CHM China Healthcare Acquisition Corp

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008

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

Commission File Number: 001-33269

CHINA HEALTHCARE ACQUISITION CORP.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		20-5013347 (IRS 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)

     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  o

     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):

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

          Yes  þ No  o

     As of November 14, 2008, 11,876,555 shares of Registrant’s common stock, par value $0.0001 per share, were outstanding.

 

 

CHINA HEALTHCARE ACQUISITION CORP.
TABLE OF CONTENTS

				Page
		PART 1 — FINANCIAL INFORMATION
Item 1.		Financial Statements (unaudited)			2
		Balance Sheets			2
		Statements of Operations			3
		Statements of Stockholders’ Equity			4
		Statements of Cash Flows			5
		Notes to Financial Statements			6
Item 2.		Management Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3.		Quantitative and Qualitative Disclosure about Market Risk			17
Item 4T.		Controls and Procedures			18
		PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			19
Item 1A.		Risk Factors			19
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			19
Item 3.		Defaults Upon Senior Securities			19
Item 4.		Submission of Matters to a Vote of the Security Holders			19
Item 5.		Other Information			19
Item 6.		Exhibits			20
SIGNATURE					22
INDEX TO EXHIBITS					23
		Certification by Chief Executive Officer Pursuant to Section 302
		Certification by Chief Financial Officer Pursuant to Section 302
		Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
		pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
		pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Item 1. Financial Statements

CHINA HEALTHCARE ACQUISITION CORP.
(a development stage company)

BALANCE SHEETS

		September 30,
		2008				December 31,
		(Unaudited)				2007
ASSETS
Current Assets
Cash		$	946,868			$	850,870
Cash in Trust			57,457,446				57,489,612
Prepaid expense			35,628				51,375
Prepaid federal income tax			25,325				—
Total Current Assets			58,465,267				58,391,857
Fixed Asset Net of Depreciation			6,659				4,744
TOTAL ASSETS		$	58,471,926			$	58,396,601
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses		$	43,271			$	9,381
Due to stockholder			85,520				4,245
Deferred underwriting fees			2,133,867				2,133,867
Taxes Payable			9,413				79,339
Notes payable to stockholder			—				150,000
TOTAL LIABILITIES			2,272,071				2,376,832
Common stock, subject to possible redemption, 1,949,335 shares at redemption value, and interest subject to possible redemption			11,167,879				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			956,682				915,210
TOTAL SHAREHOLDERS’ EQUITY			45,031,976				44,990,504
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY		$	58,471,926			$	58,396,601

See notes to financial statements

CHINA HEALTHCARE ACQUISITION CORP.
(a development stage company)
Statements of Operations
(Unaudited)

																		Period from
																		June 7, 2006
		Three Months				Three Months				Nine Months				Nine Months				(inception) to
		Ended				Ended				Ended				Ended				September 30,
		September 30,				September 30,				September 30,				September 30,				2008
		2008				2007				2008				2007				(Cumulative)
Interest Income		$	167,710			$	690,700			$	736,101			$	1,200,684			$	2,535,570
Formation and operating costs			166,968				113,830				615,603				174,503				959,052
Delaware franchise tax			15,688				16,733				47,063				47,773				111,010
Income before provision for income taxes			(14,946	)			560,137				73,435				978,408				1,465,508
Provision for income taxes			237				223,127				31,963				392,599				508,826
Net income		$	(15,183	)		$	337,010			$	41,472			$	585,809			$	956,682
Net income per share (basic and diluted)		$	0.00			$	0.03			$	0.00			$	0.07			$	0.12
Weighted average number of shares outstanding (basic and diluted)			11,876,555				11,876,555				11,876,555				7,848,811				8,311,151

See notes to financial statements

CHINA HEALTHCARE ACQUISITION CORP.
(a development stage company)
Statement of Stockholders’ Equity
(Unaudited)

