Unassociated Document
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC
20549
FORM 10-K
|
|
|
þ
|
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the fiscal year ended December 31, 2008
or
|
|
|
¨
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
CHINA HEALTHCARE ACQUISITION
CORP.
(Exact
name of registrant as specified in its charter)
|
|
|
|
|
Delaware
(State
or other jurisdiction
of
incorporation)
|
|
001-33269
(Commission
File
Number)
|
|
20-5013347
(I.R.S.
Employer
Identification
No.)
|
1233
Encino Drive, Pasadena, CA 91108
(Address
of principal executive offices) (Zip Code)
(626) 568-9924
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Each
Class
|
|
Name
of Each Exchange on Which Registered
|
Common Stock, Par value $.0001
per share
|
|
New
York Stock Exchange Alternext
|
|
|
|
Common Stock Purchase
Warrants
|
|
New
York Stock Exchange Alternext
|
|
|
|
Units consisting of one share
of Common Stock
|
|
New
York Stock Exchange Alternext
|
|
|
|
and
two Warrants
|
|
|
Securities
registered pursuant to Section 12(g):
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained here, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
|
|
|
|
|
|
Large
accelerated filer ¨
|
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
|
Smaller reporting company þ
|
|
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes þ No ¨
As
of June 30, 2008, the aggregate market value of the registrant’s common
stock held by non-affiliates was approximately $55,291,316, calculated on the
basis of the closing price of the registrant’s common stock as reported by the
American Stock Exchange on such date.
As
of March 30 , 2009, 2,125,000 shares of the registrant’s common
stock, par value $0.0001 per share, were outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE:
None
CHINA HEALTHCARE ACQUISITION
CORP.
ANNUAL
REPORT ON FORM 10-K
TABLE OF CONTENTS
FORWARD-LOOKING
STATEMENTS
|
|
1
|
|
|
|
|
|
|
|
PART
I
|
|
|
|
2
|
|
Item
1.
|
|
Business
|
|
2
|
|
Item
1A.
|
|
Risk
Factors
|
|
5
|
|
Item
1B.
|
|
Unresolved
Staff Comments
|
|
12
|
|
Item
2.
|
|
Properties
|
|
12
|
|
Item
3.
|
|
Legal
Proceedings
|
|
12
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
|
12
|
|
|
|
|
|
|
|
PART
II
|
|
|
|
13
|
|
Item
5.
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
|
13
|
|
Item
6.
|
|
Selected
Financial Data
|
|
13
|
|
Item
7.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
15
|
|
Item
7A.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
16
|
|
Item
8.
|
|
Financial
Statements and Supplementary Data
|
|
16
|
|
Item
9.
|
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
|
16
|
|
Item
9A.
|
|
Controls
and Procedures
|
|
17
|
|
Item
9B.
|
|
Other
Information
|
|
19
|
|
|
|
|
|
|
|
PART
III
|
|
|
|
20
|
|
Item
10.
|
|
Directors,
Executive Officers and Corporate Governance
|
|
20
|
|
Item
11.
|
|
Executive
Compensation
|
|
23
|
|
Item
12.
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
|
24
|
|
Item
13.
|
|
Certain
Relationships and Related Transactions and Director
Independence
|
|
25
|
|
Item
14.
|
|
Principal
Accountant Fees and Services
|
|
26
|
|
|
|
|
|
|
|
Part
IV
|
|
|
|
27
|
|
Item
15.
|
|
Exhibits
and Financial Statement Schedules
|
|
27
|
|
|
|
|
|
|
|
SIGNATURES
|
|
41 |
|
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements, including, among
others, (a) our expectations about possible business combinations,
(b) our growth strategies, (c) our future financing plans, and
(d) our anticipated needs for working capital. Forward-looking statements,
which involve assumptions and describe our future plans, strategies, and
expectations, are generally identifiable by use of the words “may,” “should,”
“expect,” “anticipate,” “approximate,” “estimate,” “believe,” “intend,” “plan,”
or “project,” or the negative of these words or other variations on these words
or comparable terminology. This information may involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance,
or achievements expressed or implied by any forward-looking statements. These
statements may be found in this Report. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks outlined under “Risk
Factors” and matters described in this Report generally. In light of these risks
and uncertainties, the events anticipated in the forward-looking statements may
or may not occur. These statements are based on current expectations and speak
only as of the date of such statements. We undertake no obligation to publicly
update or revise any forward-looking statement, whether as a result of future
events, new information or otherwise, except as required by applicable law and
regulations.
The
information contained in this Report identifies important factors that could
adversely affect actual results and performance. Prospective investors are urged
to carefully consider such factors.
All
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing cautionary statements.
PART I
ITEM 1. BUSINESS
General
China Healthcare Acquisition Corp (“we”
or the “Company”) was incorporated in Delaware on June 7, 2006, in order to
serve as a vehicle for a business combination with an operating business or
businesses. Our principal executive offices are located at 1233 Encino Drive,
Pasadena, California 91108. Our website is www.chacq.com and our
phone number is 626-568-9924.
A registration statement for our
initial public offering was declared effective April 19, 2007. Our ability
to commence operations was contingent upon obtaining adequate financial
resources through a public offering of up to 8,500,000 units (“Units”). This
Offering was consummated on April 25, 2007 and we received net proceeds of
$46,448,485. Additionally on May 9, 2007, we received net proceeds of
$7,171,410 from the sale of 1,251,555 Units in conjunction with the exercise of
the underwriters’ over-allotment option by the underwriters. Prior to the
consummation of the Offering on April 25, 2007, our Chairman of the Board
of Directors purchased an aggregate of 3,000,000 warrants at $0.50 per warrant
from the Company in a private placement (the “Private Placement”). The warrants
sold in the Private Placement were identical to the warrants sold in the
Offering, but the Chairman waived his rights to receive any distribution on
liquidation in the event the Company did not complete a business combination (as
described below). The Company received net proceeds from the private placement
of the warrants of $1,500,000. The Company’s management had broad discretion
with respect to the specific application of the net proceeds, although
substantially all of the net proceeds were intended to be generally applied
toward consummating a business combination (“Business Combination”) with a
business that had operations in the People's Republic of China (“PRC”
or “China”). Upon the closing of the Offering, and the
exercise of the over-allotment option by the underwriters, $57,307,802,
including $2,133,867 of deferred underwriting fees, was placed in a trust
account (“Trust Account”) and invested in United States “government securities”
within the meaning of Section 2(a)(16) of the Investment Company Act of
1940 having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company
Act of 1940. Pursuant to our certificate of incorporation, we had to consummate
a Business Combination prior to April 19, 2009 or return the funds in the Trust
Account to holders of shares purchased in our initial public offering. At
December 31, 2008, the value of the Trust Account amounted to $57,514,170.
The Company’s Chairman agreed that he would be personally liable under certain
circumstances to ensure that the proceeds in the Trust Account (excluding
interest) were not reduced by the claims of target businesses or vendors or
other entities that were owed money by the Company for services rendered or
contracted for or products sold to the Company. This agreement terminated
effective upon early distribution of the Trust Account discussed
below. Expenses related to investigation and selection of a target
company and negotiation of an agreement to effect a Business Combination were
paid only from interest earned on the principal in the trust account. Prior to the consummation
of any Business Combination, the Company was required
to submit such transaction for stockholder approval. In the event that
stockholders owning 20% or more of the shares sold in the Offering voted against
the Business Combination and exercised their conversion rights described below,
the Business Combination would not be consummated. All of the Company’s
stockholders prior to the Offering, including all of the officers and directors
of the Company (“Initial Stockholders”), agreed to vote their founding shares of
common stock in accordance with the vote of the majority in interest of all
other stockholders of the Company (“Public Stockholders”) with respect to any
Business Combination. After consummation of a Business Combination, these voting
safeguards would no longer be applicable.
The warrants separated from the units
and began to trade separately on May 29, 2007. After separation, each
warrant entitled the holder to purchase one share of common stock at an exercise
price of $5.00. The warrants have a life of five years after which they will
expire. We have the right to redeem the warrants at $0.01 per warrant, provided
the common stock has traded at a closing price of at least $8.50 per share for
any 20 trading days within a 30 trading day period ending on the third business
day prior to the date on which notice of redemption is given. If we redeem the
warrants, the holder will either have to exercise the warrants by purchasing
our common stock for $5.00 or sell the warrants, or the warrants will
be deemed worthless. We will not be obligated to deliver securities, and there
are no contractual penalties for failure to deliver securities, if a
registration statement is not effective at the time of exercise. Additionally,
in the event that a registration statement is not effective at the time of
exercise, the holder of such warrant shall not be entitled to exercise such
warrant and in no event (whether in the case of a registration statement not
being effective or otherwise) will we be required to net cash settle the warrant
exercise. Consequently, the warrants may expire unexercised and unredeemed. We
have determined to classify in the warrants stockholders’ equity in accordance
with the guidance of EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.
In addition, we sold the underwriters
for $100, an option to purchase up to a total of 500,000 Units in connection
with our initial public offering. This option was issued upon the closing of the
Offering. The units that would be issued upon exercise of this option are
identical to those offered in the Offering, except that each of the warrants
underlying this option entitles the holder to purchase one share of our common
stock at a price of $6.25. This option is exercisable at $7.50 per Unit
commencing on the later of one year from the effective date or the consummation
of a Business Combination and may be exercised on a cashless basis. The option
has a life of five years from the effective date. The Company has no obligation
to net cash settle the exercise of the option or the warrants underlying the
option. The holder of the option will not be entitled to exercise the option or
the warrants underlying the option unless a registration statement covering the
securities underlying the option is effective or an exemption from registration
is available. If the holder is unable to exercise the option or underlying
warrants, the option or warrants, as applicable, will expire
worthless.
Our efforts in identifying a
prospective target business were not limited to a particular industry, although
we intended to focus our efforts on cash flow positive companies that have
historically generated positive earnings before interest, taxes and depreciation
in the healthcare sector in China. We considered opportunities to acquire a
business unrelated to the healthcare services sector. We were not limited to
acquiring a company in any particular industry or type of business.
We entered into a stock purchase
agreement with Europe Asia Huadu Environment Pte, Ltd., Teambest International
Limited and Madame Wang Lahua (collectively “Seller”) for the purchase of all of
the outstanding equity of Europe Asia Huadu Environment Pte, Ltd., a Singapore
company with operations in China in the water treatment and environmental
engineering industries. Effective November 10, 2008, we
and the Seller mutually agreed to terminate the stock purchase
agreement because our Board determined that it would not receive the votes of
its stockholders required for the approval of the acquisition.
In addition, our Board of Directors
determined that it was no longer possible for us to consummate a qualifying
business combination prior to April 19, 2009. Based on this
determination, our Board of Directors concluded that it was in the best
interests of stockholders to return to the holders of our shares acquired in our
initial public offering all amounts held in the Trust Account as of the date of
the distribution thereof.
On March 5, the shareholders voted in
favor of an amendment to our certificate of incorporation to allow the early
distribution (“Early Distribution”) of all amounts held in the Trust Account to
the holders of record of the shares issued in our initial public offering as of
March 5, 2009. The vote had the automatic effect of immediately
cancelling all shares issued in our initial public offering and converting such
shares into rights to receive a prorate distribution from the Trust of
approximately $5.89 per share. The Company's units separated into
their component parts: two warrants and a right to receive the distribution for
one share of common stock. Effective as of the close of business on
March 5, 2009, the Company's common stock [CHM] and units [CHM-U] held by its
public shareholders are no longer quoted on NYSE Alternext US and no longer
trade or be tradeable. The Company's warrants [CHM-WS] are no longer
quoted on NYSE Alternext US, but remain outstanding in accordance with their
terms, as disclosed in the Company's definitive proxy statement dated February
4, 2009. The Company's remaining stockholders voted to remove the
blank check company restrictions from the Company's charter, allowing the
Company to continue its corporate existence beyond its scheduled termination
date of April 19, 2009. The payment date for distribution of the
trust fund to holders of the Company's shares of common stock was March 10,
2009.
Prior to the adoption the amended and
restated certificate of incorporation at our annual meeting on March 5, 2009,
our certificate of incorporation set forth certain requirements and restrictions
that previously applied to us. Specifically, our amended and restated
certificate of incorporation provided, among other things, that:
· prior
to the consummation of our initial business combination, we would submit such
business combination to our stockholders for approval along with a proposal
to amend the amended and restated certificate of incorporation to provide for
our perpetual existence following such business combination;
· we
could consummate our initial business combination if: (i) approved by a majority
of the shares of common stock voted by the public stockholders, and (ii) public
stockholders owning less than 20% of the shares purchased by the public
stockholders exercise their conversion rights;
· if
our initial business combination were approved and consummated, public
stockholders who voted against the business combination and exercised their
conversion rights would receive their pro rata share of the trust account plus
accrued interest not applied toward working capital, and taxes payable, less any
amounts reserved for any pending claims;
· if
a business combination were not consummated within 24 months of the date of the
prospectus (April 19, 2009), then we would be dissolved and distribute to all of
our public stockholders their pro rata shares of the trust account
plus accrued interest not applied toward working capital and taxes payable, less
any amounts reserved for any pending claims; and
· we
could not consummate any other merger, capital stock exchange, stock purchase,
asset acquisition or similar transaction other than a business combination that
met our conditions, including the requirement that our initial business
combination be with one or more operating businesses whose fair market value,
either individually or collectively, was equal to at least 80% of our net assets
(excluding the deferred non-accountable expense allowance and the deferred
portion of the underwriting discount held in trust for the benefit of the
underwriters) at the time of such business combination.
These provisions were eliminated as of
March 5, 2009.
· We
are not presently engaged in, and we will not engage in, any substantive
commercial business until we consummate a business
combination. However, we may continue to seek to acquire
operating businesses whether or not they are located in China or involve the
healthcare industry. In order to fund ongoing operations, including
the cost of continuing to remain a public operating company and to pursue
acquisitions, we will need additional capital. Any such additional
financing may involve existing investors and/or new investors, including our
officers and directors. There are no current financings under
consideration. A business combination may involve the acquisition of,
or merger with, a company which does not need substantial additional capital but
which desires to establish a public trading market for its shares, while
avoiding what it may deem to be adverse consequences of undertaking a public
offering itself. These include time delays, significant expense, loss of voting
control and compliance with various Federal and state securities laws.
Alternatively, we could seek to engage in a transaction solely for the purpose
of monetizing the value of our status as a public
company. Finally, if we are unable to raise additional capital and
our board concludes to cause the Company to cease further activity, we may
dissolve under Delaware laws.
We may seek our target business
opportunities from various internal and external sources, such as personal
contacts and relationships that our officers and directors have developed and
maintain in the private equity and mergers and acquisition industry, as well as
through relationships they have developed and maintained with various
professionals, including accountants, consultants, commercial bankers,
attorneys, regional brokers and other investors.
