Company. The option and warrantscould expire worthless if there is no effective registration statement.

 

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

 

On October 30, 2007, the underwriters of thePublic Offering exercised their option to purchase an additional 2,970,300units to cover over-allotments. In connection with the exercise of theover-allotment option, the underwriters received an underwriting discount of3.5% of the gross proceeds and upon the consummation of a business combinationthe underwriters will receive an additional underwriting discount equal to 3.5%of the gross proceeds. Consequently, on October 30, 2007, the closing dateof the overallotment exercise, an additional $22,930,716 of the proceeds fromthe exercise, including $831,684 of contingent underwriting compensation whichwill be paid to Morgan if a business combination is consummated, but which willbe forfeited in part if the public 

 

F-9

----

 

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

stockholders elect tohave their shares redeemed for cash and in full if a business combination isnot consummated, was placed in the Trust Account.

 

The common stock and warrants included in the unitsbegan to trade separately on November 7, 2007, and trading in the unitsceased on that date.

 

On October 19, 2007, prior to the consummation ofthe Public Offering, the Company’s founding stockholders purchased from theCompany an aggregate of 6,200,000 warrants (the “Founder Warrants”) at $1.00per warrant in a Private Placement. All Founder Warrants issued in the PrivatePlacement were substantially identical to the warrants in the units sold in thePublic Offering, except that:  (i) subject to certain limitedexceptions, none of the Founder Warrants were transferable or salable untilafter the Company completes a business combination; and (ii) the FounderWarrants are not subject to redemption and are not exercisable on a cashlessbasis if held by the initial holders thereof. The $6,200,000 of proceeds fromthe sale of the Founder Warrants were added to the portion of the proceeds fromthe Public Offering held in the Trust Account pending completion of theCompany’s initial business combination. The Company has determined, based on areview of the trading price of the public warrants of other blank checkcompanies similar to the Company, that the purchase price of $1.00 per FounderWarrant was not less than the approximate fair value of such warrants on thedate of issuance. Therefore, the Company did not record compensation expenseupon the sale of the Founder Warrants.

 

After the Company signs a definitive agreement for theacquisition of a target business, it will submit such transaction forstockholder approval. In the event that holders of the shares sold in thePublic Offering (the “Public Stockholders”) owning 30% or more of theoutstanding stock sold in the Public Offering vote against the businesscombination and elect to have the Company redeem their shares for cash, thebusiness combination will not be consummated. All of the Company’s stockholdersprior to the Offerings, including the officer and directors of the Company (the“Initial Stockholders”), have agreed to vote their 8,625,000 founding shares ofcommon stock in accordance with the vote of the majority of shares purchased inthe Public Offering with respect to any business combination and to vote anyshares they acquire in the Public Offering, or in the aftermarket, in favor ofthe business combination. After consummation of the Company’s first businesscombination, all of these voting safeguards will no longer be applicable.

 

With respect to the first business combination whichis approved and consummated, any Public Stockholders who voted against thebusiness combination may demand that the Company redeem their shares for a prorata share of the Trust Account (inclusive of a pro rata portion of thecontingent underwriting compensation of $0.28 per share). Accordingly, PublicStockholders holding approximately 29.99% of the aggregate number of sharessold in the offerings may seek redemption of their shares in the event of abusiness combination.

 

If no business combination occurs, the Company’sAmended and Restated Certificate of Incorporation provides for mandatoryliquidation of the Company on October 15, 2009, twenty-four months fromthe effective date of the Public Offering, without stockholder approval, unlessthe duration is extended or made permanent by an amendment to the Certificateof Incorporation authorized by the vote of holders of a majority of alloutstanding shares entitled to vote.

 

4.                                       MoneyMarket Funds — Held In Trust

 

Money market funds — held in trust at December 31,2007 consists of Citi Institutional Liquid Reserves Class A of $260,800,695having an annualized taxable yield of 4.94% at December 31, 2007.

 

5.                                       NotePayable to Stockholder

 

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

 

F-10

----

 

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

6.                                       CommonStock

 

The Company was initially authorized to issue39,000,000 shares of its common stock with a par value $0.0001 per share. On October 15,2007, the authorized common shares were increased to 139,000,000 shares.