For the period from June 7, 2006 (inception) to September 30, 2008

														Income (deficit)
														accumulated during				Total
		Common Stock								Additional				the				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, 207			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 twelve months 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
Unaudited:
Net income for the nine months ended September 30, 2008			—				—				—				41,472				41,472
Balance at September 30, 2008			11,876,555			$	1,188			$	44,074,106			$	956,682			$	45,031,976

See notes to financial statements

CHINA HEALTHCARE ACQUISITION CORP.
(a development stage company)
Statements of Cash Flows
(Unaudited)

										Period from
										June 7, 2006
										(inception) to
		Nine Months Ended				Nine Months Ended				September 30, 2008
		September 30, 2008				September 30, 2007				(cumulative)
Cash flows from operating activities:
Net income		$	41,472			$	585,809				956,682
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation			225				125				425
Deferred tax			—				(66,545	)			—
Changes in:
Accrued expenses			33,892				17,130				43,273
Tax payable			(95,251	)			313,947				(15,912	)
Prepaid expense			15,747				(69,856	)			(35,628	)
Interest earned on investment held in Trust Account			(862,478	)			(1,194,107	)			(2,647,476	)
Interest subject to possible redemption			138,614				—				138,614
Net cash used in operating activities			(727,779	)			(413,497	)			(1,560,022	)
Cash flows from investing activities:
Cash held in Trust fund			—				(57,307,802	)			(57,307,802	)
Disbursements from trust account			894,643				972,575				2,497,831
Purchase fixed asset			(2,141	)			(4,944	)			(7,085	)
Net cash provided by (used in) investing activities			892,502				(56,340,171	)			(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
Increase (Decrease) in due to stockholder			81,275				—				(68,725	)
Payment of costs of public offering			—				(2,673,353	)			(2,796,004	)
Advance from shareholders			—				3,094				4,245
Net cash provided by (used in) financing activities			(68,725	)			57,339,171				57,323,946
Net increase in cash			95,998				585,503				946,868
Beginning balance			850,870				49,349				—
Ending balance		$	946,868			$	634,852			$	946,868
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
September 30, 2008

Note 1 — Introduction

Interim Financial Information

The financial statements at September 30, 2008 and for the three and nine month periods ending September 30, 2008 have been prepared by China Healthcare Acquisition Corp. ( “Company” or “CHAC” ) and are unaudited. In the opinion of management, all adjustments (consisting of normal accruals and recurring items) have been made that are necessary to present fairly financial position of China Healthcare Acquisition Corp. as of September 30, 2008 and the results its operations and cash flows for the periods ended September 30, 2008. Operating results for the interim periods presented are not necessarily indicative of the results to be expected for any other interim period or for the full year.

These unaudited financial statements should be read in conjunction with the Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2008. The accounting policies used in preparing these unaudited financial statements are consistent with those described in such filing. The December 31, 2007 balance sheet has been derived from the Company’s audited financial statements.

Organization and Business Operation

The Company was incorporated in Delaware on June 7, 2006 for the purpose of acquiring an operating business. As of September 30, 2008, the Company had not commenced any operations. All activities through September 30, 2008 relate to the Company’s formation and the public offering described below, and thereafter, pursuing potential acquisitions of target businesses. The Company selected December 31 as its fiscal year end.

The registration statement for the Company’s Initial Public Offering was declared effective April 19, 2007. The Company’s ability to commence operations was contingent upon obtaining adequate financial resources through a public offering of up to 8,500,000 units ( “Units” ) which is discussed in Note 5 below. This Offering was consummated on April 25, 2007 and the Company received net proceeds of $46,448,485. Additionally on May 8, 2007, the Company received net proceeds of $7,171,410 from the sale of 1,251,555 Units in conjunction with the underwriters’ exercise of their over-allotment option. Preceding the consummation of the Offering on April 25, 2007, the Chairman of the Board of Directors of the Company 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 does 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 has broad discretion with respect to the specific application of the net proceeds, although substantially all of the net proceeds are intended to be generally applied toward consummating a business combination with an operating business that has operations in China ( “Business Combination” ).