Employees
We currently have no employees. Our
directors and officers are not obligated to devote any specific number of hours
to our matters and intend to devote only as much time as they deem necessary to
our affairs. We intend to have no full time employees prior to the consummation
of a business combination.
Available
Information
The Company electronically files
reports with the Securities and Exchange Commission (“SEC”), including annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, proxies and amendments to such reports. The public may read and copy any
materials that the Company files with the SEC at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC at http://www.sec.gov.
Additionally, information about the Company, including its reports filed with
the SEC, is available through the Company’s web site at http://www.chacq.com.
Such reports are accessible at no charge through the Company’s web site and made
available as soon as reasonably practicable after such material is filed with or
furnished to the SEC.
We have included our website address
through this filing as textual references only. The information contained on our
website is not incorporated into this Form 10-K.
ITEM
1A. RISK FACTORS
In
addition to the other information included in this report, you should also
consider the following risk factors in evaluating our prospects.
Risks associated with our
business
We
have very limited cash to fund operations
Subsequent to the Early Distribution,
we have very little cash with which to operate. Substantially all of
our current assets will be applied to pay our existing
liabilities. We will need to raise additional capital to continue
operations and to seek to complete any acquisition.
We may not be able to raise any
additional capital or if we are able to so, the terms of such financing may be
substantially dilutive to existing securities holders. If we cannot
raise any capital, we will likely dissolve without making any distributions to
shareholders and all outstanding securities would be cancelled and become
worthless.
If we are forced to file a bankruptcy
case or an involuntary bankruptcy case is filed against us which is not
dismissed, any distributions received by stockholders could be viewed under
applicable debtor/creditor and/or bankruptcy laws as either a “preferential
transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could
seek to recover all amounts received by our stockholders. Furthermore, because
we distributed the proceeds held in the trust account to our public
stockholders, this may be viewed or interpreted as giving preference to our
public stockholders over any potential creditors with respect to access to or
distributions from our assets. Furthermore, our board may be viewed as having
breached their fiduciary duties to our creditors and/or may have acted in
bad faith, and thereby exposing itself and our company to claims of punitive
damages, by paying public stockholders from the trust account prior to
addressing the claims of creditors. We cannot assure you that claims will not be
brought against us for these reasons.
Future
acquisition plans uncertain
We intend to pursue the acquisition of
one or more operating companies, subject to several important factors, including
the availability of financing and the role and level of involvement of our
current board of directors and management. We cannot assure you that
we will be able to acquire an operating business. As an alternative,
we might seek to obtain value from its status as a public shell through a sale
to or combination with an operating company seeking such status as a means
of “going public.” We cannot assure you that we will be
able to obtain any value in this manner.
Since the termination of the Stock
Purchase Agreement in November 2008, we have reduced our operations to
maintaining our contacts in the business community and conducting informal,
preliminary talks with potential acquisition candidates and others who might
provide leads and referrals to potential acquisition candidates. As
of the date of the filing of this annual report, we have no arrangements in
place with any acquisition candidates.
Need
for additional capital
We do not currently have any specific
capital-raising plans. We may seek to issue equity securities
including the reduction of the exercise price of the outstanding warrants or the
issuance of preferred securities for which we may determine the rights and
designations, common stock, warrants, equity rights, convertible notes and any
combination of the foregoing. Any such offering may take the form of
a private placement, public offering, rights offering, other offering or any
combination of the foregoing at fixed or variable market prices or discounts to
prevailing market prices. We cannot assure you that we will be able
to raise sufficient capital on favorable, or any, terms. We believe
that the issuance of equity securities in such a private financing will not be
subject to stockholder approval as our common stock is listed on a national
stock exchange. Accordingly, you may not be entitled to vote on any
future financing by us.
If we are deemed to be a “blank check
company” for the purposes of the federal securities laws, regulatory
restrictions may apply to any future public offerings by us. For more
information, see the section below entitled “ — Potential Application
of Rule 419 under the Securities Act to Future Public Offerings.”
Status
as “Shell Company” under the Federal Securities Laws
We are a “shell company” under the
federal securities laws. A “shell company” is a public reporting
company that has no or nominal assets (other than cash), and no or nominal
operations. Shell companies are subject to certain special rules
under the federal securities laws, including:
|
·
|
specific
disclosure requirements on Form 8-K upon the consummation of a transaction
that effects a change in control or changes the shell company into a
non-shell company;
|
|
·
|
limitations
in the use of certain short-form registration statements under the
Securities Act while a shell company, including Form S-8 registration
statements used in connection with employee benefit
plans;
|
|
·
|
ineligibility
for certain streamlined procedures and publicity rules in connection with
public offerings while a shell company and for a period of three years
thereafter; and
|
|
·
|
unavailability
of the resale provision of Rule 144 of the Securities Act until one year
following the Form 8-K disclosure described
above.
|
In addition, we may be deemed a “blank
check company” under federal securities laws, which could result in restrictions
on any future public offerings of our securities, as further described
below.
Potential
application of Rule 419 under the Securities Act to future public
offerings
We may be deemed a “blank check
company” for the purposes of Rule 419 promulgated under the Securities Act of
1933 (the “Securities Act”). Rule 419 imposes strict restrictions on the
handling of the proceeds received, and securities issued, in an offering
registered under the Securities Act by a “blank check company” as defined in
Rule 419, including a mandatory escrow of the offering proceeds, a process of
stockholder “reconfirmation” when a business combination is announced and a ban
on the trading of the securities sold pending the consummation of a business
combination, which must occur within 18 months of the offering.
Rule 419 defines a “blank check
company” as:
|
·
|
a
development stage company that has no specific business plan or purpose or
has indicated that its business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity or
person; and
|
|
·
|
issuing
“penny stock,” as defined in Rule 3a51-1 under the Securities Exchange Act
of 1934 (the “Exchange Act”).
|
There are several bases on which
exemptions from the application of Rule 419 exist, including raising capital
through a private offering exempt from registration under the Securities Act,
raising net proceeds in excess of $5 million in a public offering that is a firm
commitment underwritten offering and raising capital in a public offering in
connection with the acquisition of an identified company. Although we intend to
conduct any future capital raising in a manner that is exempt from Rule 419,
there can be no assurances that any future capital raising transactions will
qualify for such an exemption.
Delisting
from NYSE ALTERNEXT
Prior to March 5, 2009, our outstanding
common stock and warrants were traded on NYSE ALTERNEXT. Our common
stock and warrants were removed from listing on the NYSE ALTERNEXT on March 5,
2009. As a result there is no liquidity in our shares of common stock
and very limited liquidity in our warrants. NYSE ALTERNEXT filed a
Form 15 that purported to deregister our shares of common stock and our warrants
on June 7, 2009 and June 4, 2009 respectively. We believe that such
deregisteration will occur automatically unless we have share holders of record
or warrant holders of record of at least 300.
Status
of outstanding warrants; Effect on future capital
raising
It is our position that the warrants
will become exercisable upon the consummation of any future business combination
(subject to an effective registration statement with respect to the shares of
common stock underlying the warrants being in effect at such time). Outstanding
warrants may adversely affect our ability to attract new investors or otherwise
obtain financing and may make it more difficult to effect future
acquisitions.
Because we have
not currently selected any prospective target businesses with which to complete
a business combination, stockholders are unable to currently ascertain the
merits or risks of any particular target business’
operations.
Because we have not yet identified any
prospective target businesses, stockholders have no current basis to evaluate
the possible merits or risks of any particular target business’ operations. To
the extent we complete a business combination with a financially unstable
company or an entity in its development stage, we may be affected by numerous
risks inherent in the business operations of those entities. Although our
management will endeavor to evaluate the risks inherent in a particular target
business, we cannot assure you that we will properly ascertain or assess all of
the significant risk factors, or that we will have adequate time to complete due
diligence.
We may issue
shares of our capital stock, including through convertible debt securities, to
complete a business combination, which would reduce the equity interest of our
stockholders and likely cause a change in control of our
ownership.
Our
amended and restated certificate of incorporation authorizes the issuance of up
to 100,000,000 shares of common stock, par value $.0001 per share and 1,000,000
shares of preferred stock, par value $.0001 per share. Although we have no
commitments as of the date of this Report to issue any securities, we may issue
a substantial number of additional shares of our common stock or preferred stock
or a combination of both, including through convertible debt securities, to
complete a business combination. The issuance of additional shares of our common
stock including upon conversion of any debt securities:
|
·
|
may
significantly dilute the equity interest of investors in this
company;
|
|
·
|
will
likely cause a change in control if a substantial number of our shares of
common stock or voting preferred are issued, which may affect, among other
things, our ability to use our net operating loss carry forwards, if any,
and may also result in the resignation or removal of our present officers
and directors;
|
|
·
|
may
adversely affect the voting power or other rights of holders of our common
stock if we issue preferred stock with dividend, liquidation, compensation
or other rights superior to the common stock;
and
|
|
·
|
may
adversely affect prevailing market prices for our common stock, warrants
or units.
|
We may issue
notes or other debt securities, or otherwise incur substantial debt, to complete
a business combination, which may adversely affect our leverage and financial
condition.
Although
we have no commitments as of the date of this Report to incur any debt, we may
choose to incur a substantial amount of debt to finance a business combination.
The incurrence of debt:
|
·
|
may
lead to default and foreclosure on our assets if our operating revenues
after a business combination are insufficient to pay our debt
obligations;
|
|
·
|
may
cause an acceleration of our obligations to repay the debt even if we make
all principal and interest payments when due if we breach the covenants
contained in the terms of the debt
documents;
|
|
·
|
may
create an obligation to immediately repay all principal and accrued
interest, if any, upon demand to the extent any debt securities are
payable on demand; and
|
|
·
|
may
hinder our ability to obtain additional financing, if necessary, to the
extent any debt securities contain covenants restricting our ability to
obtain additional financing while such security is outstanding, or to the
extent our existing leverage discourages other potential
investors.
|
Our
ability to successfully effect a business combination and to be successful
afterwards will be completely dependent upon the efforts of our key personnel,
some of whom may join us following a business combination and whom we would have
only a limited ability to evaluate.
We may
employ other personnel following a business combination regardless of whether
our existing personnel remain with us. While we intend to closely scrutinize any
additional individuals we engage after a business combination, we cannot assure
you that our assessment of these individuals will prove to be correct. These
individuals may be unfamiliar with the requirements of operating a public
company as well as United States securities laws, which could cause us to have
to expend time and resources helping them become familiar with such laws. This
could be expensive and time-consuming and could lead to various regulatory
issues that may adversely affect our operations.
Our officers,
directors and special advisor may allocate their time to other businesses,
thereby causing conflicts of interests in their determination as to how much
time to devote to our affairs. This may have a negative impact on our ability to
consummate a business combination.
Our
officers, directors and special advisor are not required to, and will not,
commit their full time to our affairs, which may result in a conflict of
interest in allocating their time between our operations and other businesses.
This could have a negative impact on our ability to consummate a business
combination. We do not intend to have any full time employees prior to the
consummation of a business combination. Each of our officers is engaged in
several other business endeavors and is not obligated to contribute any specific
number of hours per week to our affairs. If Jack Kang’s and Alwin Tan’s other
business affairs require them to devote substantial amounts of time to such
affairs, it could limit their ability to devote time to our affairs and could
have a negative impact on our ability to consummate a business combination. We
cannot assure you that these conflicts will be resolved in our
favor.
Our officers,
directors and special advisor may in the future become affiliated with entities
engaged in business activities similar to those intended to be conducted by us
and, accordingly, may have conflicts of interest in determining to which entity
a particular business opportunity should be presented.
Our officers, directors and special
advisor may in the future become affiliated with entities, including other
“blank check” companies, engaged in business activities similar to those
intended to be conducted by us. However, none of our officers, directors or
special advisor currently has any affiliation with another blank check company.
Additionally, our officers, directors and special advisor may become aware of
business opportunities that may be appropriate for presentation to us as well as
the other entities with which they are or may be affiliated. Our officers,
directors and special advisor who become involved in businesses similar to what
we may intend to conduct following a business combination may have fiduciary or
contractual obligations to present opportunities to those entities first. We
cannot assure you that any such conflicts will be resolved in our
favor.
Our common stock
has become subject to the SEC’s penny stock rules, therefore, broker-dealers may
experience difficulty in completing customer transactions and trading activity
in our securities may be adversely affected.
If at any
time we have net tangible assets of $5,000,000 or less and our common stock has
a market price per share of less than $5.00, transactions in our common stock
become subject to the “penny stock” rules promulgated under the Securities
Exchange Act of 1934, as amended. We currently have net tangible
assets of less than $5,000,000 and our common stock has a
price of less than $5.00 per share. Under these rules, broker-dealers
who recommend such securities to persons other than institutional accredited
investors must:
|
·
|
make
a special written suitability determination for the
purchaser;
|
|
·
|
receive
the purchaser’s written agreement to a transaction prior to
sale;
|
|
·
|
provide
the purchaser with risk disclosure documents that identify certain risks
associated with investing in “penny stocks” and that describe the market
for these “penny stocks” as well as a purchaser’s legal remedies;
and
|
|
·
|
obtain
a signed and dated acknowledgment from the purchaser demonstrating that
the purchaser has actually received the required risk disclosure document
before a transaction in a “penny stock” can be
completed.
|
Broker-dealers may find it difficult to
effect customer transactions and trading activity in our securities may be
adversely affected. As a result, the market price of our securities may be
depressed, and you may find it more difficult to sell our
securities.
At the time of any initial business
combination, we may not be able to acquire more than one target business because
of various factors, including insufficient financing or the difficulties
involved in consummating the contemporaneous acquisition of more than one
operating company; therefore, it is probable that we will have the ability to
complete a business combination with only a single operating business, which may
have only a limited number of products or services. The resulting lack of
diversification may:
|
·
|
result
in our dependency upon the performance of a single or small number of
operating businesses;
|
|
·
|
result
in our dependency upon the development or market acceptance of a single or
limited number of products, processes or services; and subject us to
numerous economic, competitive and regulatory developments, any or all of
which may have a substantial adverse impact upon the particular industry
in which we may operate subsequent to a business combination;
or
|
|
·
|
subject
us to numerous economic, competitive and regulatory developments, any or
all of which may have a substantial adverse impact upon the particular
industry in which we may operate subsequent to a business
combination.
|
In this case, we will not be able to
diversify our operations or benefit from the possible spreading of risks or
offsetting of losses, unlike other entities that may have the resources to
complete several business combinations in different industries or different
areas of a single industry so as to diversify risks and offset losses. Further,
the prospects for our success may be entirely dependent upon the future
performance of the initial target business or businesses we
acquire.
Because of our
limited resources and the significant competition for business combination
opportunities, we may not be able to consummate an attractive business
combination.
