Attached files
file | filename |
---|---|
EX-32.1 - SECTION 1350 CERTIFICATION OF CEO - Pypo China Holdings Ltd | v164954_ex32-1.htm |
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CEO - Pypo China Holdings Ltd | v164954_ex31-1.htm |
EX-32.2 - SECTION 1350 CERTIFICATION OF CFO - Pypo China Holdings Ltd | v164954_ex32-2.htm |
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CFO - Pypo China Holdings Ltd | v164954_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q/A
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
Quarterly Period Ended June 30, 2009
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from to
Commission
File Number: 333-153492
PYPO
CHINA HOLDINGS LIMITED
(Exact
name of registrant as specified in its charter)
Cayman
Islands
(State
or other jurisdiction of incorporation or
organization)
|
N/A
(I.R.S
Employer Identification No.)
|
South
3/F, Chang’An XingRong Center
No.
1 NaoShiKou Street,
XiCheng
District
Beijing,
China
(Address
of principal executive offices)
|
100031
(Zip
Code)
|
8610-5832-5957
(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 Securities Exchange Act of 1934
during the preceding 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 x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes ¨ No
¨
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
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the last practicable date. There were 48,988,493 ordinary shares of
the Company, par value of $0.001 each, outstanding as of August 31,
2009.
EXPLANATORY
NOTE
This
amendment on Form 10-Q/A amends the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009, filed with the Securities and Exchange Commission
on August 14, 2009, by Middle Kingdom Alliance Corp. (“Middle Kingdom”) and
MK Arizona Corp. (“MK Arizona”) (collectively, the “Original 10-Qs”) to
correct the inadvertent inclusion of the signatures of the former officers
of Middle Kingdom and MK Arizona. This amendment includes (i) signatures of the
officers of Pypo China Holdings Limited (“PCHL”) on the Quarterly Report on
Form 10-Q and (ii) the certificates of PCHL’s chief executive officer and
chief financial officer pursuant to Section 302 and Section 906 of the
Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2, 32.1 and 32.2.
On July
9, 2009, Middle Kingdom and Pypo Digital Company Limited (“Pypo Cayman”)
consummated a business combination in two steps. First, Middle
Kingdom merged into MK Arizona, then a wholly owned Arizona subsidiary of Middle
Kingdom, with MK Arizona surviving the merger. Second, MK Arizona
converted and continued its corporate existence from Arizona to the Cayman
Islands as PCHL. PCHL then purchased the issued and outstanding
shares of Pypo Cayman from Pypo Cayman’s shareholders in exchange for ordinary
shares of PCHL. As a result of the share exchange, Pypo Cayman became
a wholly owned subsidiary of PCHL and Pypo’s former shareholders became holders
of PCHL’s ordinary shares. After the consummation of the business
combination, PCHL assumed the reporting obligations of Middle Kingdom and MK
Arizona under the Securities Exchange Act of 1934, as amended.
Except as
described above, no other changes
have been made to the Original 10-Qs. This Form 10-Q/A continues to speak as of
the original filing date of the Original 10-Qs and, except as described above, does not
modify or update any related disclosures made in the Original
10-Qs.
2
MIDDLE
KINGDOM ALLIANCE CORP.
(a
development stage company)
TABLE
OF CONTENTS
Page No.
|
||||||
Part
I.
|
FINANCIAL
INFORMATION
|
|||||
Item
1.
|
Financial
Statements
|
4 | ||||
Balance
Sheets, June 30, 2009 (Unaudited) and December 31, 2008
|
4 | |||||
Statements
of Operations for the three and six months ended June 30, 2009 (Unaudited)
and 2008 (Unaudited) and for the period January 17, 2006 (inception) to
June 30, 2009 (Unaudited)
|
5 | |||||
Statements
of Changes in Stockholders’ Equity for the six months ended June 30, 2009
(Unaudited) and for the period January 17, 2006 (inception) to December
31, 2008
|
6 | |||||
Statements
of Cash Flows for the six months ended June 30, 2009 (Unaudited) and 2008
(Unaudited) and for the period January 17, 2006 (inception) to June 30,
2009 (Unaudited)
|
7 | |||||
Notes
to Financial Statements
|
8 | |||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18 | ||||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
22 | ||||
Item
4.