Furthermore, there is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Initial Public Offering, including 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 until the earlier of (i) the consummation of its first Business Combination and (ii) liquidation of the Company. At September 30, 2008, the value of the Trust Account was approximately $57,457,446. The placing of funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, prospective target businesses or other entities it engages, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account, there is no guarantee that they will execute such agreements. The Company’s Chairman has agreed that he will be personally liable under certain circumstances to ensure that the proceeds in the Trust Account (excluding interest) are not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for services rendered or contracted for or products sold to the Company. However, there can be no assurance that he will be able to satisfy those obligations. Expenses related to investigation and selection of a target company and negotiation of an agreement to effect a Business Combination will be paid prior to a Business Combination only from interest earned on the principal in the trust account up to an aggregate of $1,200,000, net of income taxes. Prior to the consummation of any Business Combination, the Company is required to submit such transaction for stockholder approval. In the event that stockholders owning 20% or more of the shares sold in the Initial Public Offering vote against the Business Combination and exercise their conversion rights described below, the Business Combination will not be consummated. All of the Company’s stockholders prior to the Initial Public Offering, including all of the officers and directors of the Company ( “Initial Stockholders” ), have 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 will no longer be applicable.

With respect to a Business Combination which is approved and consummated, any Public Stockholder who votes against the Business Combination may contemporaneously demand that the Company convert his or her shares. We will not proceed with a Business Combination if public stockholders owning 20% or more of the shares sold in the Initial Public Offering, including through exercise of the over-allotment option, vote against the business combination and exercise their conversion rights. Accordingly, if public shareholders owning a majority of the shares sold in the Initial Public Offering, including the exercise of the over-allotment option, approve a Business Combination, we may effect that Business Combination even if public stockholders owning up to approximately 19.99% of the shares sold in the Initial Public Offering, including through exercise

of the over-allotment option, exercise their conversion rights. If this occurs, we would be required to convert to cash up to approximately 19.99% of the 9,751,555 shares of common stock sold in the Initial Public Offering, including the exercise of the over-allotment option, or 1,949,335 shares of common stock, at an initial per-share conversion price of approximately $5.89, including a portion of the deferred underwriting fee, without taking into account interest earned on the trust account, if we choose to pursue the Business Combination and such Business Combination is completed.

We must complete a Business Combination with a fair market value of at least 80% of our net assets (excluding the non-accountable expense allowance and the deferred portion of the underwriting discount held in the trust account for the benefit of the underwriters) at the time of acquisition within 24 months after the Initial Public Offering on April 25, 2007. If we fail to consummate a Business Combination within the required time frame, we will be forced to liquidate our assets. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Fund assets) will be less than the initial public offering price per share.

On August 6, 2008, we entered into a stock purchase agreement with Europe Asia Huadu Environment Holding, Pte Ltd (“EAHE”), Teambest International, Ltd and Wang Lahua providing for the acquisition EAHE in exchange for shares of our common stock as described in our Current Report on Form 8-K filed with the Securities Exchange Commission on August 11, 2008.

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 States 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 will significantly change the accounting for business combinations. Under SFAS 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change 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. Accordingly, since we are a calendar year-end company we will continue to record and disclose business combinations following existing GAAP until January 1, 2009. 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.

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 was 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 was 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. did not have a trading history, China Healthcare Acquisition Corp. needed to estimate the potential volatility of its common stock price, which depended on a number of factors which could be ascertained at the time. China Healthcare Acquisition Corp.’s management believes that this volatility was 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 agreed to pay such affiliate $5,000 per month commencing April 19, 2007.

Included in the statement of operations are the management fees relating to such services. The amounts of which are: $15,000 for the period from July 1, 2008 through September 30, 2008; $30,000 for the period from April 1, 2007 through September 30, 2007; $45,000 for the period from January 1 to September 30, 2008; $30,000 for the period from January 1 to September 30, 2007; and, $90,000 for the period from June 7, 2006 (inception) to September 30, 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. Our Chairman withdrew from this agreement. 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. has 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 is currently contemplated that such purchase will 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 will end on the business day immediately preceding the record date for the stockholders meeting. The Company will 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 will not be subject to the contractual six month restriction on resale that applied to Mr. Kang’s agreement.