We expect
to encounter intense competition from other entities having a business objective
similar to ours, including venture capital funds, leveraged buyout funds and
operating businesses competing for acquisitions. Many of these entities are well
established and have extensive experience in identifying and effecting business
combinations directly or through affiliates. Many of these competitors possess
greater technical, human and other resources than we do and our financial
resources will be relatively limited when contrasted with those of many of these
competitors. Our ability to compete in acquiring certain sizable target
businesses will be limited by our available financial resources. This inherent
competitive limitation gives others an advantage in pursuing the acquisition of
certain target businesses. Further:
|
·
|
our
outstanding warrants, the unit purchase option granted to the underwriters
and the future dilution they potentially represent, may not be viewed
favorably by certain target
businesses.
|
In addition, because our business
combination may entail the contemporaneous acquisition of several operating
businesses and may be with different sellers, we will need to convince such
sellers to agree that the purchase of their businesses is contingent upon the
simultaneous closings of the other acquisitions.
Any of
these obligations may place us at a competitive disadvantage in successfully
negotiating a business combination.
Our existing
stockholders, including our officers, directors and special advisor, control a
substantial interest in us and thus may influence certain actions requiring
stockholder vote.
Our
existing stockholders, including our officers, directors and special advisor,
will collectively own approximately 100% of our issued and outstanding shares of
common stock. Therefore, their vote will control the outcome of any vote put to
the stockholders.
An effective
registration statement may not be in place when an investor desires to exercise
warrants, thus precluding such investor from being able to exercise his, her or
its warrants.
No
warrants will be exercisable and we will not be obligated to issue shares of
common stock underlying such warrants unless, at the time a holder seeks to
exercise, a prospectus relating to the common stock issuable upon exercise of
the warrants is current and the common stock has been registered or qualified or
deemed to be exempt under the securities laws of the state of residence of the
holder of our warrants. Under the terms of a warrant agreement between American
Stock Transfer & Trust Company, as warrant agent, and us, we have agreed to
use our best efforts to meet these conditions and to maintain a current
prospectus relating to the common stock issuable upon exercise of the warrants
until the expiration of the warrants. However, we cannot assure you that we will
be able to do so. Additionally, we have no obligation to settle the warrants for
cash in the absence of an effective registration statement or under any other
circumstances. The warrants may be deprived of any value and the market for the
warrants may be limited if the prospectus relating to the common stock issuable
upon the exercise of the warrants is not current or if the common stock is not
qualified or exempt from qualification in the jurisdictions in which the holders
of the warrants reside. Consequently, the warrants may expire unexercised or
unredeemed.
We may redeem
your unexpired warrants prior to their exercise
We have
the ability to redeem outstanding warrants, in whole or in part, at any time
after they become exercisable and prior to their expiration, at the price of
$.01 per warrant, provided that the last reported sales price of the common
stock equals or exceeds $8.50 per share for any twenty (20) trading days
within a thirty (30) trading day period ending on the third business day,
before we send notice of redemption to warrant holders. We may not exercise the
right to redeem such warrants unless a registration statement that includes a
current prospectus is effective registering the common stock issuable on
exercise of such warrants during the redemption period.
Our outstanding
warrants may have an adverse effect on the market price of common stock and make
it more difficult to raise capital or to effect a business
combination.
To the
extent we issue shares of common stock to effect a business combination, the
potential for the issuance of substantial numbers of additional shares upon
exercise of these warrants could make us a less attractive acquisition vehicle
in the eyes of a target business as such securities, when exercised, will
increase the number of issued and outstanding shares of our common
stock and reduce the value of the shares issued to complete the business
combination. Accordingly, our warrants may make it more difficult to effectuate
a business combination or increase the cost of a target business. Additionally,
the sale, or even the possibility of sale, of the shares underlying the warrants
could have an adverse effect on the market price for our securities or on our
ability to obtain future public financing. If and to the extent these warrants
are exercised, you may experience dilution to your holdings. The outstanding
warrants may also adversely affect our ability to raise additional
capital.
Actions taken and
expenses incurred by our officers and directors on our behalf will generally not
be subject to “independent” review.
Each of
our directors owns shares of our common stock and, they receive reimbursement
for out-of -pocket expenses incurred by them in connection with activities on
our behalf such as identifying potential target businesses and performing due
diligence on suitable business combinations. There is no limit on the amount of
these out-of -pocket expenses and there will be no review of the reasonableness
of the expenses by anyone other than our board of directors, which includes
persons who may seek reimbursement, or a court of competent jurisdiction if such
reimbursement is challenged. Although we believe that all actions taken by our
directors on our behalf have been and will continue to be in our best interests,
we cannot assure you that this will be the case. If actions are taken, or
expenses are incurred that are not in our best interests, it could have a
material adverse effect on our business and operations and the price of our
stock held by the public stockholders.
Risks associated with companies with
operations primarily in China.
We have no arrangements to
acquire a company with operations in China. However, our
management continues to seek acquisition targets in China. For this
reason we discuss certain of the risks of acquiring such a company.
Economic,
political, social and other factors in China may adversely affect our ability to
acquire one or more operating businesses with operations primarily in
China.
Our ability to acquire a company with operations in China may be adversely
affected by economic, political, social and religious factors, changes in
Chinese law or regulations and the status of China’s relations with other
countries. In addition, the economy of China may differ favorably or unfavorably
from the U.S. economy in such respects as the growth rate of its gross domestic
product, the rate of inflation, capital reinvestment, resource self-sufficiency
and balance of payments position. The Chinese economy differs from the economies
of most developed countries in many respects, including:
|
·
|
the
amount of governmental involvement;
|
|
·
|
the
level of development;
|
|
·
|
the
control of foreign exchange; and
|
|
·
|
the
allocation of resources.
|
These
differences may adversely affect our ability to acquire one or more businesses
with operations primarily in China. Also, while the Chinese economy has
experienced significant growth in the past 20 years, growth has been
uneven, both geographically and among various sectors of the economy. The
Chinese government has implemented various measures to encourage economic growth
and guide the allocation of resources. Some of these measures benefit the
overall Chinese economy, but may also have a negative effect on us if we do
acquire an operating business or businesses in China. For example, our financial
condition and results of operations may be adversely affected by government
control over capital investments or changes in tax regulations that are
applicable to us.
The Chinese
government’s control over the national economy and economic growth in China
could adversely affect our business.
The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy. Although in recent years the Chinese government has
implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China is still owned by the
Chinese government. The continued control of these assets and other aspects of
the national economy by the Chinese government could materially and adversely
affect our business. The Chinese government also exercises significant control
over Chinese economic growth through the allocation of resources, controlling
payment of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. Efforts
by the Chinese government to slow the pace of growth of the Chinese economy
could result in decreased capital expenditures by the public which in turn could
reduce demand for goods and services.
Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on overall economic growth and the level of
investments and expenditures in China, including in those related to healthcare,
which in turn could lead to a reduction in demand for our products and
consequently have a materially adverse effect on our business.
Because the
Chinese judiciary, which is relatively inexperienced in enforcing corporate and
commercial law, will determine the scope and enforcement under Chinese law of
almost all of our target business’ agreements, we may be unable to enforce our
rights inside and outside of China.
Chinese
law will govern almost all of our target business’ agreements, some of which may
be with Chinese governmental agencies. We cannot assure you that the target
business will be able to enforce any of its material agreements or that remedies
will be available outside of the PRC. The Chinese judiciary is relatively
inexperienced in enforcing corporate and commercial law, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. The
inability to enforce or obtain a remedy under any of our future agreements may
have a material adverse impact on our operations.
If the United
States imposes trade sanctions on the PRC due to its currency policies, our
target business’ ability to succeed in the international markets may be
diminished.
The
PRC currently “pegs” its currency to the United States dollar. This means that
each unit of Chinese currency has a set ratio for which it may be exchanged for
United States currency, as opposed to having a floating value like other
countries’ currencies. China has recently allowed its currency to advance
slightly against the U.S. dollar. This policy is currently under review by
policy-makers in the United States. Trade groups in the United States have
blamed the cheap value of the Chinese currency for causing job losses in
American factories, giving Chinese exporters an unfair advantage and making
exports to China expensive. There is increasing pressure for the PRC to change
its currency policies to provide for its currency to float freely on
international markets. As a result, Congress has passed a bill that would
require the United States Secretary of the Treasury to report to Congress
whether the PRC is manipulating its currency to gain a trade advantage. If
Congress deems this to be the case, tariffs could be imposed on Chinese imports
in addition to those already in force. If an additional tariff is imposed, it is
possible that China-based companies will no longer maintain the significant
price advantages over foreign companies, including the United States, on their
goods and services. If the PRC changes its existing currency policies or if the
United States or other countries enact laws to penalize the PRC for its existing
currency policies, our target companies are likely to be adversely affected
since the current competitive advantages that exist as a result of existing
currency policies will cease.
Exchange controls
that exist in the PRC may limit our ability to utilize our cash flow effectively
following a business combination.
Following a business combination with a company with
operations in China, we will be subject to the PRC’s rules and regulations on
currency conversion. In the PRC, the State Administration for Foreign Exchange
(SAFE) regulates the conversion of Renminbi into foreign currencies.
Currently, foreign investment enterprises (FIEs) are required to apply to the
SAFE for “Foreign Exchange Registration Certificates for FIEs.” Following a
business combination, we will likely be an FIE as a result of our business
structure. FIEs holding such registration certificates, which must be renewed
annually, are allowed to open foreign currency accounts, including a “basic
account” and “capital account.” Currency translation within the scope of the
“basic account,” such as remittance of foreign currencies for payment of
dividends, can be effected without requiring the approval of the SAFE. However,
conversion of currency in the “capital account” including capital items such as
direct investment, loans and securities, still require approval of the SAFE. We
cannot assure you that the PRC regulatory authorities will not impose further
restrictions on the convertibility of the Renminbi. Any future restrictions on
currency exchanges may limit our ability to use our cash flow for the
distribution of dividends to our shareholders or to fund operations we may have
outside of the PRC.
New Chinese
Regulations Regarding Cross Border Mergers and Acquisitions Make Acquisitions
More Difficult
The PRC State Administration of
Foreign Exchange (“SAFE”) has formulated internal implementation rules and
guidelines (known as “Implementation Notice No. 106”) clarifying SAFE’s
Notice No. 75 (the “Implementation Rules”). The Implementation Rules were
promulgated on May 29, 2007.
The
Implementation Rules, among other matters:
|
·
|
Introduce
length of qualitative financial and operation requirements (three years of
financial information) for candidate onshore
companies;
|
|
·
|
Require
SAFE registration of option plans;
|
|
·
|
Require
documentary evidence of source of foreign exchange in excess of
US$50,000;
|
|
·
|
Introduce
qualitative guidelines for retroactive SAFE applications;
and
|
|
·
|
Clarify
of the definition of PRC residency.
|
Pursuant to the Implementation Rules, when an
offshore special purpose vehicle (“SPV”) with PRC residents as shareholders
either establishes an onshore subsidiary or engages in a cross-border merger or
acquisition a Ministry of Commerce (“MOC”) approval letter for the round-trip
investment and the MOC approval certificate will now be required in connection
with the SAFE registration.
Furthermore,
the offshore SPV now must have been in operation and in a similar line of
business for at least three years prior to the application in order to qualify,
and the shareholding structure and management team of the offshore SPV must
mirror that of the shareholding of the PRC target company. It is unclear how the
foregoing restriction will impact transactions involving internet and mobile
companies where certain shareholding limitations are mandated by PRC
law.
With
respect to an SPV that has completed the round-trip investment (i.e. the onshore
subsidiary has obtained its foreign exchange certificate) but has missed the
March 31, 2006 registration deadline, the SPV may now submit a retroactive
registration application, provided that there has been no payment of any funds
by the onshore subsidiary to the SPV since April 21, 2005 in the form of a
dividend, profit sharing payment, liquidation proceeds, capital reduction, or
loan repayment. In the event such a payment has occurred, SAFE may impose
penalties on the applicants and/or the onshore subsidiary for the evasion of
foreign exchange laws and regulations. For SPVs which have not completed
round-trip investment (the onshore subsidiary has not obtained a foreign
exchange certificate) a retroactive registration may be completed by following
the ordinary procedures and filing a new registration.
The enforcement of the Implementation Rules by various
SAFE Bureaus is currently without uniformity.
The Implementation Rules may reflect
Chinese governmental policies intended to encourage Chinese emerging companies
to list on domestic exchanges. We anticipate that there will be further rules
and regulations coming from key regulatory bodies that will make investing in
China from offshore funds increasingly difficult.
If certain tax
exemptions within the PRC regarding withholding taxes are removed, we may be
required to deduct corporate withholding taxes from any dividends we may pay in
the future.
Under the PRC’s current tax laws, regulations and
rulings, companies are exempt from paying withholding taxes with respect to
dividends paid to stockholders outside of the PRC. However, if the foregoing
exemption is removed in the future following a business combination, we may be
required to deduct certain amounts from dividends we pay to our shareholders to
pay corporate withholding taxes. The current rate imposed on corporate
withholding taxes is 20%, or 10% for individuals and entities of those countries
that entered into the Protocol of Avoidance of Double Taxation with the
PRC.
China has
different corporate disclosure, governance and regulatory requirements than
those in the United States which may make it more difficult or complex to
consummate a business combination.
Companies
in China are subject to accounting, auditing, regulatory and financial standards
and requirements that differ, in some cases significantly, from those applicable
to public companies in the United States, which may make it more difficult or
complex to consummate a business combination. In particular, the assets and
profits appearing on the financial statements of a Chinese company may not
reflect its financial position or results of operations in the way they would be
reflected had such financial statements been prepared in accordance with U.S.
Generally Accepted Accounting Principles (GAAP). There is substantially less
publicly available information about Chinese companies than there is about
United States companies. Moreover, companies in China are not subject to the
same degree of regulation as are United States companies with respect to such
matters as insider trading rules, tender offer regulation, shareholder proxy
requirements and the timely disclosure of information.
To
meet the requirements of the United States Federal securities laws, in order to
seek stockholder approval of a business combination, a proposed target business
will be required to have certain financial statements which are prepared in
accordance with, or which can be reconciled to GAAP and audited in accordance
with U.S. Generally Accepted Auditing Standards (GAAS). GAAP and GAAS compliance
may limit the potential number of acquisition targets.
Legal
principles relating to corporate affairs and the validity of corporate
procedures, directors’ fiduciary duties and liabilities and shareholders’ rights
for Chinese corporations may differ from those that may apply in the U.S., which
may make the consummation of a business combination with a Chinese company more
difficult. We therefore may have more difficulty in achieving our business
objective.
If political
relations between the U.S. and China weaken, it could make a target business’
operations less attractive.
The
relationship between the United States and China may deteriorate over time.
Changes in political conditions in China and changes in the state of
Chinese-U.S. relations are difficult to predict and could adversely affect our
future operations or cause potential target businesses to become less
attractive. This could lead to a decline in our profitability. Any weakening of
relations with China could have a material adverse effect on our operations
after a successful completion of a business combination.