|
Controls
and Procedures
|
23 | ||||
Part
II.
|
OTHER
INFORMATION
|
|||||
Item
1.
|
Legal
Proceedings
|
24 | ||||
Item
1A.
|
Risk
Factors
|
24 | ||||
Item
2.
|
Unregistered
Sales Of Equity Securities And Use Of Proceeds
|
24 | ||||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
24 | ||||
Item
6.
|
Exhibits
|
25 | ||||
SIGNATURES
|
36 |
3
PART I. FINANCIAL
INFORMATION
ITEM
1. Financial Statements
MIDDLE KINGDOM ALLIANCE
CORP.
(a
development stage company)
BALANCE
SHEETS
|
June 30,
|
December 31,
|
||||||
|
2009
|
2008
|
||||||
|
(unaudited)
|
|||||||
ASSETS
|
|
|||||||
Current
assets:
|
|
|||||||
Cash and cash
equivalents
|
|
$
|
16,924
|
|
$
|
20,664
|
|
|
Cash held in trust
account
|
|
25,891,135
|
|
25,918,923
|
|
|||
Income tax refund
receivable
|
|
240,000
|
|
240,000
|
|
|||
Prepaid insurance and other
assets
|
|
—
|
|
46,003
|
|
|||
|
||||||||
Total current
assets
|
|
$
|
26,148,059
|
|
$
|
26,225,590
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|||||||
Current
liabilities:
|
|
|||||||
Accounts payable and accrued
liabilities
|
|
$
|
2,557,482
|
|
$
|
1,364,522
|
|
|
Bank line of
credit
|
|
249,000
|
|
249,000
|
|
|||
Shareholders
loans
|
|
228,949
|
|
137,935
|
|
|||
Due to
underwriters
|
|
1,005,694
|
|
947,662
|
|
|||
Liability to redeeming Class B
Common Stockholders
|
|
1,317,348
|
|
0
|
|
|||
|
||||||||
Total current
liabilities
|
|
5,358,473
|
|
2,699,119
|
|
|||
Commitments:
|
|
|||||||
Class B common stock, $.001 par
value,
0 and 336,018 shares subject to
possible redemption
|
|
—
|
|
2,833,624
|
|
|||
Stockholders’ Equity:
|
|
|||||||
Preferred stock - $.001 par value;
Authorized 1,000,000 shares; none
issued
|
|
$
|
—
|
|
$
|
—
|
|
|
Common stock - $.001 par value;
Authorized 15,000,000 shares;
issued and outstanding 1,065,650
|
|
1,065
|
|
1,065
|
|
|||
Class B common stock - $.001 par
value; Authorized 5,000,000 shares;
issued and outstanding 2,917,593 and 3,072,263 (includes 0 and 336,018
shares subject to
possible redemption)
|
|
2,918
|
|
3,072
|
|
|||
Additional paid-in
capital
|
|
23,157,127
|
|
21,699,418
|
|
|||
(Accumulated deficit) during the
development stage
|
|
(2,371,524
|
)
|
(1,010,708
|
)
|
|||
|
||||||||
Total stockholders’ equity
|
|
20,789,586
|
|
20,692,847
|
|
|||
|
||||||||
Total liabilities and
stockholders’ equity
|
|
$
|
26,148,059
|
|
$
|
26,225,590
|
|
The accompanying notes should be
read
in conjunction with the financial
statements.