Note 7—Income Taxes

The components of the provision for income taxes are as follows:

		Nine Months Ended
		September 30,				September 30,
		2008				2007
Current:
Federal taxes		$	29,676			$	357,338
State taxes			2,287				101,806
Deferred taxes							(66,545	)
Total provision for income taxes		$	31,963			$	392,599

In July of 2008, our 2007 Federal Income Tax Return was selected for examination by the Internal Revenue Service. We have been notified by the Revenue Agent that there is no change for the tax return we filed with the Internal Revenue Service, but a formal determination letter is still pending.

Note 8 — Subsequent Events

On November 10, 2008, China Healthcare Acquisition Corp and Europe Asia Huadu Environment Holding Pte, Ltd. ( “EAHE” ) mutually agreed to terminate the Purchase Agreement between China Healthcare Acquisition Corp and EAHE, Teambest International, Ltd and Wang Lahua dated August 6, 2008.

Item 2. 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 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. Our initial business combination must 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 intend to use cash derived from the proceeds of our recently completed offering and private placement, our capital stock, debt or a combination of cash, capital stock and debt, to effect such business combination.

China Healthcare Acquisition Corp. and Europe Asia Huadu Environment Holding Pte, Ltd. ( “EAHE” ) announced on August 6, 2008 that CHAC and the owner of EAHE signed a definitive acquisition agreement for CHAC to acquire EAHE in exchange for CHAC common stock. Through its subsidiaries in the People’s Republic of China ( “China” ), Europe-Asia Huadu (Yixing) Environment Protection Co., Ltd and Yixing Europe-Asia Huadu Environment Engineering Co. Ltd., EAHE manufactures water treatment equipment and provides construction and engineering services for water treatment projects in China.

On November 10, 2008, the acquisition agreement was terminated by mutual agreement of the parties. We had determined that we would not receive the votes of our stockholders required for approval of the acquisition. In connection with the termination, the parties entered into a mutual release. Our management is considering the Company’s alternatives.

Results of Operations

Net Income

Net loss for the quarter ended September 30, 2008 was $15,183 consisting of interest income totaling $167,710 which was primarily offset by operating costs of $166,968, Delaware franchise tax of $15,688 and provision for income taxes of $237. Net income for nine month period ended September 30, 2008 was $41,472, consisting of interest income of $736,101 which was primarily offset by operating costs of $615,604, Delaware franchise tax of $47,063 and provision for income taxes of $31,963. Operating costs include expenses incurred in connection with due diligence on several potential candidates, including travel expenses, professional fees and other expenses. Compared to the same period of 2007, there is a reduction of income. This is due largely to the fact that the interest rate on the funds held in trust has decreased substantially, from approximately 5% last year to approximately 2% this year.

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. All of this amount is held in trust. We will use substantially all of the net proceeds of this initial public offering and private placement proceeds (other than the deferred non-accountable expense allowance and the deferred portion of the underwriting discount) to acquire one or more operating businesses. However, we may not use all of such proceeds in the trust in connection with a business combination, either because the consideration for the business combination is less than the proceeds in trust or because we finance a portion of the consideration with our capital stock or debt securities. In that event, the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business or businesses.

In the event that we consummate a business combination, the proceeds held in the trust account will be used for the following purposes:

•

Payment of the purchase price for the business combination;

•

Payment of the non-accountable expense allowance and the deferred portion of the underwriting discount due to the underwriters;

•

Payment of any finder’s fees or professional fees and costs; and

•

Payment of any fees and costs the Company may incur in connection with any equity or debt financing relating to the business combination.

The Company does not currently have any agreement with any party with respect to the payment of finders’ or professional fees. If the Company agrees to pay such fees in the future, such fees shall be negotiated on an arms-length basis.