ITEM
1B. UNRESOLVED STAFF
COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
We
maintain our executive offices at 1233 Encino Drive, Pasadena, CA 91108. NCIL,
an affiliate of Alwin Tan, our Chief Executive Officer and President and a
Director has agreed to make available to us certain limited administrative,
technology, and secretarial services, as well as the use of certain limited
office space. We have agreed to pay NCIL $5,000 per month for these services.
These arrangements are solely for our benefit and are not intended to provide
Mr. Alwin Tan compensation in lieu of salary. We believe, based upon rents
and fees for similar services in the Los Angeles area, that the fee charged by
NCIL is at least as favorable as that we could have obtained from an
unaffiliated person.
ITEM
3. LEGAL PROCEEDINGS
None.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No
matters were submitted to a vote of our shareholders in 2008.
PART
II
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUERPURCHASES OF EQUITY
SECURITIES
|
Market Price
Information
The
shares of our common stock, warrants and units are traded on the NYSE Alternext,
under the symbols “CHM,” “CHM.WS” and “CHM.U,” respectively. Each of our units
consists of one share of our common stock and two warrants. Our common stock and
warrants commenced to trade separately from our units on May 29, 2007.
However, transactions in our units continue to occur on the NYSE
Alternext.
The
following table sets forth, for the calendar quarters indicated, the quarterly
high and low sale prices for our common stock, warrants and units as reported on
the NYSE Alternext.
|
|
Common
Stock
|
|
|
Warrants
|
|
|
Units
|
|
|
|
(CHM)
|
|
|
(CHM.WS)
|
|
|
(CHM.U)
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter
|
|
$ |
5.60 |
|
|
$ |
5.40 |
|
|
$ |
0.79 |
|
|
$ |
0.45 |
|
|
$ |
6.80 |
|
|
$ |
5.94 |
|
Third
Quarter
|
|
$ |
5.83 |
|
|
$ |
5.83 |
|
|
$ |
0.63 |
|
|
$ |
0.27 |
|
|
$ |
6.65 |
|
|
$ |
6.00 |
|
Fourth
Quarter
|
|
$ |
5.95 |
|
|
$ |
5.40 |
|
|
$ |
0.66 |
|
|
$ |
0.30 |
|
|
$ |
6.60 |
|
|
$ |
6.00 |
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
5.65 |
|
|
$ |
5.45 |
|
|
$ |
0.30 |
|
|
$ |
0.15 |
|
|
$ |
6.05 |
|
|
$ |
5.76 |
|
Second
Quarter
|
|
$ |
5.75 |
|
|
$ |
5.57 |
|
|
$ |
0.22 |
|
|
$ |
0.15 |
|
|
$ |
6.05 |
|
|
$ |
5.60 |
|
Third
Quarter
|
|
$ |
5.80 |
|
|
$ |
4.92 |
|
|
$ |
0.30 |
|
|
$ |
0.15 |
|
|
$ |
6.16 |
|
|
$ |
5.50 |
|
Fourth
Quarter
|
|
$ |
5.82 |
|
|
$ |
5.20 |
|
|
$ |
0.15 |
|
|
$ |
0.00 |
|
|
$ |
5.70 |
|
|
$ |
4.95 |
|
Number of Holders of
Securities
The
number of holders of record on December 31, 2008 of our common stock was
nine, of our warrants was two, and our units was one, which amount does not
include beneficial owners of securities.
Dividend Policy
We
have not paid any dividends on our common stock to date and do not intend to pay
dividends prior to the completion of a business combination. The payment of
dividends in the future will be contingent upon our revenues and earnings, if
any, capital requirements and general financial condition subsequent to
completion of a business combination. The payment of any dividends subsequent to
a business combination will be within the discretion of our board of directors.
It is the present intention of our board of directors to retain all earnings, if
any, for use in our business operations and, accordingly, our board does not
anticipate declaring any dividends in the foreseeable future.
Equity Compensation
Plan
We
have not established any compensation plans (including individualized
compensation arrangements) under which any of our equity securities are
authorized for issuance.
ITEM
6. SELECTED FINANCIAL
DATA
Results of
Operations
The
following tables sets forth selected historical financial information derived
from our audited consolidated financial statements included elsewhere in this
report for 2008 and for the periods from June 7, 2006 (inception) to
December 31, 2008 and as of December 31, 2008 and 2007. The
following data should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our financial
statements including the notes thereto, included elsewhere in this
report.
Statement of Operations
Information:
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
June
7, 2006
|
|
|
|
|
|
|
|
|
|
|
(inception)
to
|
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
December
31, 2008
|
|
|
|
December
31, 2008
|
|
|
December
31,2007
|
|
|
(Cumulative)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
$
|
783,952
|
|
|
$
|
1,799,469
|
|
|
$
|
2,583,421
|
|
Formation
and Operating Cost
|
|
|
900,526
|
|
|
|
404,396
|
|
|
|
1,307,922
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss)
|
|
$
|
(116,574)
|
|
|
$
|
1,395,073
|
|
|
$
|
1,275,499
|
|
Provision
for Income Tax
|
|
|
2,260
|
|
|
|
476,863
|
|
|
|
479,123
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(118,834)
|
|
|
$
|
918,210
|
|
|
$
|
796,376
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share Basic and diluted
|
|
$
|
(0.01)
|
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding Basic and diluted
|
|
|
11,876,555
|
|
|
|
8,724,297
|
|
|
|
8,660,477
|
|
Balance Sheet
Information:
|
|
As
of
|
|
|
As
of
|
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
801,965
|
|
|
$
|
850,870
|
|
Investments
held in trust
|
|
$
|
57,514,171
|
|
|
$
|
57,489,612
|
|
Prepaid
expense
|
|
$
|
33,712
|
|
|
$
|
51,375
|
|
Prepaid
income tax
|
|
$
|
55,000
|
|
|
$
|
-
|
|
Fixed
assets net of depreciation
|
|
$
|
4,674
|
|
|
$
|
4,744
|
|
Total
assets
|
|
$
|
58,409,522
|
|
|
$
|
58,396,601
|
|
Deferred
underwriting fees
|
|
$
|
2,133,867
|
|
|
$
|
2,133,867
|
|
Total
liabilities
|
|
$
|
2,359,209
|
|
|
$
|
2,376,832
|
|
Common
Stock and interest subject to possible conversion
|
|
$
|
11,178,643
|
|
|
$
|
11,029,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$
|
44,871,670
|
|
|
$
|
44,990,504
|
|
Quarterly Results of
Operations
The
following table sets forth unaudited operating data for each quarter of 2008.
This quarterly information was prepared on the same basis as our annual
consolidated financial statements and, in the opinion of management, reflects
all significant adjustments (consisting primarily of normal recurring
adjustments) necessary for a fair presentation of results of operations for the
periods presented.
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Net
income (loss)
|
|
$
|
15,880
|
|
|
$
|
40,775
|
|
|
$
|
(15,183
|
)
|
|
$
|
(160,306
|
)
|
Basic
and diluted income (loss) per share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.01)
|
|
Item 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our financial
statements and the related notes and schedules thereto included in this
Report.
We
were formed on June 7, 2006, for the purpose of acquiring, through a
merger, capital stock exchange, asset acquisition or other similar business
combination, an operating business with operations primarily in the People’s
Republic of China. Prior to the Early Distribution in March 2009, our
initial business combination was required to be with a target business whose
fair market value is at least equal to 80% of our net assets (excluding the
deferred underwriting compensation held in trust) at the time of such
acquisition. We intended to use cash derived from the proceeds of our
initial public offering and private placement, our capital stock, debt or a
combination of cash, capital stock and debt, to effect such business
combination. As noted elsewhere herein, we distributed substantially
all of our assets in the Early Distribution and amended and restated our
certificate of incorporation to remove, among other things, the provision
limiting the types of acquisitions we could pursue.
We
were actively searching for a suitable business combination candidate and
conducted due diligence and had discussions with several potential target
businesses. We currently have not entered into any definitive agreements with
any potential target businesses. We will continue to meet with target companies,
service professionals and other intermediaries to discuss our company, the
background of our management and our combination preferences.
On August
6, 2008, the Company and Europe Asia Huadu Environment Pte., Ltd., TeamBest
International Limited, and Madame Wang Lahua (collectively, “Seller”) signed a
definitive stock purchase agreement (“Stock Purchase Agreement”). Effective
November 10, 2008, the Company and Seller mutually agreed to terminate the Stock
Purchase Agreement among them.
RESULTS OF
OPERATIONS
Net
Income
Net
loss for 2008 was $188,834 compared to net income of $918,210 for 2007. Our
initial public offering closed in April 2007 which generated the assets on
which interest income was earned during 2007 and 2008. Prior to our initial
public offering we had no income generating assets. Income of $783,952 for 2008
was offset by operating costs of $837,776, Delaware franchise tax of $62,750 and
provision for income taxes of $2,260. Operating costs include expenses incurred
in connection with due diligence on several potential candidates, including
travel expenses, professional fees and other expenses.
CHANGES
IN FINANCIAL CONDITION
Liquidity and
Capital Resources
On
April 16, 2007 we entered in to an agreement with the Chairman of our Board
of Directors for the sale of 3,000,000 warrants in a private placement. Each
warrant entitles the holder to purchase from us one share of our common stock at
an exercise price of $5.00. The warrants were sold at a price of $0.50 per
warrant, generating net proceeds of $1,500,000.
On
April 25, 2007 we consummated our initial public offering of 8,500,000
units, and on May 9, 2007 sold an additional 1,251,555 units attributable
to the exercise of the underwriters’ over-allotment option. Each unit consists
of one share of common stock and two warrants. Each warrant entitles the holder
to purchase from us one share of our common stock at an exercise price of $5.00.
Our common stock and warrants commenced trading separately on May 29,
2007.
The
net proceeds from the sale of the units in the initial public offering
(including the over-allotment option) and the private placement were $57,307,802
after deducting offering expenses of approximately $800,000 but including the
deferred non-accountable expense allowance and the deferred portion of the
underwriting discounts of approximately $2,133,867. As of December 31, 2008, we
had sufficient funds for our operations. All amounts held in trust were
distributed on March 10, 2009 to holders of our shares of common stock that was
issued in our initial public offering. As a result, we have nominal
assets.
As
of June 7, 2006, Mr. Kang lent a total of $150,000 to the Company for
payment of offering expenses which was repaid without interest at closing out of
offering proceeds. Upon the consummation of our initial public offering,
Mr. Kang lent $150,000 to the Company which was deposited in our operating
account and bears interest at a rate of 4% per year. On April 25, 2008, the loan
was repaid to Jack Kang with a check in the amount of $156,000, which represents
the principal and interests for the note.
We
have agreed to pay NCIL, an affiliate of Alwin Tan, a monthly fee of $5,000 for
general and administrative services including office space, utilities and
secretarial support.
Off-Balance Sheet
Arrangements
Options
and warrants issued in conjunction with our initial public offering are equity
linked derivatives and accordingly represent off balance sheet arrangements. The
options and warrants meet the scope exception in paragraph 11(a) of FAS 133 and
are accordingly not accounted for as derivatives for purposes of FAS 133, but
instead are accounted for as equity.
Other
than contractual obligations incurred in the normal course of business, we do
not have any off-balance sheet financing arrangements or liabilities, guarantee
contracts retained or contingent interests in transferred assets or any
obligation arising out of a material variable interest in an unconsolidated
entity.
Contractual
Obligations
We do not have any long-term
contractual obligations.
ITEM
7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. We are not presently engaged in any substantive commercial business.
Accordingly, we are not and, until such time as we consummate a business
combination, we will not be, exposed to risks associated with foreign exchange
rates, commodity prices, equity prices or other market-driven rates or prices.
The net proceeds of our initial public offering held in the trust fund were
invested by the trustee only in U.S. “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940 having a maturity
of 180 days or less, or in money market funds meeting certain conditions
under Rule 2a-7 promulgated under the Investment Company Act of 1940. These
funds were distributed to holders of shares issued in our public offering on
March 10, 2009.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Financial
statements are attached hereto beginning with page 30 in Part IV
Item 15.
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
On January 14, 2008, China
Healthcare Acquisition Corp. (the “Company”) dismissed Goldstein Golub Kessler
LLP (“GGK”), the Company’s independent registered public accounting firm.
Goldman Parks Kurland Mohidin, LLP was subsequently engaged as the Company’s new
independent registered public accounting firm on January 14,
2008.
The audit
report of GGK on the financial statements of the Company at May 9, 2007,
December 31, 2006 and June 15, 2006 and for the period from January 1, 2007 to
May 9, 2007, the cumulative period from June 7, 2006 (inception) to May 9, 2007,
the period from June 7, 2006 (inception) to December 31, 2006, and the period
from June 6, 2006 (inception) to June 15, 2006, did not contain an adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the audit report
on the financial statements for the period ended December 31, 2006 included a
going concern explanatory paragraph.
During
the period from June 7, 2006 (inception) to December 31, 2007 and through
January 14, 2008, there were: (i) no disagreements between the Company and GGK
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of GGK, would have caused GGK to make reference to
the subject matter of the disagreement in their reports on the Company’s
financial statements for such years, and (ii) no reportable events within the
meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
During
the Company’s two most recent fiscal years ended December 31, 2006 and 2007 and
through the period prior to the engagement of GPKM, the Company did not consult
with GPKM on (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that may
be rendered on the Company’s financial statements, and GPKM did not provide
either a written report or oral advice to the Company that GPKM concluded was an
important factor considered by the Company in reaching a decision as to any
accounting, auditing, or financial reporting issue; or (ii) any matter that was
the subject of any disagreement, as defined in Item 304(a)(1)(iv) of Regulation
S-K and the related instructions, or a reportable event within the meaning set
forth in Item 304(a)(1)(v) of Regulation S-K.
The
decision to engage Goldman Parks Kurland Mohidin, LLP was approved by the audit
committee of the Company’s board of directors.
ITEM
9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and
Procedures
Alwin
Tan (our principal executive officer) and Steven Wang (our principal financial
and accounting officer) carried out an evaluation of the effectiveness of our
disclosure controls and procedures as of December 31, 2008. Based upon that
evaluation, they concluded that our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 (the “Exchange
Act”) is recorded, processed, summarized and reported, within the time periods
specified under the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures, no matter how well designed and implemented,
can provide only reasonable assurance of achieving an entity’s disclosure
objectives. The likelihood of achieving such objectives is affected by
limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal control can occur because of human failures such as simple errors or
mistakes or intentional circumvention of the established
process.
Management’s
Report On Internal Control Over Financial Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
·
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and the dispositions of the assets of the
Company;
|
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorization of management and the
board of directors of the Company;
and
|
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluations of effectiveness
to future periods are subject to risk that controls may become inadequate
because of changes in conditions or because of declines in the degree of
compliance with the policies or procedures.
Our management, with the participation
of the Chief Executive Officer and Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008. In making this assessment, the Company’s management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework.