4
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
STATEMENTS OF
OPERATIONS
Period from
|
||||||||||||||||||||
January 17,
|
||||||||||||||||||||
2006
|
||||||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
(inception) to
|
||||||||||||||||||
June 30,
|
June 30,
|
June 30,
|
June 30,
|
June 30,
|
||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||||
Operating
expenses:
|
|
|||||||||||||||||||
General, administrative and
legal
|
|
$
|
(809,514
|
)
|
$
|
(343,154
|
)
|
$
|
(1,377,499
|
)
|
$
|
(656,365
|
)
|
$
|
(4,316,362
|
)
|
||||
|
||||||||||||||||||||
Loss from
operations
|
|
(809,514
|
)
|
(343,154
|
)
|
(1,377,499
|
)
|
(656,365
|
)
|
(4,316,362
|
)
|
|||||||||
Profit on sale of
investment
|
|
—
|
|
—
|
|
—
|
|
—
|
|
699
|
|
|||||||||
Interest
income
|
|
4,367
|
|
151,685
|
|
16,683
|
|
378,743
|
|
1,967,035
|
|
|||||||||
(Loss) income before provision for
income taxes
|
|
(805,147
|
)
|
(191,469
|
)
|
(1,360,816
|
)
|
(277,622
|
)
|
(2,348,628
|
)
|
|||||||||
Income tax benefit (expense) -
current
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(22,896
|
)
|
|||||||||
|
||||||||||||||||||||
Net (loss)
income
|
|
$
|
(805,147
|
)
|
$
|
(191,469
|
)
|
$
|
(1,360,816
|
)
|
$
|
(277,622
|
)
|
$
|
(2,371,524
|
)
|
||||
|
||||||||||||||||||||
Weighted average number of shares
outstanding
|
|
4,136,213
|
|
4,485,955
|
|
4,136,366
|
|
4,485,955
|
|
|||||||||||
|
||||||||||||||||||||
Net (loss) income per share -
basic
|
|
$
|
(0.19
|
)
|
$
|
(0.04
|
)
|
$
|
(0.33
|
)
|
$
|
(0.06
|
)
|
|||||||
|
||||||||||||||||||||
Net (loss) income per share -
diluted
|
|
$
|
(0.19
|
)
|
$
|
(0.04
|
)
|
$
|
(0.33
|
)
|
$
|
(0.06
|
)
|
The accompanying notes should be
read
in conjunction with the financial
statements.
5
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
STATEMENTS OF CHANGES IN
STOCKHOLDER’S EQUITY
(Unaudited)
Retained
|
||||||||||||||||||||||||||||
Earnings
|
||||||||||||||||||||||||||||
(Accumulated
|
||||||||||||||||||||||||||||
Deficit) During
|
||||||||||||||||||||||||||||
Class
B
|
Additional
|
the
|
Total
|
|||||||||||||||||||||||||
Common
Stock
|
Common
Stock
|
Paid-In
|
Development
|
Stockholders’
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Equity
|
||||||||||||||||||||||
January 17,
2006 (inception)
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
Issuances
of common stock for cash to founders
at $.03 per share (from February 15, 2006 to September 30,
2006)
|
750,000 | 750 | 21,750 | 22,500 | ||||||||||||||||||||||||
Issuances
of Series A units for cash to founders at $8.00 per unit (from
February 15, 2006 to September 30,
2006)
|
90,450 | 90 | 723,510 | 723,600 | ||||||||||||||||||||||||
Sale
of Series A units, net of underwriters’ discount
and offering expenses on December 19,
2006
|
198,000 | 198 | 1,532,397 | 1,532,595 | ||||||||||||||||||||||||
Sale
of Series B units, net of underwriters’ discount
and offering expenses on December 19, 2006 (includes shares subject
to possible redemption)
|
3,300,000 | 3,300 | 23,950,909 | 23,954,209 | ||||||||||||||||||||||||
Proceeds
from the issuance of an underwriters’ option
|
100 | 100 | ||||||||||||||||||||||||||
Reclassification
of amounts subject to possible redemption of 659,999 Class B common
shares
|
(5,438,392 | ) | (5,438,392 | ) | ||||||||||||||||||||||||
Net
loss
|
(92,546 | ) | (92,546 | ) | ||||||||||||||||||||||||
Balance
- December 31, 2006
|
1,038,450 | 1,038 | 3,300,000 | 3,300 | 20,790,274 | (92,546 | ) | 20,702,066 | ||||||||||||||||||||
Sale
of Series A units, net of underwriters’ discount
and offering
expenses on January 5, 2007
|
27,200 | 27 | 210,435 | 210,462 | ||||||||||||||||||||||||
Sale
of Series B units, net of underwriters’ discount
