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Exceed Co Ltd. 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1

UNITED STATES SECURITIES AND EXCHANGE
COMMISSION 
Washington, DC 20549 

FORM 10-Q 

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

For the quarterly period ended June 30, 2008

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

Commission file number 001-33799
 
2020 CHINACAP ACQUIRCO, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
20-5500605
(State or other jurisdiction of
Incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
c/o Surfmax Corporation
221 Boston Post Road East
Suite 410
Marlborough, Massachusetts
 
 
 
01752
(Address of principal executive offices)
 
(Zip Code)

(508) 624-4948
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 large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filed o          Accelerated filer o 
Non-accelerated filer o          Smaller reporting company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).           Yes o  No þ
 
As of [Please fill in Date], 2008, 10,500,000  shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.
 

 
2020 CHINACAP ACQUIRCO, INC.
(a development stage company)
 
Table of Contents 
 
 
 
Page
PART I — FINANCIAL INFORMATION
 
 
 
 
 
Item 1. Financial Statements
 
 
Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007
 
3
Statements of Operations (unaudited) for the three and six months ended June 30, 2008 and 2007, and from August 21, 2006 (date of inception) to June 30, 2008
 
4
Statement of Stockholders’ Equity (unaudited) for the period from August 21, 2006 (date of inception) to June 30, 2008
 
5
Statements of Cash Flows (unaudited) for the six months ended June 30, 2008 and 2007, and from August 21, 2006 (date of inception) to June 30, 2008
 
6
Notes to Financial Statements (unaudited)
 
7
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
13
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
15
Item 4. Controls and Procedures
 
15
 
 
 
PART II – OTHER INFORMATION
 
 
     
Item 1. Legal Proceedings
 
16
Item 1A. Risk Factors
 
16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
16
Item 3. Defaults upon Senior Securities
 
16
Item 4. Submission of Matters to a Vote of Security Holders
 
16
Item 5. Other Information
 
16
Item 6. Exhibits
 
17
 
 
 
SIGNATURES
 
18
 
 
 
INDEX TO EXHIBITS
 
 
     
Certification by Principal Executive Officer Pursuant to Section 302
 
 
Certification by Principal Financial Officer Pursuant to Section 302
 
 
Certification by Principal Executive Officer and Principal Financial Officer Pursuant to Section 906
 
 
 
2

 
Item 1. Financial Statements

2020 CHINACAP ACQUIRCO, INC.
(a development stage company) 
BALANCE SHEETS
 
   
Unaudited
 
Audited
 
   
June 30,
 
December 31,
 
   
2008
 
2007
 
ASSETS
             
               
Current Assets
             
Cash and cash equivalents
 
$
37,788
 
$
269,040
 
Prepaid expenses
   
16,333
   
16,333
 
Cash held in trust fund
   
68,450,799
   
68,182,942
 
               
TOTAL ASSETS
 
$
68,504,920
 
$
68,468,315
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
               
Current Liabilities
             
Accrued offering costs
 
$
413,066
 
$
542,879
 
Accrued expenses
   
153,832
   
28,948
 
Accrued income taxes
   
74,193
   
1,225
 
Payable to stockholders
   
   
20,244
 
Notes payable to stockholders
   
   
127,291
 
Total current liabilities
   
641,091
   
720,587
 
               
Long-term Liabilities
             
Deferred underwriters’ fees
   
2,415,000
   
2,415,000
 
               
TOTAL LIABILITIES
   
3,056,091
   
3,135,587
 
               
Common stock, subject to possible redemption, 2,586,638 shares, at redemption value
   
20,486,172
   
20,486,172
 
               
STOCKHOLDERS’ EQUITY
             
Preferred stock — $0.0001 par value; 1,000,000 shares authorized; nil issued and outstanding
   
   
 
Common stock - par value of $0.0001 per share, 25,000,000 shares authorized, 10,500,000 shares issued and outstanding
   
1,050
   
1,050
 
Additional paid-in capital
   
44,838,564
   
44,838,564
 
Retained earnings
   
123,043
   
6,942
 
Total stockholders’ equity
   
44,962,657
   
44,846,556
 
               
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY
 
$
68,504,920
 
$
68,468,315
 
 
See accompanying notes to financial statements
 
3

 
2020 CHINACAP ACQUIRCO, INC.
(a development stage company) 
STATEMENTS OF OPERATIONS
(Unaudited)
 
                   
August 21,
 
                   
2006
 
   
April 1,
 
April 1,
 
January 1,
 
January 1,
 
(date of inception)
 