Based on this evaluation, our
management, with the participation of the Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2008, our internal control
over financial reporting was effective.
Alwin
Tan
|
|
Steven
Wang
|
Chief
Executive Officer
|
|
Chief
Financial Officer
|
March 18,
2009
This annual report on Form 10-K does
not include an attestation report of our registered public accounting firm
regarding internal controls over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the SEC that permit us to provide only
management’s report in this annual report on Form 10-K.
There has
not been any change in our internal control over financial reporting in
connection with the evaluation required by Rule 13a-15(d) under the
Exchange Act that occurred during the quarter ended December 31, 2008 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
Not
Applicable
PART
III
ITEM
10. DIRECTORS, EXECUTIVES AND
CORPORATE GOVERNANCE
MANAGEMENT
Our
current directors, executive officers and special advisor are as
follows:
Name
|
|
Age
|
|
Position
|
Jack
Kang (1)
|
|
52
|
|
Chairman
of the Board
|
|
|
|
|
|
Alwin
Tan (1)
|
|
70
|
|
Chief
Executive Officer, President and Director
|
|
|
|
|
|
Steven
Wang
|
|
62
|
|
Chief
Financial Officer and Treasurer
|
|
|
|
|
|
Mark
Tan
|
|
41
|
|
Vice
President and Secretary
|
|
|
|
|
|
James
Ma (2)
|
|
56
|
|
Director
|
|
|
|
|
|
Ron
Harrod (2)
|
|
78
|
|
Director
|
|
|
|
|
|
Richard
Prins (3)
|
|
51
|
|
Director
|
|
|
|
|
|
Stanley
Chang
|
|
67
|
|
Special
Advisor
|
|
|
|
|
|
(1) Class
III Term Expiring in 2011
(2) Class
II Term Expiring in 2010
(3) Class
I Term Expiring in 2012
The Board
of Directors has determined that, James Ma, Ron Harrod and Richard Prins are
independent directors within the meaning set forth in the listing standards of
NYSE ALTERNEXT.
Board
of Directors
Jack Kang has been our
Chairman of the Board since our inception on June 7, 2006. Mr. Kang’s
Chinese name is Jian Kang. Mr. Kang has been the Chief Executive Officer
and Director of Searainbow Holding Corp. since 1997. It is a China Listed
company (Shenzhen Index) with a market value of about $960 million (Stock
code: 000503). Currently, Searainbow’s businesses mainly involve medical
e-commerce and digital entertainment. The medical e-commerce sector mainly
focuses on (a) public bidding and procurement of drugs and medical
instruments determined and organized by local governments and administrative
departments; (b) electronic pharmaceutical and medical instruments exchange
markets conducted by enterprises; (c) e-government service; and
(d) medical service, data service and various other value-added services
including member services, online advertising, search engines, sales promotions,
and technology services. He received a Bachelor’s Degree in Economics from
RENMIN University of China in 1982 and is a member of the National Committee of
the Chinese People’s Political Consultative Conference and a Visiting Professor
of RENMIN University of China.
Alwin Tan has been our Chief
Executive Officer, President and a Director since our inception on June 7,
2006. Mr. Tan has over 30 years experience in private equity, mergers
and acquisitions. He was a consultant to Amphastar Pharmaceuticals, Inc.
(1998-2004), a privately held specialty pharmaceutical company in Rancho
Cucamonga, California that develops, manufactures, markets, and sells generic
and proprietary injectable and inhalation products. From 1998 to 2003,
Mr. Tan was a Director and Secretary of International Medication System
Limited, a specialty pharmaceutical company currently wholly owned by Amphaster
Pharmaceuticals that develops, manufactures, markets, and sells generic and
proprietary products in El Monte, California. He was the President and Chief
Executive Officer of Ameribankers Corp. from 1995 to 2002, which was a privately
owned consulting firm that assisted clients in all areas of strategic planning.
From 1992-1994, Mr. Tan was a consultant to the State Planning Commission
of the People’s Republic of China. Tan received his LL.B. in 1967 and his J.D.
in 1969 from the University of Iowa. He received a B.A. from Walla Walla College
in 1963. Alwin Tan is Mark Tan’s father.
James Ma has been our
Director since our inception on June 7, 2006. Mr. Ma is presently the
Chief Executive Officer and President of SIUI America, Inc., his privately held
technology-driven medical ultrasound company located in the Silicon Valley,
California since 1999. His company has a subsidiary, Sonic Systems Co., which
does business in Hong Kong and China. Mr. Ma holds an MBA and BBA from the
University of Iowa and has completed a number of engineering research and
training programs in Hong Kong and China.
Ron Harrod has been our
Director since his election and appointment on January 24, 2008. He
was also named to the Audit Committee of the Board. He had been our
Special Advisor since our inception on June 7,
2006. Mr. Harrod has over five decades of experience in
all phases of investment and financial management. He has been a registered
Principal of WBB Securities LLC since 2001. From 1989 through 2001,
Mr. Harrod was a Principal of Securities of America, Inc. Mr. Harrod
attended the University of Southern California and University of California Long
Beach, earning a BA degree.
Richard Prins has been a director
since March 5, 2009. He was the Director of
Investment Banking for Ferris, Baker Watts, Inc. (“FBW”) from 1996 until
June of 2008 when FBW was acquired by Royal Bank of Canada. At FBW,
he managed all of the firm's industry groups and product offerings including
public offerings, mergers and acquisitions, private placements, restructurings,
as well as other corporate advisory services. He was also responsible
for executing a variety of transactions. Mr. Prins has
25 years of experience in all aspects of corporate finance and has
participated directly in more than 150 transactions with both private and public
companies across a number of industries in North America and Asia.
Mr. Prins is currently a special consultant to Royal Bank of Canada Capital
Markets. Prior to FBW, Mr. Prins was a Managing Director for 8 years
at Crestar Bank (now SunTrust Bank) in charge of Mergers and Acquisitions. Mr.
Prins began his career as the Assistant to the Chairman of the leverage buyout
company, Tuscarora Corporation. He currently serves on the Board of
Directors of India Globalization Capital and Amphastar Pharmaceuticals. He also
serves on the Board of Advancing Native Missions and on the Board of Hope
Foundation, a non-profit organization. Mr. Prins received a B.A.
in liberal arts from Colgate University and an M.B.A. from Oral Roberts
University.
Executive
Officers
Mark Tan has been our Vice
President for Strategic Planning and Secretary since our inception on June 7,
2006. Mr. Tan is an experienced business development and strategy professional.
He has extensive experience in the wireless and telecom industry, has held
leadership roles in both start-up and larger corporate environments, and has
significant experience providing financial and management consulting advice to
Fortune 500 companies. Mr. Tan was formerly the West Region Director of the
Strategy and Technology Group for inCode Telecom. In this capacity, he provided
strategic and technology consulting advice to the wireless industry, and
consulted for technology clients in various parts of Asia, including Singapore,
China, and South Korea. Prior to inCode, Mr. Tan worked at Epinions.com
(1999-2001), where he managed strategic partnerships and led business
development activities. From 1997 to 1999, he was the Assistant Vice President
for Marketing and Business Development for GoAmerica Communications. In this
capacity, he negotiated strategic partnerships and established relationships
with content providers, device manufacturers, channel partners, application
developers, and network carriers. From 1996 to 1997, Mr. Tan was a Business
Manager at Qualcomm where he managed CDMA infrastructure business opportunities
throughout Southeast Asia. From 1990 to 1994, he worked in the Merger &
Acquisitions and Financial Advisory Group at Coopers & Lybrand where he
performed financial and strategic analyses of companies involved in mergers and
acquisitions and other strategic transactions, divestitures, leveraged buyouts,
recapitalizations, and bankruptcies. Mark Tan holds a BS in Economics from the
University of California at Los Angeles and an MBA with an emphasis in Marketing
and Corporate Strategy from the University of Michigan. Mark Tan is Alwin Tan’s
son.
Steven Wang has been our
Chief Financial Officer and Treasurer since our inception on June 7, 2006.
He served as our Director from our inception until his resignation on January
24, 2008. Mr. Wang’s Chinese name is Shixian Wang. From 1993 to the
present, he has been the President of Cosmos Machinery Corp., a consulting firm,
involved in media planning, trading of machinery/equipment, and environmental
projects and internet start-ups. In addition, he was a sales consultant from
January 2005 to December 2005 at Allied Masonry and Construction, Inc. and from
January 2006 to May 2006 at Quality Pre-Cast Company, in each case, on a
part-time basis. From 1989 to 1992, he was the Chief Financial Officer of Sher
Corporation, a privately-held real estate development company. He attended
Shanghai Teachers University, Graduate School of China Academy of Sciences and
Cal State LA, School of Business. He received his MSBA from Cal State Northridge
in 1986, with emphasis on Accountancy.
Executive
officers are appointed by and serve at the pleasure of the Board of
Directors.
Special
Advisor
Stanley Chang has been our
Special Advisor since our inception on June 7, 2006. Dr. Chang has
been the President of Megaspace Corp. since 1994 which is a sales agent for many
petrochemical equipment manufacturers around the world including Air Products
and Chemicals, Coek Engineering N.V., Ellett Industries, FES, Foster-Wheeler,
Fisher-Klosterman, JND, Nowata Fitration, Struthers-Wells, Uraca, Vicarb.
Dr. Chang was the Vice President and Director of Ameribankers Corp. from
1995 to 2000. Dr. Chang received a Ph.D. from Stony Brook University, MSME
from Syracuse University and BSME from National Cheng Kung University,
Taiwan.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities
Exchange Act requires our directors, executive officers and persons who own more
than 10% of our common stock to file reports of ownership and changes in
ownership of our common stock with the Securities and Exchange Commission.
Directors, executive officers and persons who own more than 10% of our common
stock are required by Securities and Exchange Commission regulations to furnish
to us copies of all Section 16(a) forms they file. To our knowledge, based
solely upon review of the copies of such reports received or written
representations from the reporting persons, we believe that during the year
ended December 31, 2007, our directors, executive officers and persons who own
more than 10% of our common stock complied with all Section 16(a) filing
requirements, other than James Ma who did not timely file a Form 4 with respect
to the acquisition of 3,000 units.
GOVERNANCE
Board
Meetings and Committees
The Board met on three occasions
during the year ended December 31, 2008. Except for Larry Liou who
resigned earlier this year, each director attended at least 75% of the aggregate
of (i) the total number of meetings of the Board; and (ii) the total number of
meetings held by all committees of the Board on which he served. There is one
committee of the Board: the Audit Committee.
Each director is expected to make
reasonable efforts to attend Board meetings, committee meetings of which such
director is a member and the annual meeting of Shareholders.
Director
Independence
Applicable NYSE ALTERNEXT rules would
require that at least 50% of our Board of Directors be
independent. Our Board of Directors considers each of the directors
to be independent as defined by applicable NYSE ALTERNEXT rules, with the
exceptions of Messrs. Kang and Tan. In making this determination our
Board of Directors has concluded that none of the independent directors has a
relationship, that in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director.
Audit
Committee
The current members of the Audit
Committee are James Ma and Ron Harrod. The Audit Committee is
governed by a charter, which was adopted on July 11, 2006. A copy of
the charter was previously filed with the Securities and Exchange Commission as
an exhibit to our registration statement (File 333-135705).
The Board has determined that Audit
Committee member Ron Harrod satisfies NYSE ALTERNEXT's definition of financial
sophistication and also qualifies as an “audit committee financial expert,” as
defined under rules and regulations of the Securities and Exchange
Commission.
Report
of the Audit Committee
The Audit Committee assists the Board
of Directors in fulfilling its responsibility for oversight of the Company’s
financial and accounting operations. Each member of the Audit Committee meets
the criteria for being “independent” set forth under NYSE ALTERNEXT US LLC
Company Guide Sec. 803. During the fiscal year ended December 31, 2008, the
Committee met once.
In discharging its responsibility for
oversight of the audit process, the Audit Committee obtained from the
independent auditors, Goldman Parks Kurland Mohidin, LLP, a formal written
statement describing any relationships between the auditors and the Company that
might bear on the auditors' independence consistent with the Independent
Standards Board Standard No. 1, “Independence Discussions with Audit
Committees,” and discussed with the auditors any relationships that might impact
the auditors' objectivity and independence and satisfied itself as to the
auditors' independence.
The Committee discussed and reviewed
with the independent auditors the communications required by generally accepted
auditing standards, including those described in Statement on Auditing Standards
No. 61, as amended, “Communication with Audit Committees” and discussed and
reviewed the results of the independent auditors' examination of the financial
statements for the fiscal year ended December 31, 2008.
The Committee reviewed the audited
financial statements of the Company as of and for the fiscal year ended December
31, 2008, with management and the independent auditors. Management has the
responsibility for preparation of the Company's financial statements and the
independent auditors have the responsibility for examination of those
statements. Based upon the above-mentioned review and discussions with
management and the independent auditors, the Committee recommended to the Board
that the Company's audited financial statements be included in its Annual Report
on Form 10-K for the fiscal year ended December 31, 2008, for filing with the
SEC.
Nominating
and Corporate Governance Committee
Prior to the formation of a nominating
committee, a majority of independent directors shall select, or recommend to the
full Board for selection, all nominees to the Board.
The Board of Directors will consider as
potential nominees persons recommended by shareholders. Recommendations should
be submitted to the Secretary, China Healthcare Acquisition Corp., 1233 Encino
Drive, Pasadena, CA 91108. Each recommendation should include a personal
biography of the suggested nominee, an indication of the background or
experience that qualifies the person for consideration and a statement that the
person has agreed to serve if nominated and elected.
The Board of Directors does not have a
nominating charter and has used an informal process to identify potential
candidates for nomination as directors. Candidates for nomination
have been recommended by an executive officer or director. Our chief
executive officer recommended Mr. Prins for nomination. The Board of
Directors has not adopted specific minimum qualifications that it believes must
be met by a person if recommended for nomination as a director. In
evaluating candidates for nomination, the Board of Directors will consider the
factors it believes to be appropriate. These factors would generally
include the candidate's personal and professional integrity, business judgment,
relevant experience and skills and the potential to be an effective director in
conjunction with the rest of the Board of Directors in collectively serving the
long-term interests of our shareholders. The Board of Directors has
not to date retained a third party search firm although it has the authority to
do so. The Board of Directors does not evaluate potential nominees
for director differently based on whether they are recommended by a
shareholder.
Compensation
Committee
Prior to the formation of a
compensation committee, a majority of independent directors shall determine, or
recommend to the full Board for determination, the compensation to be paid to
our executive officers, to the extent that our executive officers are entitled
to receive compensation.
Compensation
of Directors
We do not provide cash or other
compensation to our directors for their services as members of the Board or for
attendance at Board or committee meetings. However, our directors will be
reimbursed for out-of-pocket expenses incurred by them in connection with
activities on our behalf such as identifying potential target businesses and
performing due diligence on suitable business combinations.