and offering expenses on January 26, 2007 (includes shares subject to
possible redemption)
|
120,305 | 120 | 894,554 | 894,674 | ||||||||||||||||||||||||
Reclassification
of amounts subject to possible redemption of an additional 24,061 Class B
common stock for a total of 684,060 Class B common
shares
|
(198,263 | ) | (198,263 | ) | ||||||||||||||||||||||||
Overpayment
of NASD filing fees refunded
|
2,070 | 2,070 | ||||||||||||||||||||||||||
Net
Income
|
403,266 | 403,266 | ||||||||||||||||||||||||||
Balance
- December 31, 2007
|
1,065,650 | 1,065 | 3,420,305 | 3,420 | 21,699,070 | 310,720 | 22,014,275 | |||||||||||||||||||||
Redemption
and cancellation of 348,042 Class B common
shares
|
(348,042 | ) | (348 | ) | 348 | — | ||||||||||||||||||||||
Net
loss
|
(1,321,428 | ) | (1,321,428 | ) | ||||||||||||||||||||||||
Balance
- December 31, 2008
|
1,065,650 | $ | 1,065 | 3,072,263 | $ | 3,072 | $ | 21,699,418 | $ | (1,010,708 | ) | $ | 20,692,847 | |||||||||||||||
Net
loss
|
(555,669 | ) | (555,669 | ) | ||||||||||||||||||||||||
Balance
- March 31, 2009
|
1,065,650 | $ | 1,065 | 3,072,263 | $ | 3,072 | $ | 21,699,418 | $ | (1,566,377 | ) | $ | 20,137,178 | |||||||||||||||
Redemption
and cancellation of 154,670 Class
B common shares
|
(154,670 | ) | (154 | ) | 154 | — | ||||||||||||||||||||||
Reclassification
of 181,348 Class B common shares no longer subject to possible redemption
of
|
1,457,555 | 1,457,555 | ||||||||||||||||||||||||||
Net
loss
|
(805,147 | ) | (805,147 | ) | ||||||||||||||||||||||||
Balance
- June 30, 2009
|
1,065,650 | $ | 1,065 | 2,917,593 | $ | 2,918 | $ | 23,157,127 | $ | (2,371,524 | ) | $ | 20,789,586 |
The accompanying notes should be
read
in conjunction with the financial
statements.
6
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
STATEMENTS OF CASH
FLOWS
(Unaudited)
For
the
Period
|
||||||||||||
from
|
||||||||||||
For the Six Months Ended
|
January 17, 2006
|
|||||||||||
June 30,
2009
|
June 30,
2008
|
(inception)
to June 30, 2009 |
||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||
Cash flows from operating
activities:
|
|
|||||||||||
Net (loss)
income
|
|
$
|
(1,360,816
|
)
|
$
|
(277,622
|
)
|
$
|
(2,371,524
|
)
|
||
Adjustments to reconcile net
(loss) income to net cash (used in) provided by operating
activities:
|
|
|||||||||||
Decrease (increase) value of trust
account
|
|
24,400
|
|
(27,469
|
)
|
—
|
|
|||||
Adjustments to redemption value of
redeeming Class B common shares
|
|
(689
|
)
|
—
|
|
71,790
|
|
|||||
Deferred interest income included
in shares subject to redemption
|
|
—
|
|
37,434
|
|
—
|
|
|||||
Changes in operating assets and
liabilities:
|
|
|||||||||||
Prepaid insurance and other
assets
|
|
46,003
|
|
1,127
|
|
—
|
|
|||||
Income tax refund
receivable
|
|
—
|
|
—
|
|
(240,000
|
)
|
|||||
Accounts payable and accrued
liabilities
|
|
1,192,960
|
|
110,570
|
|
2,557,482
|
|
|||||
Net cash (used in) provided by operating
activities
|
|
(98,142
|
)
|
(155,960
|
)
|
17,748
|
|
|||||
|
||||||||||||
Cash flows from investing
activities:
|
|
|||||||||||
Purchase of investment in trust
account, net
|
|
3,388
|
|
(168,759
|
)
|
(25,891,135
|
)
|
|||||
Net cash used in investing
activities
|
|
3,388
|
|
(168,759
|
)
|
(25,891,135
|
)
|
|||||
|
||||||||||||
Cash flows from financing
activities:
|
|
|||||||||||
Proceeds from common stock to
founders
|
|
—
|
|
—
|
|
22,500
|
|
|||||
Proceeds from Series A units to
founders
|
|
—
|
|
—
|
|
723,600
|
|
|||||
Proceeds from Series A and Series
B units sold
|
|
—
|
|
—
|
|
27,599,704
|
|
|||||
Proceeds from issuance of an
underwriters’ option
|
|
—
|
|
—
|
|
100
|
|
|||||
Proceeds from bank line of
credit
|
|
—
|
|
—
|
|
444,000
|
|
|||||
Proceeds from shareholders
loans