   
2008 to
 
2007 to
 
2008 to
 
2007 to
 
to June 30,
 
   
June 30,
 
June 30,
 
June 30,
 
June 30,
 
2008
 
   
2008
 
2007
 
2008
 
2007
 
(Cumulative)
 
                       
Interest income
 
$
233,975
 
$
 
$
688,260
 
$
 
$
780,517
 
                                 
General & administrative expenses
   
258,909
   
5,274
   
493,884
   
10,127
   
577,975
 
                                 
Profit (loss) before income taxes
   
(24,934
)
 
(5,274
)
 
194,376
   
(10,127
)
 
202,542
 
                                 
Income taxes (benefit) provision
   
(10,041
)
 
   
78,275
   
   
79,500
 
                                 
Net profit (loss)
 
$
(14,893
)
$
(5,274
)
$
116,101
 
$
(10,127
)
$
123,042
 
                                 
Net profit (loss) per share – basic and diluted
 
$
 
$
 
$
0.01
 
$
(0.01
)
$
0.03
 
                                 
Weighted average number of shares outstanding – basic and diluted
   
10,500,000
   
1,875,000
   
10,500,000
   
1,564,243
   
4,311,972
 
 
See accompanying notes to financial statements 
 
4


2020 CHINACAP ACQUIRCO, INC.
(a development stage company) 
STATEMENT OF STOCKHOLDERS’ EQUITY
(In U.S. dollars, except share data)
(Unaudited) 
For the period from August 21, 2006 (date of inception) to June 30, 2008

                  
Retained Earnings /
     
                  
(Deficit accumulated)
     
             
Additional
 
during the
 
Total
 
   
Common Stock
 
paid-in
 
development
 
Stockholders’
 
   
Shares
 
Amount
 
capital
 
Stage
 
Equity
 
Issuance of common stock to founders and insiders on August 21, 2006 at $0.01 per share
   
100
 
$
1
 
$
99
 
$
 
$
100
 
                                 
Net loss
   
   
   
   
(3,825
)
 
(3,825
)
                                 
Balance at December 31, 2006
   
100
   
1
   
99
   
(3,825
)
 
(3,725
)
                                 
Issuance of common stock at $0.0001 per share
   
1,874,900
   
187
   
24,713
   
   
24,900
 
                                 
Sales of 7,500,000 units on November 15, 2007 at a price of $8 per unit, net of underwriters’ discount and offering costs (including 2,249,999 shares subject to possible redemption)
   
7,500,000
   
750
   
54,664,936
   
   
54,665,686
 
                                 
Sales of 1,125,000 units on November 26, 2007 at a price of $8 per unit, net of underwriters’ discount and offering costs (including 336,639 shares subject to possible redemption)
   
1,125,000
   
112
   
8,369,888
   
   
8,370,000
 
                                 
Common stock, subject to possible redemption, 2,586,638 shares
   
   
   
(20,486,172
)
 
   
(20,486,172
)
                                 
Proceeds from issuance of warrants
   
   
   
2,265,000
   
   
2,265,000
 
                                 
Proceeds from issuance of options
   
   
   
100
   
   
100
 
                                 
Net profit
   
   
   
   
10,767
   
10,767
 
                                 
Balance at December 31, 2007
   
10,500,000
   
1,050
   
44,838,564
   
6,942
   
44,846,556
 
                                 
Net profit
   
   
   
   
116,101
   
116,101
 
                                 
Balance at June 30, 2008
   
10,500,000
 
$
1,050
 
$
44,838,564
 
$
123,043
 
$
44,962,657
 
 
See accompanying notes to financial statements
 
5

 
2020 CHINACAP ACQUIRCO, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS 
(Unaudited)
 
           
August 21, 2006
 
           
(date of inception)
 
   
Six months
 
Six months
 
to June 30,
 
   
ended
 
ended
 
2008
 
   
June 30, 2008
 
June 30, 2007
 
(Cumulative)
 
Cash Flows from Operating Activities
                   
                     
Net profit (loss)
 
$
116,101
 
$
(10,127
)
$
123,043
 
Adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities
                   
Change in assets and liabilities:
                   