Communications
with Directors
Shareholders may send communications to
members of our Board of Directors who serve on the Audit Committee by sending a
letter addressed to Secretary, China Healthcare Acquisition Corp., 1233 Encino
Drive, Pasadena, CA 91108.
Code
of Ethics
We have adopted a code of conduct and
ethics applicable to our directors, officers and employees in accordance with
applicable federal securities laws and the rules of NYSE ALTERNEXT. The Code is
available on our corporate website at www.chacq.com and may
also be requested in print, without charge, by writing to: China Healthcare
Acquisition Corp., 1233 Encino Drive, Pasadena, CA 91108, Attn: Corporate
Secretary.
The
information required by this item regarding our Audit Committee is incorporated
by reference to the DEF 14A Proxy Statement under the caption “Management of the
Company — Board Committees — Audit Committee.”
ITEM
11. EXECUTIVE
COMPENSATION
None of our executive officers or
directors has to date received any cash compensation for services
rendered. Since April 19, 2007 (the effective date of the
registration statement for our initial public offering), we have paid NCIL, an
affiliate of Alwin Tan, a fee of $5,000 per month for providing us with certain
limited administrative, technical and secretarial services, as well as the use
of certain limited office space. This arrangement is solely for our
benefit and is not intended to provide Mr. Alwin Tan compensation in lieu
of a salary. No other executive officer or director has a relationship with or
interest in NCIL.
Other than this $5,000 per month fee,
no compensation of any kind, including finder’s and consulting fees, has been or
will be paid to any of our initial stockholders, our officers or directors, or
any of their respective affiliates, for services rendered prior to or in
connection with a business combination. However, our initial
stockholders and their affiliates have been and will be reimbursed for
out-of-pocket expenses incurred in connection with activities on our behalf such
as identifying potential target businesses and performing due diligence on
suitable business combinations. There is no limit on the amount of these
out-of-pocket expenses and there will be no review of the reasonableness of the
expenses by anyone other than our board of directors, which includes persons who
may seek reimbursement, or a court of competent jurisdiction if such
reimbursement is challenged.
Other than the agreement with NCIL,
there are no current agreements or understandings with any of our existing
stockholders or any of their respective affiliates with respect to the payment
of compensation of any kind subsequent to a business combination. However, there
can be no assurance that such agreements may not be negotiated in connection
with, or subsequent to, a business combination.
Equity
Compensation Plan Information
Currently, we do not maintain any
compensation plans (including individual compensation arrangements) under which
our equity securities are authorized for issuance.
Outstanding
Equity Awards At Fiscal Year-end
There were no outstanding equity awards
at fiscal year-end.
Option
Exercises and Stock Vested
There have been no exercises of stock
options, SARs or similar instruments, or vesting of stock, including restricted
stock, restricted stock units or similar instruments, during fiscal year 2008 by
any named executive officer.
Pension
Benefits
We do not sponsor any qualified or
non-qualified defined benefit plans.
Nonqualified
Defined Contribution and Other Nonqualified Deferred Compensation
Plans
We do not maintain any non-qualified
defined contribution or deferred compensation plans.
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The following table sets forth, as of
March 15, 2009, certain information regarding beneficial ownership of our common
stock by each person who is known by us to beneficially own more than 5% of our
common stock. The table also identifies the stock ownership of each of our
directors, each of our officers, and all directors and officers as a group.
Except as otherwise indicated, the stockholders listed in the table have sole
voting and investment powers with respect to the shares
indicated.
Name and Address of Beneficial Owner(1)
|
|
Amount and
Nature
of Beneficial
Ownership
|
|
Percentage of Outstanding
Common Stock
|
Jack
Kang(2)
|
|
|
1,035,300 |
|
|
|
48.72 |
% |
Alwin
Tan(3)
|
|
|
1,035,300 |
|
|
|
48.72 |
% |
Steven
Wang
|
|
|
21,250 |
|
|
|
1.0 |
% |
Mark
Tan
|
|
|
21,250 |
|
|
|
1.0 |
% |
James
Ma(4)
|
|
|
4,250 |
|
|
|
* |
|
Ron
Harrod
|
|
|
1,700 |
|
|
|
* |
|
Richard
Prins
|
|
|
|
|
|
|
* |
|
All
directors and executive officers as a group (7
individuals)
|
|
|
2,119,050 |
|
|
|
99.72 |
% |
(1) Unless
otherwise indicated, the business address of each of the individuals is 1233
Encino Drive, Pasadena, CA 91108.
(2) Excludes
3,000,000 shares issuable upon exercise of warrants issued in the Private
Placement (See "CertainRelationships and Related Transactions").
(3) Excludes
9,800 shares issuable upon exercise of warrants that are not exercisable within
60 days.
(4) Excludes
6,000 shares issuable upon exercise of warrants that are not exercisable within
60 days.
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
|
On June 7, 2006, we issued
2,500,000 shares for an aggregate consideration of $25,000 in cash, at an
average purchase price of approximately $.01 per share. In January, 2007,
375,000 of the shares were surrendered. The following chart shows the ownership
resulting from these transactions:
|
|
Number
of
|
|
|
Name
|
|
Shares
|
|
Relationship to
Us
|
|
|
|
|
|
Jack
Kang
|
|
1,035,300
|
|
Chairman
of the Board
|
Alwin
Tan
|
|
1,035,300
|
|
Chief
Executive Officer, President and Director
|
Steven
Wang
|
|
21,250
|
|
Chief
Financial Officer and Treasurer
|
Mark
Tan
|
|
21,250
|
|
Vice
President and Secretary
|
Larry
Liou
|
|
4,250
|
|
Former
Director (resigned May 28, 2008)
|
James
Ma
|
|
4,250
|
|
Director
|
Stanley
Chang
|
|
1,700
|
|
Special
Advisor
|
Ron
Harrod
|
|
1,700
|
|
Director
(Special Advisor in 2007)
|
Since April 19, 2007 (the
effective date of the registration statement for our initial public offering),
we have paid NCIL, an affiliate of Alwin Tan, a fee of $5,000 per month for
providing us with certain limited administrative, technical and secretarial
services, as well as the use of certain limited office
space.
On
April 25, 2007, our IPO of 8,500,000 units of the Company was consummated.
Immediately prior to the IPO, we completed a private placement to our Chairman
of 3,000,000 warrants, generating gross proceeds of
$1,500,000.
At the closing of our IPO, our Chairman
loaned $150,000 to us at an interest rate of 4% per year. As of
the fiscal year ended December 31, 2007, $150,000 of principal was outstanding
and $6,000 in interest had accrued. On April 25, 2008, the Company
repaid all of the outstanding principal and accrued interest
($156,000).
The stockholders who purchased their
shares prior to our initial public offering waived their respective rights to
participate in any liquidation distribution occurring upon our failure to
consummate a business combination, but only with respect to those shares of
common stock acquired by them prior to the IPO. Therefore, these shareholders
received no distributions in respect of the Early Distribution paid on March 10,
2009.
See also "Executive
Compensation."
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND
SERVICES |
Audit
Fees
Fees for
audit services provided by GPKM totaled $38,250 through December 31, 2008,
including fees associated with the audit of our annual financial statements for
the fiscal year ended December 31, 2007 and a retainer.
Audit
Related Fees
Other
than the fees described under the caption “Audit Fees” above, GPKM did not bill
any fees for services rendered to us during the fiscal year ended December 31,
2007 for assurance and related services in connection with the audit or review
of our financial statements.
Tax
Fees
Fees for
tax services provided by GPKM totaled $2,250.00 during the fiscal year ended
December 31, 2008.
All Other
Fees
There
were no other fees billed by GPKM for other professional services rendered
during the fiscal year ended December 31, 2008.
Pre-Approval
of Services
All audit and non-audit services to be
performed by the Company's independent accountant must be approved in advance by
the Audit Committee. The Audit Committee may delegate to one member of the
committee the authority to grant pre-approvals with respect to non-audit
services. For audit services, each year the independent accountant provides the
Audit Committee with an engagement letter outlining the scope of proposed audit
services to be performed during the year, which must be formally accepted by the
Committee before the audit commences. The independent accountant also submits an
audit services fee proposal, which also must be approved by the Committee before
the audit commences.
PART
IV
ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
1. Financial
Statements
INDEX TO FINANCIAL
STATEMENTS
Reports of Independent Registered
Public Accounting Firm
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors
China Healthcare Acquisition
Corp.
Pasadena, California
We have audited the balance sheet of
China Healthcare Acquisition Corp. (the “Company”) as of December 31, 2008 and 2007, and
the related statements of operations, stockholders’ equity and cash flows for the years ended
December 31, 2008 and 2007. The statements of operations,
stockholders’ equity and cash flows included in the
cumulative information from inception (June 7, 2006) to December 31, 2006 have
been audited by other auditors whose report dated May 18, 2007
expressed an unqualified opinion on such information. All of the financial
statements referred to above are the responsibility of the Company's
management. Our responsibility is to express an opinion on all of
these financial statements based on our
audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits and the report of the other auditors provide a reasonable basis
for our opinion.
In our opinion, based on our audits, the
financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2008 and 2007, and the
results of its operations and its cash flows for the years ended December 31,
2008 and 2007. Further, in our opinion, based our audits and the report of other
auditors’ referred to above, the financial statements fairly present
in all material respects, the results of the Company’s operations and cash
flows for the period from inception (June 7, 2006) to December 31,
2008, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 8,
the Company announced that its stockholders voted in favor of a charter
amendment to allow the early distribution of the Company’s trust fund for the
benefit of its public stockholders of record as of march 5,
2009. This vote had the automatic effect of immediately canceling all
shares issued in the Company’s initial public offering and converting them into
rights to receive a pro rata share of the trust fund
distribution. Accordingly, on March 10, 2009, the Company distributed
all the funds in the trust fund to the public
stockholders.
Goldman Parks Kurland
Mohidin
Encino, California
March 13, 2009
Financial
Statements
|
|
Balance
Sheet
|
33
|
Statements
of Operations
|
34
|
Statement
of Stockholders’ Equity
|
35
|
Statements
of Cash Flows
|
36
|
|
|
Notes
to Financial Statements
|
37
|
Item
1. Financial Statements
CHINA
HEALTHCARE ACQUISITION CORP.
(a
development stage company)
Balance
Sheets
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
|
|
$ |
801,965 |
|
|
$ |
850,870 |
|
Cash
in Trust
|
|
|
57,514,171 |
|
|
|
57,489,612 |
|
Prepaid
expense
|
|
|
33,712 |
|
|
|
51,375 |
|
Prepaid
federal income tax
|
|
|
55,000 |
|
|
─
|
|
Total
Current Assets
|
|
|
58,404,848 |
|
|
|
58,391,857 |
|
|
|
|
|
|
|
|
|
|
Fixed
Asset Net of Depreciation
|
|
|
4,674 |
|
|
|
4,744 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
58,409,522 |
|
|
$ |
58,396,601 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
43,998 |
|
|
$ |
9,381 |
|
Due
to stockholder
|
|
|
168,794 |
|
|
|
4,245 |
|
Deferred
underwriting fees
|
|
|
2,133,867 |
|
|
|
2,133,867 |
|
Taxes
Payable
|
|
|
12,550 |
|
|
|
79,339 |
|
Notes
payable to stockholder
|
|
─
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
2,359,209 |
|
|
|
2,376,832 |
|
|
|
|
|
|
|
|
|
|
Common
stock, subject to possible redemption, 1,949,335 shares at redemption
value, and interest subject to possible redemption
|
|
|
11,178,643 |
|
|
|
11,029,265 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock ─ $.0001 par value; 1,000,000 authorized; 0 issued and
outstanding
|
|
─
|
|
|
─
|
|
Common
stock ─ $.0001 par value; 50,000,000 shares authorized; 11,876,555
issued and outstanding (which include 1,949,335 shares subject to
possible redemption)
|
|
|
1,188 |
|
|
|
1,188 |
|
Additional
paid-in capital
|
|
|
44,074,106 |
|
|
|
44,074,106 |
|
Income
accumulated during the development stage
|
|
|
796,376 |
|
|
|
915,210 |
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
|
44,871,670 |
|
|
|
44,990,504 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
|
$ |
58,409,522 |
|
|
$ |
58,396,601 |
|
See notes
to financial statements.
CHINA
HEALTHCARE ACQUISITION CORP.
(a
development stage company)
Statements of
Operations
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
June
7, 2006
|
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
(inception)
to December 31, 2008
|
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
(Cumulative)
|
|
Interest
Income
|
|
$ |
783,952 |
|
|
$ |
1,799,469 |
|
|
$ |
2,583,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formation
and operating costs
|
|
|
837,776 |
|
|
|
340,450 |
|
|
|
1,181,226 |
|
Delaware
franchise tax
|
|
|
62,750 |
|
|
|
63,946 |
|
|
|
126,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
(116,574 |
) |
|
|
1,395,073 |
|
|
|
1,275,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
|
2,260 |
|
|
|
476,863 |
|
|
|
479,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
(118,834 |
) |
|
$ |
918,210 |
|
|
$ |
796,376 |
|
Net
income per share (basic and diluted)
|
|
$ |
(
0.01 |
) |
|
$ |
0.11 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
(basic and diluted)
|
|
|
11,876,555 |
|
|
|
8,724,297 |
|
|
|
8,660,477 |
|
See notes to financial
statements.
CHINA
HEALTHCARE ACQUISITION CORP.
(a
development stage company)
Statement
of Stockholders' Equity
For the
period from June 7, 2006 (inception) to December 31, 2008
|
|
|
|
|
|
|
|
Income
(deficit)
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
accumulated
during the
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in Capital
|
|
|
development
stage
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to founders and insiders on June 7, 2006 at $.01 per
share
|
|
|
2,500,000 |
|
|
$ |
250 |
|
|
$ |
24,750 |
|
|
$ |
─ |
|
|
$ |
25,000 |
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,000 |
) |
|
|
(3,000 |
) |
Balance
at December 31, 2006
|
|
|
2,500,000 |
|
|
|
250 |
|
|
|
24,750 |
|
|
|
(3,000 |
) |
|
|
22,000 |
|
Surrender
and cancellation of 375,000 shares of common stock by initial stockholders
on January 24, 2007
|
|
|
(375,000 |
) |
|
|
(37 |
) |
|
|
37 |
|
|
─
|
|
|
─
|
|
Sale
of 3,000,000 private placement warrants to the Chairman of the Board of
Directors on April 25, 2007
|
|
─
|
|
|
─
|
|
|
|
1,500,000 |
|
|
─
|
|
|
|
1,500,000 |
|
Sale
of 8,500,000 units, net of underwriters discount and offering expenses
(1,699,150 shares subject to possible redemption) on April 25,
2007
|
|
|
8,500,000 |
|
|
|
850 |
|
|
|
46,407,199 |
|
|
─
|
|
|
|
46,408,049 |
|
Proceeds
from issuance of underwriter's option
|
|
─
|
|
|
─
|
|
|
|
100
|
|
|
─
|
|
|
|
100 |
|
Sale
of 1,251,555 units, underwriter's over- allotment option, net of
underwriter's discount (250,185 shares
subject to possible redemption) on May 9, 2007
|
|
|
1,251,555 |
|
|
|
125 |
|
|
|
7,171,285 |
|
|
─
|
|
|
|
7,171,410 |
|
Proceeds
subject to possible redemption of 1,949,335 shares
|
|
─
|
|
|
─
|
|
|
|
(11,029,265 |
) |
|
─
|
|
|
|
(11,029,265 |
) |
Net
income for the year ended December 31, 2007
|
|
─
|
|
|
─
|
|
|
─
|
|
|
|
918,210 |
|
|
|
918,210 |
|
Balance
at December 31, 2007
|
|
|
11,876,555 |
|
|
$ |
1,188 |
|
|
$ |
44,074,106 |
|
|
$ |
915,210 |
|
|
$ |
44,990,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2008
|
|
─
|
|
|
─
|
|
|
─
|
|
|
|
(118,834 |
) |
|
|
(118,834 |
) |
Balance
at December 31, 2008
|
|
|
11,876,555 |
|
|
$ |
1,188 |
|
|
$ |
44,074,106 |
|
|
$ |
796,376 |
|
|
$ |
44,871,670 |
|
See notes
to financial statements.