 

In February 2007, the Company’s InitialStockholders subscribed to 1,562,500 shares of common stock for a total of$25,000. In April 2007, the Company effected a two-for-one stock split inthe form of a stock distribution, which resulted in the issuance of anadditional 1,562,500 shares to its Initial Stockholders. In May 2007, theCompany 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 Stockholderssurrendered for cancellation, for no consideration, 382,425 shares of commonstock so as to ensure that the number of shares they held prior to the PublicOffering, exclusive of shares underlying the Founder Warrants, equaled 20% ofthe outstanding shares of common stock after the Public Offering and theexercise of the underwriters’ over-allotment option.

 

In the event that holders of more than 20% of theshares of common stock sold in the Public Offering elect to redeem their shares,the Company’s Initial Stockholders have agreed to forfeit that number of shares(up to a maximum of 937,500 shares) that will result in them owningcollectively no more than 23.81% of the Company’s outstanding common stockimmediately prior to the consummation of such business combination after givingeffect to the redemption (without regard to any open market or co-investmentunit purchases by the Company’s Initial Stockholders as described in Note 9).

 

7.                                       PreferredStock

 

The Company is authorized to issue 1,000,000 shares ofpreferred stock with a par value $0.0001 per share, with such designations,voting and other rights and preferences, as may be determined from time to timeby the Board of Directors..

 

8.                                       IncomeTaxes

 

The provision for income tax consists of U.S. federalincome tax currently payable. The Company has its excutive office in Hong Kongand accordingly is not subject to state income tax.

 

Deferred income taxes reflect the net tax effects oftemporary differences between the carrying amounts of assets and liabilitiesfor financial reporting purposes and the amounts used for income tax purposes.The Company’s deferred tax assets as of December 31, 2007 consist ofstart-up and organization costs which must be deferred until the Company commencesbusiness operations, at which time they may be written off over a 60-monthperiod. Because of the uncertainty associated with the realization of theCompany’s deferred tax assets, a 100% valuation allowance has been recorded.

 

F-11

----

 

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

The tax effects of temporary differences that giverise to the deferred tax assets at December 31, 2007 are as follows:

 

| Deferred tax assets             |   |    |   |
|---------------------------------|--------|---------|--------|
|                            |   |    |   |
| Start-up and organization costs |   | $       | 50,000 |   |
|                            |   |    |   |
| Less: Valuation allowance       |   | (50,000 | )      |
|                            |   |    |   |
| Net deferred tax assets         |   | $       | — |   |

 

The reconciliation between the income tax ratecomputed by applying the U.S. federal statutory rate and the effective rate forthe period January 24, 2007 (inception) to December 31, 2007 is asfollows:

 

| U.S. federal statutory tax  rate |   | 34.0   | %      |
|----------------------------------|--------|--------|--------|
|                             |   |   |   |
| Non-deductible expenses          |   | 0.3    | %      |
|                             |   |   |   |
| Change in valuation allowance    |   | 2.0    | %      |
|                             |   |   |   |
| Effective tax rate               |   | 36.3   | %      |

 

9.                                       Commitmentsand Contingencies

 

The Company will not proceed with a businesscombination if Public Stockholders owning 30% or more of the shares sold in thePublic Offering vote against the business combination and exercise theirredemption rights. Accordingly, the Company may effect a business combinationif Public Stockholders owning up to approximately 29.99% of the aggregateshares sold in the Public Offering exercise their redemption rights. If thisoccurred, the Company would be required to redeem for cash up to approximately29.99% of the 32,970,300 shares of common stock included in the units, or9,891,089 shares of common stock, at an expected initial per share redemptionprice of $7.88. However, the ability of stockholders to receive $7.88 per unitis subject to any valid claims by the Company’s creditors which are not coveredby amounts held in the Trust Account or the indemnities provided by theCompany’s officers and directors. The expected redemption price per share isgreater than each stockholder’s initial pro rata share of the Trust Account ofapproximately $7.60 per share. Of the excess redemption price, approximately$0.28 per share represents a portion of the underwriters’ contingent fee, whichthey have agreed to forego for each share that is redeemed. Accordingly, thetotal deferred underwriting compensation payable to the underwriters in theevent of a business combination will be reduced by approximately $0.28 for eachshare that is redeemed. The balance will be paid from proceeds held in theTrust Account, which are payable to the Company upon consummation of a businesscombination. Even if less than 30% of the stockholders exercise theirredemption rights, the Company may be unable to consummate a businesscombination if such redemption leaves the Company with funds insufficient toacquire or merge with a business with a fair market value greater than 80% ofthe Company’s net assets at the time of such acquisition, which would be inviolation of a condition to the consummation of the Company’s initial businesscombination, and as a consequence, the Company may be forced to find additionalfinancing to consummate such a business combination, consummate a differentbusiness combination or liquidate.