|
|
91,014
|
|
225,000
|
|
228,949
|
|
|||||
Repayment of bank line of
credit
|
|
—
|
|
(45,000
|
)
|
(195,000
|
)
|
|||||
Redemption of Class B
common
shares
|
|
—
|
|
—
|
|
(2,933,542
|
)
|
|||||
Net cash provided by financing
activities
|
|
91,014
|
|
180,000
|
|
25,890,311
|
|
|||||
|
||||||||||||
Net (decrease) increase in
cash
|
|
(3,740
|
)
|
(144,719
|
)
|
16,924
|
|
|||||
Cash and cash equivalents at beginning of
period
|
|
20,664
|
|
168,915
|
|
—
|
|
|||||
Cash and cash equivalents at end
of period
|
|
$
|
16,924
|
|
$
|
24,196
|
|
$
|
16,924
|
|
||
|
||||||||||||
Supplemental disclosure of
non-cash financing activities:
|
|
|||||||||||
Reclassification from redeeming
shares to current liabilities
|
|
$
|
1,317,348
|
|
$
|
—
|
|
$
|
—
|
|
||
Reclassification from
non-redeeming shares to additional paid in capital
|
|
$
|
1,457,554
|
|
$
|
—
|
|
$
|
—
|
|
||
Accrual of deferred underwriting
fees
|
|
$
|
58,032
|
|
$
|
—
|
|
$
|
1,005,694
|
|
||
|
||||||||||||
Supplemental disclosure of cash
flow information:
|
|
|||||||||||
Cash paid during the year
for:
|
|
|||||||||||
Interest
|
|
$
|
3,087
|
|
$
|
822
|
|
$
|
9,692
|
|
||
Income taxes
|
|
$
|
5,000
|
|
$
|
—
|
|
$
|
286,890
|
|
The accompanying notes should be
read
in conjunction with the financial
statements.
7
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL
STATEMENTS
Note 1 Basis of presentation, organization and
proposed business operations and summary of significant accounting
policies
Basis of
Presentation
The accompanying financial statements at
June 30, 2009, for the three and six months ended June 30, 2009 and 2008 and for
the period from January 17, 2006 (inception) to June 30, 2009 are unaudited. In
the opinion of management, all adjustments (consisting of normal accruals) have
been made that are necessary to present fairly the financial position of Middle
Kingdom Alliance Corp. (a development stage company) (the “Company”) as of June
30, 2009, the results of its operations for the three and six months ended June
30, 2009 and 2008 and for the period from January 17, 2006 (inception) to June
30, 2009, and its cash flows for six months ended June 30, 2009 and 2008 and for
the period from January 17, 2006 (inception) to June 30, 2009. Operating results
for interim periods are not necessarily indicative of the results to be expected
for the full year. These financial statements should be read in conjunction with
the financial statements that were included in the Company’s Annual Report on
Form 10-K/A for the period ended December 31, 2008. The accompanying December
31, 2008 balance sheet has been derived from the audited financial statements
included therein.
Organization and
Operations
The Company was incorporated in Delaware
on January 17, 2006. The Company was formed to complete a merger, capital stock
exchange, asset purchase or other similar business combination (“Business
Combination”) with a company in an unspecified industry with principal or
substantial operations in the People’s Republic of China (“China”). Such company
would be small enough to allow the Company to acquire a material minority
investment and large enough to have the organizational and financial
infrastructure to operate as a public company. The Company has neither engaged
in any operations nor generated any operating revenue to date. At June 30, 2009,
the Company had not yet commenced any operations. All activity through June 30,
2009 relates to the Company’s formation, private placement and public offerings
and its efforts to complete a Business Combination. The Company is considered to
be in the development stage and is subject to the risks associated with
activities of development stage companies.