Accrued expenses
   
124,884
   
   
153,832
 
Accrued income taxes
   
72,968
   
   
74,193
 
Prepaid expenses
   
   
   
(16,333
)
Net cash provided by (used in) operating activities
   
313,953
   
(10,127
)
 
334,735
 
                     
Net Cash used in Investing Activities
                   
Cash held in trust fund
   
(267,857
)
 
   
(68,450,799
)
                     
Cash Flows from Financing Activities
                   
 
                   
Proceeds from issuance of common stock
   
   
24,900
   
25,000
 
Proceeds from the issuance of notes payable to stockholders
   
   
80,000
   
130,000
 
Proceeds from issuance of warrants
   
   
   
2,265,000
 
Gross proceeds from public offering
   
   
   
60,000,000
 
Gross proceeds from exercise of overallotment options in the offering
   
   
   
9,000,000
 
Proceeds from issuance of option
   
   
   
100
 
Payments to stockholders
   
(20,244
)
 
100
   
(20,244
)
Payments for underwriters’ discount and offering costs
   
(129,813
)
 
(44,873
)
 
(3,116,004
)
Principal payments on notes payables
   
(127,291
)
 
(243
)
 
(130,000
)
Net cash (used in) provided by financing activities
   
(277,348
)
 
59,884
   
68,153,852
 
Net (decrease) increase in cash
   
(231,252
)
 
49,757
   
37,788
 
Cash and cash equivalents, beginning of the period
   
269,040
   
9,988
   
 
Cash and cash equivalents, end of the period
 
$
37,788
 
$
59,745
 
$
37,788
 
Supplemental schedule of non-cash financing activities:
                   
Accrual of deferred offering costs
 
$
 
$
403,550
 
$
413,066
 
Deferred offering costs advanced by stockholders
 
$
 
$
(100
)
$
(65,704
)
Deferred underwriters’ fee
 
$
 
$
 
$
2,415,000
 
 
See accompanying notes to financial statements
 
6

 
2020 CHINACAP ACQUIRCO, INC.
(A Development Stage Company) 
NOTES TO FINANCIAL STATEMENTS

Note 1 – Interim Financial Information 
      The financial statements at June 30, 2008 and for the period ended June 30, 2008 have been prepared by the Company 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 the financial position of 2020 ChinaCap Acquirco, Inc. (the “Company”) as of June 30, 2008 and the results of its operations and cash flows for the periods ended June 30, 2008 and 2007. Operating results presented for the interim periods 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 financial statements and notes thereto for the period ended December 31, 2007 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2008. The accounting policies used in preparing these unaudited financial statements are consistent with those described in such filing.

Note 2 – Organization, Business Operations and Summary of Significant Accounting Policies
The Company was incorporated in Delaware on August 21, 2006 as a public acquisition company whose objective is to acquire an operating business that either: (1) is located in the People’s Republic of China, the Hong Kong Special Administrative Region or the Macau Special Administrative Region (collectively, “China”), (2) has its principal operations located in China, or (3) in the view of the Board of Directors of the Company, would benefit from establishing operations in China. Upon formation, the authorized share capital was 3,000 shares of common stock with par value of $0.01 per share. According to the preorganization subscription agreement dated August 18, 2006 with the director and initial stockholder, the Company issued 100 shares of common stock with par of $0.01 per share to the initial stockholder at $1.00 each. On January 31, 2007, the initial stockholder and the director effected several changes to the Company’s corporate structure by consent in lieu of a special meeting, and amended its Certificate of Incorporation as follows:
 
 
 
Increased the number of the authorized shares of the Company’s common stock from 3,000 to 25,000,000, with par value of $0.0001 per share;
 
 
 
Authorized 1,000,000 shares of preferred stock, with par value of $0.0001 per share; and
 
 
 
Provided that, absent a duly authorized amendment to the Certificate of Incorporation upon the consummation of a Business Combination, the Company will continue in existence only to November 8, 2009.
 
In addition to effecting the preceding amendments to the Company’s Certificate of Incorporation, the Company also issued an additional 1,874,900 shares of common stock with par value of $0.0001 per share for $24,900 by unanimous written consent in lieu of a special meeting of the Board of Directors dated as of January 31, 2007.
 
At June 30, 2008, the Company had not yet commenced any operations. All activities through June 30, 2008 were related to the Company’s formation, the public offering described below in Note 3 (the “Offering”) and the general administration of the Company. The Company has selected December 31 as its fiscal year-end.
 