 

The Company’s Initial Stockholders will enter into anagreement with Morgan pursuant to which they will place limit orders topurchase up to an aggregate of $10,000,000 of the Company’s common stock in theopen market commencing 10 business days after the Company files its CurrentReport on Form 8-K announcing the execution of a definitive agreement fora business combination and ending on the business day immediately preceding thedate of the meeting of stockholders at which a business combination is to beapproved. Such open market purchases will be made in accordance with Rules 10b-18and 10b5-1 under the Securities Exchange Act of 1934, as amended, at a priceper share of not more than the per share amount held in the Trust Account (lesstaxes payable) as reported in such Form 8-K and will be made by abroker-dealer mutually agreed upon by the Company’s Initial Stockholders andMorgan in such amounts and at such times as such broker-dealer may determine,in its sole 

 

F-12

----

 

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

discretion, so long asthe purchase price does not exceed the above-referenced per share purchaseprice. The Company’s Initial Stockholders have agreed to vote any such sharesof common stock purchased in the open market in favor of the Company’s initialbusiness combination, representing a possible maximum aggregate of 4.2% of thepublic shares entitled to vote on the business combination. They have agreednot to sell such shares unless a business combination is approved by theCompany’s stockholders; however, they will be entitled to participate in anyliquidating distributions with respect to the shares purchased in the openmarket if the business combination is not completed and the Company dissolves.

 

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

 

The Company has agreed to pay Pacific MillenniumInvestment Corporation, an affiliate of the Company’s Chief Executive Officer,$7,500 per month for 24 months, for this office space and reimbursement ofgeneral and administrative expenses. pursuant to a letter agreement, commencingon the date of the Public Offering and terminating upon the date the Companyconsummates a business combination or liquidates.

 

10.                                 RegistrationRights

 

The holders of 8,242,575 shares issued prior to thecompletion of the Public Offering, the holders of the warrants to purchase6,200,000 shares of common stock underlying the Founder Warrants sold in thePrivate Placement, and the holders of co-investment units are entitled toregistration rights covering the resale of their shares and the resale of theirwarrants and shares acquired upon exercise of their warrants. The holders ofthe majority of these shares are entitled to make up to two demands that theCompany register their shares, warrants and shares that they are entitled toacquire upon the exercise of warrants. The holders of the majority of theseshares can elect to exercise these registration rights at any time after oneyear from the date of the consummation of the Company’s initial businesscombination, subject to the transfer restrictions imposed by the lock-upagreements. The holders of the Founder Warrants are also entitled to requirethe Company to register for resale the shares underlying the Founder Warrants whensuch warrants become exercisable by their terms. In addition, thesestockholders have certain “piggy-back” registration rights on registrationstatements filed subsequent to the date on which these securities are releasedfrom the restrictions imposed by the lock-up agreements. The Company will bearthe expenses incurred in connection with the filing of any such registrationstatements.

 

In the event that a registration statement is noteffective at the time of exercise, the holder of such warrant shall not beentitled to exercise such warrant and in no event will the Company be requiredto net cash settle the warrant exercise. Consequently, the warrants may expireunexercised.

 

The unit purchase option and its underlying securitieshave been registered in the registration statement for the Public Offering;however, the option also grants holders demand and “piggy back” registrationrights for periods of five and seven years, respectively, from the date of thePublic Offering. These rights apply to all of the securities directly andindirectly issuable upon exercise of the option. The Company will bear all feesand expenses attendant to registering the securities issuable on exercise ofthe option, other than underwriting commissions incurred and payable by theholders.

 

F-13

----

** **

**STONE TAN CHINA ACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

11.                                 QuarterlyResults of Operations (Unaudited)

 

The following table sets forth unaudited quarterlyresults of operations for the period from January 24, 2007 (inception) to December 31,2007. This unaudited quarterly information has been derived from the Company’sunaudited financial statements and, in the Company’s opinion, includes alladjustments, including normal recurring adjustments, necessary for a fairpresentation of the information for the periods covered. The operating resultsfor any quarter are not necessarily indicative of the operating results for anyfuture period.

 
| ** **                                         | ** ** | **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** | ** ** |
| Operating  expenses                                |       | $                                                          | (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 | ) |
| Net  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 |   |
| Net  income (loss)                                 |       | $                                                          | (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 |   |

 

F-14

----