CHINA HEALTHCARE ACQUISITION
CORP.
(a development stage
company)
Statements of Cash
Flows
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
June
7, 2006
|
|
|
|
|
|
|
|
|
|
(inception)
to
|
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
December
31, 2008
|
|
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
(cumulative)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
(118,834 |
) |
|
$ |
918,210 |
|
|
$ |
796,376 |
|
Adjustments
to reconcile net income to
|
|
|
|
|
|
|
|
|
|
|
|
|
net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,211 |
|
|
|
200 |
|
|
|
2,411 |
|
Changes
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
|
34,617 |
|
|
|
9,381 |
|
|
|
43,998 |
|
Tax
payable
|
|
|
(121,789 |
) |
|
|
79,339 |
|
|
|
(42,450 |
) |
Prepaid
expense
|
|
|
17,663 |
|
|
|
(51,375 |
) |
|
|
(33,712 |
) |
Interest
earned on investment held in Trust Account
|
|
|
(919,202 |
) |
|
|
(1,784,998 |
) |
|
|
(2,704,200 |
) |
Interest
subject to possible redemption
|
|
|
149,378 |
|
|
─
|
|
|
|
149,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities:
|
|
|
(955,956 |
) |
|
|
(829,243 |
) |
|
|
(1,788,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
held in Trust fund
|
|
─
|
|
|
|
(57,307,802 |
) |
|
|
(57,307,802 |
) |
Disbursements
from trust account
|
|
|
894,643 |
|
|
|
1,603,188 |
|
|
|
2,497,831 |
|
Purchase
fixed asset
|
|
|
(2,141 |
) |
|
|
(4,944 |
) |
|
|
(7,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing
activities:
|
|
|
892,502 |
|
|
|
(55,709,558 |
) |
|
|
(54,817,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
proceeds from issuance of common stock
|
|
─
|
|
|
|
58,509,330 |
|
|
|
58,534,330 |
|
Gross
proceeds from issuance of warrants
|
|
─
|
|
|
|
1,500,000 |
|
|
|
1,500,000 |
|
Proceeds
from underwriter's purchase option
|
|
─
|
|
|
|
100 |
|
|
|
100 |
|
Payment
(to)
Proceeds from stockholder's note payable
|
|
|
(150,000 |
) |
|
|
150,000 |
|
|
|
150,000 |
|
Increase
(Decrease) in due to stockholder
|
|
|
|
|
|
|
(150,000 |
) |
|
|
(150,000 |
) |
Payment
of costs of public offering
|
|
─
|
|
|
|
(2,673,353 |
) |
|
|
(2,796,004 |
) |
Advance
from shareholders
|
|
|
164,549 |
|
|
|
4,245 |
|
|
|
168,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing
activities:
|
|
|
14,549 |
|
|
|
57,340,322 |
|
|
|
57,407,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
(48,905 |
) |
|
|
801,521 |
|
|
|
801,965 |
|
Beginning
balance
|
|
|
850,870 |
|
|
|
49,349 |
|
|
─
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
801,965 |
|
|
$ |
850,870 |
|
|
$ |
801,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non Cash Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals
of deferred underwriters' fees
|
|
$ |
2,133,867 |
|
|
$ |
2,133,867 |
|
|
$ |
2,133,867 |
|
See notes
to financial statements.
CHINA HEALTHCARE ACQUISITION
CORP.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
December 31,
2008
Note 1 —
Introduction
General
China Healthcare Acquisition Corp (“we”
or the “Company”) was incorporated in Delaware on June 7, 2006, in order to
serve as a vehicle for a business combination with an operating business or
businesses. Our principal executive offices are located at 1233 Encino Drive,
Pasadena, California 91108. Our website is www.chacq.com and our
phone number is 626-568-9924.
A registration statement for our
initial public offering was declared effective April 19, 2007. Our ability
to commence operations was contingent upon obtaining adequate financial
resources through a public offering of up to 8,500,000 units (“Units”). This
Offering was consummated on April 25, 2007 and we received net proceeds of
$46,448,485. Additionally on May 9, 2007, we received net proceeds of
$7,171,410 from the sale of 1,251,555 Units in conjunction with the exercise of
the underwriters’ over-allotment option by the underwriters. Prior to the
consummation of the Offering on April 25, 2007, our Chairman of the Board
of Directors purchased an aggregate of 3,000,000 warrants at $0.50 per warrant
from the Company in a private placement (the “Private Placement”). The warrants
sold in the Private Placement were identical to the warrants sold in the
Offering, but the Chairman waived his rights to receive any distribution on
liquidation in the event the Company did not complete a business combination (as
described below). The Company received net proceeds from the private placement
of the warrants of $1,500,000. The Company’s management had broad discretion
with respect to the specific application of the net proceeds, although
substantially all of the net proceeds were intended to be generally applied
toward consummating a business combination (“Business Combination”) with a
business that had operations in the People's Republic of China (“PRC”
or “China”). Upon the closing of the Offering, and the
exercise of the over-allotment option by the underwriters, $57,307,802,
including $2,133,867 of deferred underwriting fees, was placed in a trust
account (“Trust Account”) and invested in United States “government securities”
within the meaning of Section 2(a)(16) of the Investment Company Act of
1940 having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company
Act of 1940. Pursuant to our certificate of incorporation, we had to consummate
a Business Combination prior to April 19, 2009 (“Termination Date” ) or return
the funds in the Trust Account to holders of shares purchased in our initial
public offering. At December 31, 2008, the value of the Trust Account
amounted to $57,514,170. The Company’s Chairman agreed that he would be
personally liable under certain circumstances to ensure that the proceeds in the
Trust Account (excluding interest) were not reduced by the claims of target
businesses or vendors or other entities that were owed money by the Company for
services rendered or contracted for or products sold to the Company. Subject to
the consent of Ferris Baker Watts, this agreement was terminated by the
Company and Initial Stockholders effective as of March 31, 2009 distribution of
the Trust Account discussed below. Expenses related to investigation
and selection of a target company and negotiation of an agreement to effect a
Business Combination were paid only from interest earned on the principal in the
trust account. Prior
to the consummation of any Business Combination, the Company was required
to submit such transaction for stockholder approval. In the event that
stockholders owning 20% or more of the shares sold in the Offering voted against
the Business Combination and exercised their conversion rights described below,
the Business Combination would not be consummated. All of the Company’s
stockholders prior to the Offering, including all of the officers and directors
of the Company (“Initial Stockholders”), agreed to vote their founding shares of
common stock in accordance with the vote of the majority in interest of all
other stockholders of the Company (“Public Stockholders”) with respect to any
Business Combination. After consummation of a Business Combination, these voting
safeguards would no longer be applicable.
The warrants separated from the units
and began to trade separately on May 29, 2007. After separation, each
warrant entitled the holder to purchase one share of common stock at an exercise
price of $5.00. The warrants have a life of five years after which they will
expire. We have the right to redeem the warrants at $0.01 per warrant, provided
the common stock has traded at a closing price of at least $8.50 per share for
any 20 trading days within a 30 trading day period ending on the third business
day prior to the date on which notice of redemption is given. If we redeem the
warrants, the holder will either have to exercise the warrants by purchasing
our common stock for $5.00 or sell the warrants, or the warrants will
be deemed worthless. We will not be obligated to deliver securities, and there
are no contractual penalties for failure to deliver securities, if a
registration statement is not effective at the time of exercise. Additionally,
in the event that a registration statement is not effective at the time of
exercise, the holder of such warrant shall not be entitled to exercise such
warrant and in no event (whether in the case of a registration statement not
being effective or otherwise) will we be required to net cash settle the warrant
exercise. Consequently, the warrants may expire unexercised and unredeemed. We
have determined to classify in the warrants stockholders’ equity in accordance
with the guidance of EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.
In addition, we sold the underwriters
for $100, an option to purchase up to a total of 500,000 Units in connection
with our initial public offering. This option was issued upon the closing of the
Offering. The units that would be issued upon exercise of this option are
identical to those offered in the Offering, except that each of the warrants
underlying this option entitles the holder to purchase one share of our common
stock at a price of $6.25. This option is exercisable at $7.50 per Unit
commencing on the later of one year from the effective date or the consummation
of a Business Combination and may be exercised on a cashless basis. The option
has a life of five years from the effective date. The Company has no obligation
to net cash settle the exercise of the option or the warrants underlying the
option. The holder of the option will not be entitled to exercise the option or
the warrants underlying the option unless a registration statement covering the
securities underlying the option is effective or an exemption from registration
is available. If the holder is unable to exercise the option or underlying
warrants, the option or warrants, as applicable, will expire
worthless.
Our efforts in identifying a
prospective target business were not limited to a particular industry, although
we intended to focus our efforts on cash flow positive companies that have
historically generated positive earnings before interest, taxes and depreciation
in the healthcare sector in China. We considered opportunities to acquire a
business unrelated to the healthcare services sector. We were not limited to
acquiring a company in any particular industry or type of business.
We entered into a stock purchase
agreement with Europe Asia Huadu Environment Pte, Ltd., Teambest International
Limited and Madame Wang Lahua (collectively “Seller”) for the purchase of all of
the outstanding equity of Europe Asia Huadu Environment Pte, Ltd., a Singapore
company with operations in China in the water treatment and environmental
engineering industries. Effective November 10, 2008, we
and the Seller mutually agreed to terminate the stock purchase
agreement because our Board determined that it would not receive the votes of
its stockholders required for the approval of the acquisition.
In addition, our Board of Directors
determined that it was no longer possible for us to consummate a qualifying
business combination prior to April 19, 2009. Based on this
determination, our Board of Directors concluded that it was in the best
interests of stockholders to return to the holders of our shares acquired in our
initial public offering all amounts held in the Trust Account as of the date of
the distribution thereof.
Note 2 — Summary of Significant
Accounting Policies
Concentration of
Credit Risk
Financial
instruments that potentially subject the Company to a significant concentration
of credit risk consist primarily of cash. The Company may maintain deposits in
federally insured financial institutions in excess of federally insured limits.
However, management believes that Company is not exposed to significant credit
risk due to the financial position of the depository institutions in which those
deposits are held.
Use of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in United State of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.
Recent Accounting
Standards
Business
Combinations
In December 2007, the FASB issued
SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R
has significantly changed the accounting for business combinations. Under SFAS
141R, an acquiring entity is required to recognize all the assets acquired
and liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS 141R has changed the accounting treatment for
certain specific items, including:
|
·
|
Acquisition
costs will be generally expensed as
incurred;
|
|
·
|
Noncontrolling
interests (formerly known as “minority interests” — see SFAS 160
discussion below) will be valued at fair value at the acquisition
date;
|
|
·
|
Acquired
contingent liabilities will be recorded at fair value at the acquisition
date and subsequently measured at either the higher of such amount or the
amount determined under existing guidance for non-acquired
contingencies;
|
|
·
|
In-process
research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition
date;
|
|
·
|
Restructuring
costs associated with a business combination will be generally expensed
subsequent to the acquisition date;
and
|
|
·
|
Changes
in deferred tax asset valuation allowances and income tax uncertainties
after the acquisition date generally will affect income tax
expense.
|
SFAS 141R also includes a substantial
number of new disclosure requirements. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. We expect SFAS 141R will
have an impact on accounting for business combinations once adopted but the
effect is dependent upon acquisitions at that time.
Noncontrolling
Interests in Consolidated Financial Statements — An Amendment of ARB
No. 51
In December 2007, the FASB issued
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements
— An Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes new
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this
statement requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parent’s equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a
subsidiary that do not result in deconsolidation are equity transactions if the
parent retains its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. Such gain or loss will be measured using the fair value of
the noncontrolling equity investment on the deconsolidation date. SFAS 160 also
includes expanded disclosure requirements regarding the interests of the parent
and its noncontrolling interest. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. Like SFAS 141R discussed above, earlier adoption is
prohibited. We have not completed our evaluation of the potential impact, if
any, of the adoption of SFAS 160 on our consolidated financial position, results
of operations and cash flows.
In
July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty 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 an uncertain position may be
recognized only if it is “more likely than not” that the position is sustainable
based on its technical merits. The provisions of FIN 48 are effective for fiscal
years beginning after December 15, 2006. The adoption of FIN 48 did not
have a material effect on the Company’s financial condition or results of
operations.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”). This statement provides a single definition
of fair value, a framework for measuring fair value, and expanded disclosures
concerning fair value. Previously, different definitions of fair value were
contained in various accounting pronouncements creating inconsistencies in
measurement and disclosures. SFAS No. 157 applies under those previously
issued pronouncements that prescribe fair value as the relevant measure of
value, except SFAS No. 123(R) and related interpretations and
pronouncements that require or permit measurement similar to fair value
but are not intended to measure fair value. This pronouncement is effective for
fiscal years beginning after November 15, 2007. The Company is evaluating
the impact of SFAS No. 157, but does not expect the adoption of SFAS
No. 157 to have a material impact on its financial position, results of
operations, or cash flows.
In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (SFAS 159) “The Fair Value Option for Financial Assets and
Financial Liabilities.” SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The provisions of
SFAS 159 became effective for the Company beginning January 1, 2008. The
Company is of the opinion that the adoption of SFAS 159 have no
material effect on its financial statements.
Management
does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying
financial statements.
Net Income( loss)
per share
Net
Income (loss) per common share is computed by dividing the net income
(loss) by the weighted average number of common shares outstanding during
the period. Diluted net income per share reflects the additional dilution for
all potentially dilutive securities such as stock warrants and
options.