The Company’s management has broad discretion with respect to the specific application of the net proceeds from the Offering. Although substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating a business combination with an operating business that has its principal operations located in China (“Business Combination”), there is no assurance that the Company will be able to successfully effect a Business Combination. Upon the closing of the Offering, $7.92 per Unit of the proceeds from the Offering, net of all applicable discounts and commissions but inclusive of $0.28 per Unit in deferred underwriting compensation, and the proceeds from the sale of the Insider Warrants (as defined below) were deposited and held in a trust account for the benefit of the Company. The corpus of the Trust Account will be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act 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 until the earlier of (i) the consummation of its first Business Combination or (ii) liquidation of the Company. 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.
 
7

 
The Company’s executive officers and Dr. Jianming Yu, one of the Company’s directors, and certain entities controlled by these executive officers and Dr. Jianming Yu have agreed that they will be personally liable under certain circumstances to ensure that the proceeds in the Trust Account 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 or for products sold to the Company. However, there can be no assurance that they will be able to satisfy those obligations. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, up to an aggregate of $1,350,000 of interest earned on the Trust Account balance, net of taxes, may be released to the Company to fund working capital requirements, of which $468,310.35 has been released to the Company as of June 30, 2008. The Company, after signing a definitive agreement for the acquisition of a target business, is required to submit such transaction for stockholder approval. In the event that stockholders owning 30% or more of the shares sold in the 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 Offering, including all of the officers and directors of the Company (“Initial Stockholders”), have agreed to vote their 1,875,000 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 that is approved and consummated, any Public Stockholder who votes against the Business Combination may demand that the Company convert his or her shares. The per share conversion price will equal the amount in the Trust Account, calculated as of two business days prior to the consummation of the proposed Business Combination, divided by the number of shares of common stock held by Public Stockholders at the consummation of the Offering. Accordingly, Public Stockholders holding up to 29.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Account computed without regard to the shares held by the Initial Stockholders.
 
If the Company has not completed a Business Combination by November 8, 2009, its corporate existence will cease except for the purposes of winding up its affairs and it will liquidate. In the event of liquidation, it is likely that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per share in the Offering (assuming no value is attributed to the Warrants contained in the Units offered in the Offering discussed in Note 3).
 
Summary of Significant Accounting Policies
 
Development stage company:
 
The Company complies with the reporting requirements of Statements of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises.”
 
8

 
Net profit (loss) per common share:
The Company complies with accounting and disclosure requirements of SFAS No. 128, “Earnings Per Share.” Net profit (loss) per common share is computed by dividing net profit (loss) by the weighted average number of common shares outstanding for the period, except where the result would be antidilutive. Net profit (loss) per share of common stock, assuming dilution, reflects the maximum potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and would then share in the net profit (loss) of the Company.
 
 Concentration of credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times exceeds the Federal depository insurance coverage of $100,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
 
Fair value of financial instruments:
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under SFAS No. 107, “Disclosure About Fair Value of Financial Instruments,” approximates the carrying amounts represented in the balance sheet.
 
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Income taxes:
The Company complies with SFAS 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, 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 tax assets to the amount expected to be realized.
 
Effective January 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). There were no unrecognized tax benefits as of December 31, 2007 or June 30, 2008. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 2007 or June 30, 2008.  Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position. The adoption of the provisions of FIN 48 did not have a material impact on the Company’s financial position, results of operations and cash flows.
 
Recently issued accounting standards:
 
In December 2007, FASB issued SFAS No. 141R, Business Combinations. SFAS No. 141R replaces SFAS No. 141, Business Combinations. SFAS No. 141R establishes principles and requirements for determining how an enterprise recognizes and measures the fair value of certain assets and liabilities acquired in a business combination, including non-controlling interests, contingent consideration and certain acquired contingencies. SFAS No. 141R also requires acquisition-related transaction expenses and restructuring costs be expensed as incurred rather than capitalized as a component of the business combination. This Statement shall be applied 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. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our financial position, results of operation or cash flows.
 
9

 
In December 2007, FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin (“ARB”) No. 51. SFAS No. 160 requires that accounting and reporting for minority interests will be recharacterized as non-controlling interests and classified as a component of equity. SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. This Statement shall be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management is currently evaluating the impact of the adoption of this statement; however, it is not expected to have a material impact on our financial position, results of operation or cash flows.
 