Prior to consummating a business combination, we finance our operations by using the interest earned on the trust funds. As of September 30, 2008, we had spent $959,053 of these funds on formation and operating costs. We believe that the remaining funds will be sufficient to allow us to

operate through at least April 19, 2009, assuming that a business combination is not consummated during that time. From the date of the closing of our initial public offering through April 19, 2009, we anticipate making the following expenditures:

•

approximately $200,000 for legal, accounting and other expenses attendant to the structuring and negotiating of a business combination;

•

approximately $300,000 for the due diligence and investigation of a target business;

•

approximately $115,000 in legal and accounting fees relating to our SEC reporting obligations;

•

approximately $120,000 in fees relating to our office space and certain general and administrative services;

•

approximately $240,000 for travel, general working capital that will be used for miscellaneous expenses and reserves, including for director and officer liability insurance premiums, deposits, down payments and/or funding of a “no shop” provision in connection with a prospective business transaction and for international travel with respect to negotiating and finalizing a business combination; and

•

approximately $75,000 for a reserve for liquidation expenses.

We are limited to $1,200,000, net of taxes, of interest earned on the trust account for these estimated expenditures. If the funds available to us are insufficient to cover these costs, our founders will have no obligation to provide additional funding.

We do not believe we will need additional financing following the initial public offering in order to meet the expenditures required for operating our business. However, we may need to obtain additional financing to the extent such financing is required to consummate a business combination, in which case we may issue additional securities or incur debt in connection with such business combination.

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, we paid back the loan, principal plus interest, by issuing a check of $156,000 to Mr. Kang.

We are paying 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

In connection with our initial public offering, we agreed to pay the underwriters a deferred non-accountable expense allowance and deferred portion of the underwriting discount of $2,133,867 upon consummation of our initial business combination. We expect such allowance will be paid out of the proceeds in the trust account. Other than the contractual obligations incurred in the ordinary course of business, we do not have any other long-term contractual obligations.

Forward Looking Statements

This Quarterly Report on From 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act” ), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act” ). We have based these forward-looking statements on our current expectations and projections about future events, and we assume no obligation to update any such forward-looking statements. The forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual result to be materially different from any future results expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause our future results to differ from those statements include, but are not limited to, those described in the section entitled “Risk Factors” of the prospectus filed with the Securities and Exchange Commission (the “SEC” ) in connection with our initial public offering. The following discussion should read in conjunction with our condensed financial statements and related notes thereto included elsewhere in this report and with the section entitled “Risk Factors” of the prospectus filed with the SEC in connection with our public offering and in our 10-K Annual Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item is not required for a smaller reporting company.

Item 4. Controls and Procedures

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial and accounting officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our chief executive officer and our chief financial officer have concluded that these controls and procedures are effective at the reasonable assurance level.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to affect, our financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently subject to any material legal proceedings, nor to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A. Risk Factors

This item is not required for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of the Security Holders

Not applicable.

Item 5. Other Information

Not applicable

Item 6. Exhibits

Number		Description
3.1		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 Kang**
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**
10.9		Stock Purchase Agreement among Registrant, Europe Asia Huadu Environment Holding, Pte Ltd, Teambest International, Ltd and Wang Lahua dated August 6, 2008***
10.10		Termination Agreement dated as November 10, 2008 by and among Europe Asia Huadu Environment Holdings, Pte Ltd, Wang Lahua, Teambest International, Ltd and China Healthcare Acquisition Corp ****
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*

Number		Description
32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2		Certification by 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 )
***		Incorporated by reference to Registrant’s Current Report on Form 8-K filed August 11, 2008
****		Incorporated by reference to Registrant’s Current Report on Form 8-K filed November 13, 2008

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, China Healthcare Acquisition Corp as duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INDEX TO EXHIBITS

Number		Description
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
32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

China Healthcare Acquisition Corp (AMEX:CHM)
Gráfico Histórico do Ativo
De Dez 2024 até Jan 2025

China Healthcare Acquisition Corp (AMEX:CHM)
Gráfico Histórico do Ativo
De Jan 2024 até Jan 2025