The
effect of the 19,503,110 outstanding warrants issued in connection with the
Initial Public Offering and over-allotment, the 3,000,000 outstanding warrants
issued in connection with the private placement and the 500,000 units included
in the underwriter’s purchase option has not been considered in diluted income
(loss) per share since the warrants and options are contingently
exercisable.
Deferred Income
Taxes
Deferred
income tax assets and liabilities are computed for differences between the
financial statement and tax basis of assets and liabilities that will result in
future taxable or deductible amounts and are based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred income tax assets to the amount expected to be
realized.
Note 3 — Notes Payable to
Stockholder
The
Company issued a $150,000 unsecured promissory note to its Initial Stockholder
on April 25, 2007. This note replaced the original note of $150,000 executed by
an initial stockholder on June 12, 2006. The note bore simple interest at 4% per
annum and the principal and interest expense were paid from interest earned on
the Trust Account. The note was payable on earlier of April 25, 2008, or the
consummation of a Business Combination. Due to the short-term nature of the
note, the fair market value approximated the carrying amount. On April 25, 2008,
the Company paid back the loan by issuing a check in the amount of $156,000,
which included the principal and interest for the note.
Note 4 — Stockholders’
Equity
The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preference as may be determined from
time to time by the Board of Directors. At inception, China Healthcare
Acquisition Corp. issued 2,500,000 shares of common stock to the Initial
Stockholders for $25,000 in cash. In January 2007, the Initial Stockholders
surrendered 375,000 shares for cancellation.
Note 5 — Initial Public
Offering
On
April 25, 2007, the Company sold 8,500,000 Units at $6 per Unit.
Additionally, 1,251,555 Units were sold on May 9, 2007 at $6.00 per Unit
upon exercise of the underwriters’ over-allotment option. Each Unit consists of
one share of common stock and two redeemable common stock purchase warrants. In
connection with the initial public offering, the Company paid to the
underwriters a fee equal to 3.25% ($1,657,500) of the gross proceeds of the
initial public offering. Underwriting fees without non-accountable expenses from
the over-allotment of $244,053 were paid to the underwriters on May 9,
2007. The underwriters have agreed to defer additional fees equal to 4.00% of
the gross proceeds of the initial public offering before the over-allotment
option and 1.25% of the gross proceeds of the over-allotment option
(approximately $2,133,867) and deposit them into the Trust Account until the
consummation of a Business Combination. Upon the consummation of a Business
Combination, we will pay such deferred underwriting discount and non-accountable
expense allowance to the underwriters out of the proceeds of the offering held
in trust. The warrants separated from the units and began to trade separately on
May 29, 2007.
After
separation, each warrant entitled the holder to purchase one share of common
stock at an exercise price of $5.00. The warrants have a life of five years
after which they will expire. The Company has a right to redeem the warrants at
$0.01 per warrant, provided the common stock has traded at a closing price of at
least $8.50 per share for any 20 trading days within a 30 trading day period
ending on the third business day prior to the date on which notice of redemption
is given. If the Company redeems the warrants, the holder will either have to
exercise the warrants by purchasing the common stock from the Company for $5.00
or sell the warrants, or the warrants will be redeemed. The Company will not be
obligated to deliver securities, and there are no contractual penalties for
failure to deliver securities, if a registration statement is not effective at
the time of exercise. Additionally, in the event that a registration statement
is not effective at the time of exercise, the holder of such warrant shall not
be entitled to exercise such warrant and in no event (whether in the case of a
registration statement not being effective or otherwise) will the Company be
required to net cash settle the warrant exercise. Consequently, the warrants may
expire unexercised and unredeemed. The Company has determined that the warrants
should be classified in stockholders’ equity upon their issuance in accordance
with the guidance of EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.
In
addition, the Company has sold to the underwriters for $100, an option to
purchase up to a total of 500,000 Units. This option was issued upon the closing
of the Initial Public Offering. The units that would be issued upon exercise of
this option are identical to those offered in the Initial Public Offering,
except that each of the warrants underlying this option entitles the holder to
purchase one share of our common stock at a price of $6.25. This option is
exercisable at $7.50 per Unit commencing on the later of one year from the
effective date or the consummation of a Business Combination and may be
exercised on a cashless basis. The option has a life of five years from the
effective date. The Company has no obligation to net cash settle the exercise of
the option or the warrants underlying the option. The holder of the option will
not be entitled to exercise the option or the warrants underlying the option
unless a registration statement covering the securities underlying the option is
effective or an exemption from registration is available. If the holder is
unable to exercise the option or underlying warrants, the option or warrants, as
applicable, will expire worthless.
The sale
of the option has been accounted for as an equity transaction. Accordingly,
there will be no net impact on the Company’s financial position or results of
operations, except for the recording of the $100 proceeds from the sale. The
Company has determined, based upon a Black-Scholes model, that the fair value of
the option on the date of sale was approximately $1,742,500 for the option to
the underwriters, using an expected life of five years, volatility of 72.36% and
a risk-free interest rate of 4.39%.
The
volatility calculation of 72.36% for the option to the underwriters is based on
the average volatility of a basket of similar companies with similar
capitalization sizes that trade in the United States. Because China Healthcare
Acquisition Corp. does not have a trading history, China Healthcare Acquisition
Corp. needed to estimate the potential volatility of its common stock price,
which will depend on a number of factors which cannot be ascertained at this
time. China Healthcare Acquisition Corp.’s management believes that this
volatility is a reasonable benchmark to use in estimating the expected
volatility for China Healthcare Acquisition Corp.’s common stock. Utilizing a
higher volatility would have had the effect of increasing the implied value of
the option.
Note 6 —
Commitments
The
Company presently occupies office space provided by an affiliate of one of the
Company’s executive officers. Such affiliate has agreed that until the Company
consummates a Business Combination, it will make such office space, as well as
certain office and secretarial services available to the Company, as may be
required by the Company from time to time. The Company has agreed to pay such
affiliate $5,000 per month commencing on April 19, 2007.
Included
in the statement of operations are the management fees relating to such
services. The amounts of such fees are: $60,000 for 2008; $45,000 for 2007; and,
$105,000 for the period from June 7, 2006 (inception) to December 31, 2008
(cumulative).
Our
Chairman agreed to purchase, or cause its affiliate to purchase, up to
$8 million of the Company’s common stock in the open market, commencing on
the later of (a) ten business days after the Company files a Current Report
on Form 8-K announcing a definitive agreement for an initial Business
Combination or (b) 60 calendar days after the end of the restricted period
under Regulation M, and ending on the business day immediately preceding
the record date for the meeting of stockholders at which time such Business
Combination is to be voted upon by the Company’s stockholders. Our chairman
agreed to vote all such shares of common stock purchased in the open market in
favor of the Company’s initial Business Combination. Such purchase would have
commenced 10 business days after the date of the Current Report on Form 8-K
reporting the signing of the definitive acquisition agreement and ended on the
last business day preceding the record date for stockholders meeting to vote
upon the acquisition. In his stead, Mr. Wu Wing Shu of Sky Rainbow Investment
Ltd. agreed with Mr. Kang to purchase or cause his affiliate to purchase up to
$8 million of our common stock in the open market at market prices not to
exceed the per share amount held in the trust account (less taxes payable). It
was contemplated that such purchase would not commence until approximately 10
business days before the record date for the stockholders meeting by which time
the shareholders will have available the definitive proxy statement. Such
purchases would end on the business day immediately preceding the record date
for the stockholders meeting. The Company would file a Current Report on Form
8-K immediately prior to the commencement of the purchase period reporting the
amount per share available upon liquidation of the trust. Shares purchased by
Mr. Wu Wing Shu would not be subject to the contractual six month restriction on
resale that applied to Mr. Kang's agreement. This agreement has
been terminated.
Note 7 — Income
Taxes
The
Company incurred a net loss in 2008. There is no federal income tax payable. Our
only taxes for State of California are the California minimum tax plus
certain tax expenses related to the previous year filing. The total taxes paid
to California during this period is $2,260. The components for the provisions
for income taxes are:
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
Federal
taxes
|
|
$ |
—
|
|
|
$ |
476,064 |
|
State
taxes
|
|
|
2,260 |
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$ |
2,260
|
|
|
$ |
476,864 |
|
Note
8 — Subsequent Events
Our
board of directors has determined that it is no longer possible for
CHM to consummate a qualifying business combination prior to the Termination
Date. Based upon this determination, our board of directors believes it is in
the best interests of our stockholders to take the necessary actions to return
to the holders of our common stock the amounts held in the Trust Account with
interest (net of applicable taxes, if any) prior to the Termination
Date.
On
February 20, 2009, the Company announced the setting of the record date for
determining the public stockholders who are entitled to receive distributions
from the Company’s trust fund established in connection with the Company’s
initial public offering and into which the net proceeds of the IPO were
deposited. The Company instructed its transfer agent, American Stock Transfer
& Trust Company, to close its stock transfer books as of the close of
business on March 5, 2009.
The Company announced that at its annual meeting held on March 5, 2009, its
stockholders voted in favor of a charter amendment to allow the early
distribution of the Company’s trust fund for the benefit of its public
stockholders of record as of March 5, 2009. This vote had the automatic
effect of immediately canceling all shares issued in the Company’s initial
public offering and converting them into rights to receive a pro rata share of
the trust fund distribution, expected to be $5.89 per share. The Company’s units
have separated into their component parts: two warrants and rights to receive
the distribution for one share of common stock. Effective as of the close of
business day, the Company’s common stock [CHM] and units [CHM-U] held by its
public shareholders were no longer quoted on NYSE Alternext US and were no
longer traded or tradeable. The Company’s warrants [CHM-WS] will no longer be
quoted on NYSE Alternext US, but will remain outstanding in accordance with
their terms, as disclosed in the Company’s definitive proxy statement dated
February 4, 2009. The Company’s remaining stockholders voted to remove the
blank check company restrictions from the Company’s charter, allowing the
Company to continue its corporate existence beyond its scheduled termination
date of April 19, 2009.
The
Company set the payment date for distribution of the trust fund to holders of
the Company’s shares of common stock as March 10, 2009. On that day, the
Trustee of the Company’s trust fund, American Stock Transfer & Trust
Company, was instructed to distribute the trust fund proceeds in accordance with
its usual procedures to the record holders of the Company’s common stock as of
March 5, 2009. We believe that virtually all of the shares of the
Company’s common stock are held of record in ‘street name,’ which means that the
cash distributions will be sent through the securities industry clearing system
to stock brokerage and other financial firms for final distribution to
beneficial owners of the common stock.
Public
stockholders at the close of business on March 5, 2009 received
approximately $5.89 per share of common stock issued in the Company’s IPO. No
payments were made with respect to any of the Company’s outstanding warrants or
to any of the Company’s initial stockholders with respect to the shares owned by
them prior to the IPO.
2. Financial Statement
Schedule(s)
Not
Applicable
3.
Exhibits
The
following exhibits are filed as part of this Annual Report on Form
10-K.
Number
|
|
Description
|
3.1(i) |
|
Amendment
to Certification of Incorporation* |
3.1(ii)
|
|
Amended
and Restated Certificate of Incorporation*
|
3.2
|
|
Amended
and Restated Bylaws**
|
4.1
|
|
Specimen
Unit Certificate**
|
4.2
|
|
Specimen
Common Stock Certificate**
|
4.3
|
|
Specimen
Warrant Certificate**
|
4.5
|
|
Form
of Warrant Agreement between American Stock Transfer & Trust Company
and the Registrant**
|
4.6
|
|
Form
of Underwriters’ Purchase Option**
|
10.1(a)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and Jack
Kan**
|
10.1(b)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and
Alwin Tan**
|
10.1(c)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and
Steven Wang**
|
10.1(d)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and Mark
Tan**
|
10.1(e)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and
Larry Liou**
|
10.1(f)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and
James Ma**
|
10.1(g)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and
Stanley Chang**
|
10.1(h)
|
|
Letter
Agreement among the Registrant, Ferris, Baker Watts, Incorporated and Ron
Harrod**
|
10.2
|
|
Form
of Investment Management Trust Agreement between American Stock Transfer
& Trust Company and the Registrant**
|
10.3
|
|
Form
of Stock Escrow Agreement between the Registrant, American Stock Transfer
& Trust Company and the Initial Stockholders**
|
10.4
|
|
Form
of Letter Agreement between NCIL and the Registrant regarding
administrative support**
|
10.5
|
|
Advance
Agreement between the Registrant and Jack Kang**
|
10.6
|
|
Form
of Registration Rights Agreement among the Registrant, the Initial
Stockholders and Ferris, Baker Watts, Incorporated**
|
10.7
|
|
Warrants
Placement Agreement**
|
10.8
|
|
Form
of Letter Agreement between the Registrant, Jack Kang and Ferris, Baker
Watts, Incorporated**
|
14
|
|
Code
of Ethics**
|
24
|
|
Power
of Attorney (included on signature page of this
Form 10-K)*
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
31.2
|
|
Certification
by Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
32
|
|
Certification
by Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002*
|
*
|
|
Filed
herewith
|
|
|
|
**
|
|
Incorporated
by reference to the exhibits of the same number filed with the
Registrant’s Registration Statement on Form S-1 or amendments thereto
(File
No. 333-135705)
|
Exhibit Index
3.1(i)
|
|
Amendment
to Certification of Incorporation |
|
3.1(ii)
|
|
Amended
and Restated Certificate of Incorporation. |
|
31.1
|
|
Certification
by Chief Executive Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002
|
|
31.2
|
|
Certification
by Chief Financial Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002
|
|
32
|
|
Certification
by Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
CHINA
HEALTHCARE ACQUISITION
CORP.
|
|
Date:
March 31, 2009
|
By:
|
/s/ Alwin Tan
|
|
|
|
Alwin
Tan
|
|
|
|
Chief Executive Officer and
President
|
|
|
|
|
|
|
By:
|
/s/ Steven Wang
|
|
|
|
Steven
Wang
|
|
|
|
Vice
President and Treasurer
Chief Financial
Officer
|
|
KNOW
ALL PERSON BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Alwin Tan and Steven Wang, and each of them, his or her
true and lawful attorneys-in-fact, each with full power of substitution, for him
or her in any and all capacities, to sign any amendments to this report on Form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact or their
substitute or substitutes may do or cause to be done by virtue hereof. Pursuant
to the requirements of the Securities Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature
|
|
Date
|
|
Title
|
|
|
|
|
|
/s/
Alwin Tan
|
|
March
31, 2009
|
|
Director
|
Alwin
Tan
|
|
|
|
|
|
|
|
|
|
/s/
Ron Harrod
|
|
March
31, 2009
|
|
Director
|
Ron
Harrod
|
|
|
|
|
|
|
|
|
|
/s/
Jack Kang
|
|
March
31, 2009
|
|
Chairman
of the Board of Directors
|
Jack
Kang
|
|
|
|
|
|
|
|
|
|
/s/
James Ma
|
|
March
31, 2009
|
|
Director
|
James
Ma
|
|
|
|
|