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.

Note 3 – Public Offering
On November 15, 2007, the Company consummated the sale of 7,500,000 units (“Units”) at a price of $8.00 per Unit in the Offering. Each Unit consists of one share of the Company’s common stock, $0.0001 par value, and one redeemable common stock purchase warrant (“Warrants”). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.25 commencing on the later of (i) November 8, 2008 or (ii) the completion of a Business Combination with a target business, and expires on November 8, 2011. The Warrants are redeemable at a price of $0.01 per Warrant upon 30 days prior notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 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. In accordance with the warrant agreement relating to the Warrants sold and issued in the Offering, the Company is only required to use its best efforts to maintain the effectiveness of the registration statement covering the Warrants. 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 is not effective at the time of exercise, the holder of such Warrants shall not be entitled to exercise such Warrants 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.
 
On November 26, 2007, the underwriters of the Offering exercised their over-allotment option to the extent of 1,125,000 Units. The 8,625,000 Units sold in the Offering, including the 1,125,000 Units subject to the over-allotment option, were sold at an offering price of $8.00 per Unit, generating gross proceeds of $69,000,000. $68,090,685, including $2,265,000 of proceeds from the previously-announced private placement of the warrants issued to entities affiliated with the management team, has been placed in the Trust Account.
 
The Company paid the underwriters in the Offering an underwriting discount of 3.5% of the gross proceeds of the Offering. The underwriters have agreed that an additional 3.5% of the underwriting discount will not be payable unless and until the Company completes a Business Combination and have waived their right to receive such payment upon the Company’s liquidation if it is unable to complete a Business Combination. The Company has also issued a unit purchase option for $100 to Morgan Joseph to purchase 550,000 Units at an exercise price of $10.00 per Unit. The Units issuable upon exercise of this option are identical to the Units offered in the Offering. The Company accounted for the fair value of the unit purchase option, inclusive of the receipt of the $100 cash payment, as an expense of the Offering resulting in a charge directly to stockholders’ equity. The Company estimates that the fair value of this unit purchase option is approximately $1,657,226 ($3.01 per Unit) using a Black-Scholes option-pricing model. The fair value of the unit purchase option granted to the underwriters is estimated as of the date of grant using the following assumptions: (1) expected volatility of 45.46%, (2) risk-free interest rate of 3.67%, and (3) expected life of 5 years. The unit purchase option may be exercised for cash or on a “cashless” basis, at the holder’s option, such that the holder may use the appreciated value of the unit purchase option (the difference between the exercise prices of the unit purchase option and the underlying Warrants and the market price of the Units and underlying securities) to exercise the unit purchase option without the payment of any cash. The Company will have no obligation to net cash settle the exercise of the unit purchase option or the Warrants underlying the unit purchase option. If the holder is unable to exercise the unit purchase option or underlying Warrants, the unit purchase option or Warrants, as applicable, will expire worthless.
 
10

 
Note 4 – Deferred and Accrued Offering Costs 
Deferred and accrued offering costs consist principally of legal fees, underwriting fees and other costs incurred through the balance sheet date that are directly related to the Offering described in Note 3 and that were charged to stockholders’ equity upon the receipt of the capital raised.
 
The Company’s legal counsel agreed to cap legal fees due by the Company at the Closing to $350,000, provided that any excess fees shall be paid by the Company upon the completion of a Business Combination. Total legal fees payable included in accrued offering costs were $409,908 and $409,908 as of June 30, 2008 and December 31, 2007, respectively.
 
Upon completion of the Offering of 8,625,000 Units (including 1,125,000 Units pursuant to the underwriters’ over-allotment option sold on November 26, 2007) at a price of $8 per unit, the Company received net proceeds of approximately $68,240,685 from the Offering, after deducting offering expenses of approximately $5,439,315 which included underwriting discounts of $4,830,000. This amount includes $2,415,000 of the underwriting discounts and commissions due (deferred underwriters’ fees) which the underwriters have agreed will not be payable unless and until the Company consummates a Business Combination.


Note 5 – Notes Payable to Stockholders
In December 2006, the Company issued a $50,000 unsecured promissory note to one of its Initial Stockholders, who is also an officer and director of the Company. Under the terms of the note, as amended, the Company may reduce the amount of the note payable by offsetting any funds advanced by the Company to third parties at the direction of the lender. The amount of the note payable was reduced in this manner to $47,291 as of December 31, 2007. The note payable was non-interest bearing and was initially payable on the earlier of December 17, 2007 or the consummation of the Offering. On November 15, 2007, the holders of the $50,000 unsecured promissory note and the Company agreed to extend the repayment date of the unsecured promissory note to March 31, 2008. Due to the short-term nature of the note, the fair value of the note approximates its carrying amount.
 
In April 2007, the Company issued a $80,000 unsecured promissory note to 2020 International Capital Group Limited, the beneficial owner of a majority of the outstanding shares of stock of the Company at the time such promissory note was issued. The note payable was non-interest bearing and was payable on the earlier of April 5, 2008 or the consummation of the Offering. On November 15, 2007, the holders of the $80,000 unsecured promissory note and the Company agreed to change the repayment date of the unsecured promissory note to March 31, 2008.

Both notes were repaid in full by the Company on March 31, 2008 and each note was cancelled as of June 30, 2008.

Note 6 – Related Party Transactions

Payable to Stockholders

Several stockholders of the Company have advanced funds to settle certain deferred offering costs and organization costs on behalf of the Company. The advances are non-interest bearing and are payable on demand. The amount payable to stockholders of $20,244 as of December 31, 2007 was repaid in full by the Company before 30 June 2008.
 
11

 
Lease from Related Party

The Company presently occupies office space provided by a company owned by the Company’s Chairman of the Board, Chief Executive Officer and President. Such entity has agreed that, until the Company consummates a Business Combination, it will make such office space, as well as utilities, administrative, technology 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 entity $7,500 per month for such services commencing on November 8, 2007. The Company has incurred $45,000 and Nil for the six months ended June 30, 2008 and 2007, respectively, and $60,000 from August 21, 2006 (date of inception) to June 30, 2008.

 
Note 7 – Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of June 30, 2008, no preferred stock is issued or outstanding. The agreement with the underwriters prohibits the Company, prior to a Business Combination, from issuing preferred stock that participates in the proceeds of the Trust Account or that votes as a class with the Common Stock on a Business Combination.
 
Note 8 – Income Tax
The components of the provision for income taxes are as follows:
 
 
          
August 21, 2006,
 
   
Six months Ended
 
 Six months Ended
 
 (date of inception)
 to June 30, 2008
 
 
 
June 30, 2008
 
 June 30, 2007
 
(Cumulative)
 
 
 
(unaudited)
 
 (unaudited)
 
 (unaudited)
 
 
          
  
 
Current:
               
 
Federal taxes
 
$
66,087
 
$
 
$
66,087
 
 
               
 
State taxes
   
12,188
   
   
13,413
 
 
                   
Total provision for income taxes
 
$
78,275
 
$
 
$
79,500
 

The total provision for income taxes differs from that amount which would be computed by applying the U.S. Federal income tax rate to income before provision for income taxes as follow:

 
          
 August 21, 2006,
 
   
Six months Ended
 
 Six months Ended
 
 (date of inception)
to June 30, 2008
 
 
 
June 30, 2008
 
 June 30, 2007
 
 (Cumulative)
 
 
 
(unaudited)
 
 (unaudited)
 
 (unaudited)
 
 
               
Statutory Federal income tax rate
 
$
34.00
%
$
 
$
32.63
%
 
                   
Effective Mass income tax rate
   
6.27
%
 
   
6.62
%
 
                   
Effective income tax rate
 
$
40.27
%
$
  
$
39.25
%

 
Note 9 – Commitments
The Company presently occupies office space provided by a company owned by the Company’s Chairman of the Board, Chief Executive Officer and President. Such entity has agreed that, until the Company consummates a Business Combination, it will make such office space, as well as utilities, administrative, technology 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 entity $7,500 per month for such services commencing on November 8, 2007.

Pursuant to letter agreements between each of the Initial Stockholders, the Company and Morgan Joseph, the Initial Stockholders have waived their rights to receive distributions with respect to the 1,875,000 founding shares in the event the Company is liquidated in accordance with its Articles of Incorporation on November 8, 2009.
 
12

 
 On November 15, 2007, Win Wide International, Ltd, a British Virgin Islands international business company (“Win Wide”), an entity in which George Lu, the Company’s Chairman, Chief Executive Officer and President, his spouse, Yanmei May Yang, and Jianming Yu, one of the Company’s directors, collectively own approximately 67% of the outstanding securities, and Surfmax Co-Investments II, LLC, a Delaware limited liability company in which Mr. Lu currently owns all of the outstanding securities, purchased privately from the Company a total of 2,265,000 warrants at $1.00 per warrant (for an aggregate purchase price of $2,265,000, the “Insider Warrants”). This purchase took place simultaneously with the consummation of the Offering. All of the proceeds received from this purchase were placed in the Trust Account. The Insider Warrants purchased are identical to the Warrants underlying the Units offered in the Offering except that the Insider Warrants may be exercisable, at the holder’s option, on a “cashless basis” so long as such securities are held by such Initial Holders or their affiliates. Additionally, such purchasers have agreed that the Insider Warrants will not be sold or transferred by them until after the Company has completed a Business Combination. If these warrants are exercised on a cashless basis, the holder of the insider warrants would pay the exercise price by surrendering his warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to holders of warrants.

The Company has determined that the purchase price of $1.00 per Insider Warrant is above the average trading price for warrants of similarly structured blank check companies. Accordingly, the Company believes that the purchase price of the Insider Warrants is greater than the fair value of the warrants included in the units and, therefore, the Company did not record compensation expense on the Insider Warrants.

The Initial Stockholders are entitled to registration rights with respect to their founding shares pursuant to an agreement signed on November 8, 2007. The holders of the majority of these shares are entitled to make up to two demands that the Company register these shares at any time after these shares are released from escrow six months following the consummation of Business Combination. In addition, the Initial Stockholders have certain “piggy-back” registration rights on registration statements filed subsequent to November 8, 2010.

Note 10 – Subsequent Events

On August 1 2008, the Company issued a $150,000 unsecured promissory note to 2020 International Capital Group Limited, a beneficial principal stockholder of the Company. The note is non-interest bearing and is payable one year from the date of execution or the date on which 2020 International Capital Group Limited demand full or partial payment of any balance outstanding. The proceeds from the note shall be used by the Company for working capital purposes.
 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with our Financial Statements and footnotes thereto contained in this report.
 
Forward Looking Statements
 
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward looking statements. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward looking statements as a result of certain factors detailed in our filings with the Securities and Exchange Commission. All subsequent written or oral forward looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
 
13

 
Overview
 
We are a public acquisition company, formed on August 21, 2006, to complete a business combination with an operating business that either: (1) is located in China, (2) has its principal operations located in China, or, (3) in the view of the Board of Directors of the Company, would benefit from establishing operations in China. Our efforts to identify a prospective target business will not be limited to a particular industry. We intend to effect a business combination using cash from the proceeds of our recently completed initial public offering and the private placements of the sponsors’ warrants, our capital stock, debt or a combination of cash, stock and debt. On November 15, 2007, we completed our initial public offering of 8,625,000 Units (including 1,125,000 Units pursuant to the underwriters’ over-allotment option sold on November 26, 2007) at a price of $8 per unit. We received net proceeds of approximately $68.4 million from our Offering.

Pursuant to a warrant purchase agreement dated November 8, 2007, certain of the Initial Stockholders and their affiliates have purchased from the Company, in the aggregate, 2,265,000 Insider Warrants for $2,265,000. The purchase and issuance of the Insider Warrants in a private placement occurred simultaneously with the consummation of the Offering. All of the proceeds we received from these purchases were placed in the Trust Account.

For a description of the proceeds generated in our initial public offering and a discussion of the use of such proceeds, we refer you to Note 3 of the unaudited financial statements included in Part I, Item I of this Quarterly Report on Form 10-Q.
 
Results of Operations and Known Trends or Future Events
 
For the three months ended June 30, 2008 and 2007, we had a net loss of $14,893 and $5,274, respectively.

For the six months ended June 30, 2008 and 2007, we had a net profit of $116,101 and a net loss of $10,127, respectively.

Our entire activity from August 21, 2006 (inception) through November 15, 2007 had been to prepare for our initial public offering. Following our initial public offering, we began actively searching for a suitable business target to complete a business combination. For the six months ended June 30, 2008, we earned interest income of $688,260 and a net profit of $116,101 as compared to the $10,127 net loss we realized for the same period in 2007 while we were in the early phase of preparing for our initial public offering. We believe that we have access to sufficient funds to complete a Business Combination with an operating business within the required 24 months from the Effective Date.
 
Liquidity and Capital Resources
 
As of June 30, 2008, we had operating cash of $37,788, compared to $269,040 at December 31, 2007. Until the initial public offering, as described above, our only source of liquidity was two loans made by two stockholders. These loans were fully repaid as of June 30, 2008. Our liabilities are mainly deferred and accrued offering costs related to our initial public offering payable upon completion of a business combination. Given our available operating cash of $37,788 and our projected interest income, to complete a business combination the Company expects to require additional financing to pay expenses associated with the identification of a target company and our due diligence review. We believe that we have access to capital resources to maintain our operations until we complete a business combination.
 
14

 
Off-Balance Sheet Financing Arrangements
 
We have no obligations, assets or liabilities that would be considered off-balance sheet arrangements.
 
Contractual Obligations
 
Other than the $7,500 per month fee for office space and general and administrative services, the deferred legal fees of $413,066 as described above, and the $2,415,000 deferred underwriting discounts as described in our Annual Report Form 10-K for the year ended December 31, 2007, the Company does not have any other long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
 
Critical Accounting Policies
 
The Company’s significant accounting policies are more fully described in Note 2 to the financial statements. However certain accounting policies are particularly important to the portrayal of financial position and results of operations and require the application of significant judgments by management. As a result, the financial statements are subject to an inherent degree of uncertainty. In applying those policies, management used its judgment to determine the appropriate assumptions to be used in determination of certain estimates. These estimates are based on the Company’s historical experience, terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate.
 
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
 
Not applicable.
 
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 principal executive officer and principal 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.

There were no changes in our internal controls over financial reporting in connection with the evaluation required by Rule 13-a(15(d) under the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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 principal executive officer and our principal financial officer have concluded that these controls and procedures are effective at the reasonable assurance level.
 
15

 
PART II – OTHER INFORMATION
 
ITEM 1. Legal Proceedings.
 
None.
 
ITEM 1A. Risk Factors.
 
Factors that could cause our actual results to differ materially from those in this report are any of the risks described in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC. Any of the factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

As of June 30, 2008, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC.
 
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.        
 
None.
 
ITEM 3. Defaults Upon Senior Securities.
 
None.
 
ITEM 4. Submission of Matters to a Vote of Security Holders.
 
The Company held its Annual Meeting of the Stockholders on May 6, 2008 in New York. The stockholders elected three directors for terms of three years each and ratified the appointment of the firm Grobstein, Horwath & Company, LLP as the independent auditors for the Company for the fiscal year ending December 31, 2008.

The votes cast for or withheld for the election of the directors were as follows:

NAME
 
FOR
 
WITHHELD
 
Jun Lei
   
7,959,567
   
3,600
 
   
7,959,567
   
3,600
 
Dr. Jianming Yu
   
6,509,205
   
1,453,962
 
 
The votes cast for, against or abstain for the ratification of the appointment of the firm Grobstein, Horwath & Company, LLP as the independent auditors for the Company for the fiscal year ending December 31, 2008 were as follows:

FOR
 
AGAINST
 
ABSTAIN
 
7,962,767
   
0
   
400
 

There were no other matters presented to the Company’s stockholders during the quarter ended June 30, 2008.
 
ITEM 5. Other Information.
 
None.
 
16

 
ITEM 6. Exhibits.
 
(a) Exhibits:

31.1 - Section 302 Certification by Chief Executive Officer and President

31.2 - Section 302 Certification by Chief Financial Officer and Treasurer

32.1 - Section 906 Certification by Chief Executive Officer and President

32.2 - Section 906 Certification by Chief Financial Officer and Treasurer
 
17

 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
 
2020 ChinaCap Acquirco, Inc.
 
Dated: August __, 2008
   
By:
/s/ G. George Lu
       
G. George Lu
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
 
 
 
 
 
 
 
 
By:
/s/ Louis F. Koo
 
 
 
 
Louis F. Koo
Vice Chairman, Chief Financial Officer and Treasurer
(Principal Financial Officer)
 
EXHIBIT INDEX
 
EXHIBIT NO.
 
31.1
 
Certification of Chief Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
31.2
 
Certification of Chief Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
32.1
 
Certification of 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 of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
18

 
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