The registration statement for the
Company’s initial public offering (the “Public Offering”) was declared effective
on December 13, 2006. The Company completed a private placement (the “Private
Placement”) in February 2006 and received net proceeds of $723,600. The Company
consummated the Public Offering on December 19, 2006 and received proceeds of
$26,394,963, net of underwriters’ discount of $1,119,360 and offering expenses
of $469,677. On January 4, 2007, and January 26, 2007, the underwriters
exercised a portion of their over-allotment option from which the Company
received proceeds of $1,144,639, net of underwriters’ discount of $35,401. The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Private Placement and the Public Offering
(collectively the “Offerings”) (as described in Note 4), although substantially
all of the net proceeds of the Offerings are intended to be generally applied
toward consummating a Business Combination with a company with principal or
substantial operations in China.
The Company’s Certificate of
Incorporation, prior to an amendment filed on December 10, 2008 as discussed
below, provided for mandatory liquidation of the Company in the event that the
Company did not complete a Business Combination within 18 months after the
Effective Date of the Public Offering on December 13, 2006, being June 13, 2008
(or within 24 months after the effective date of the Public Offering if a letter
of intent, agreement in principle or definitive agreement had been executed
within 18 months after the effective date of the Public Offering and the
Business Combination has not been completed within such 24 month period, being
December 13, 2008). On May 23, 2008 the Company issued a press release in
connection with its execution of a letter of intent to complete a Business
Combination with a company having its principle operations in China. Pursuant to
the Company’s Certificate of Incorporation, execution of the letter of intent
affords the Company an extension to complete the Business Combination, until
December 13, 2008.
8
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 1 Basis of presentation, organization and
proposed business operations and summary of significant accounting policies -
continued
Organization and Operations -
continued
As described in Note 3, on September 5,
2008 the Company signed an Agreement and Plan of Merger, Conversion and Share
Exchange (the “merger agreement”) with Pypo Digital Company Limited (“Pypo or
Pypo Cayman”). Pypo, a Cayman Islands exempted company, through its subsidiaries
in China and Hong Kong, is a leading distributor of Samsung wireless
communication devices and other related products. The transactions contemplated
by the merger agreement would constitute a Business
Combination.
On September 15, 2008 the Company filed
a registration statement on Form S-4 containing a prospectus for the
transactions contemplated by the merger agreement and a proxy for the special
meeting of the Company’s stockholders to vote on the proposed Business
Combination with Pypo. The Company subsequently filed an amended registration
statement on Form S-4/A on December 8, 2008, and the Company’s wholly owned
subsidiary, MK Arizona Corp. (“MK Arizona”) filed eight amended registration
statements on Form S-4/A on January 16, 2009, March 6, 2009, April 6, 2009,
April 30, 2009, May 11, 2009, May 13, 2009 and two filings on May 14, 2009,
addressing the SEC staff’s comments received from each of the first eight
filings on October 10, 2008, December 19, 2008, February 13, 2009, March 23,
2009, April 20, 2009, May 8, 2009, May 12, 2009, May 13, 2009 and May 14, 2009.
On May 14, 2009, the SEC advised the Company that they had no additional
comments (although neither the SEC nor the SEC staff passed on the accuracy or
adequacy of the registration statement) and declared the Form S-4 registration
statement effective. On May 14, 2009, the Company mailed the combined proxy
statement for a special meeting of the stockholders of the Company and
prospectus of Pypo China Holdings Limited to its stockholders of record as of
that date. As described below, the special meeting of the stockholders of the
Company was held on June 29, 2009 at which time the transactions contemplated by
the merger agreement were approved. The transactions contemplated by the merger
agreement were consummated on July 9, 2009.
Because the Company could not predict
with any certainty the length of the SEC staff’s review process and because it
had to give stockholders sufficient time to review the proxy
statement/prospectus prior to the special meeting to consider the Business
Combination with Pypo, the Company concluded that it would not be able to
complete the Business Combination by December 13, 2008. Therefore, on November
3, 2008 the Company filed with the SEC a preliminary proxy statement for a
special meeting of its stockholders at which the stockholders would be asked to
approve three amendments (the “extension amendments”) to the Company’s
Certificate of Incorporation that would extend the December 13, 2008 deadline to
August 31, 2009. The Company received comments from the SEC staff on the
preliminary proxy statement to which the Company responded accordingly. On
November 25, 2008 the SEC staff advised the Company that they had no additional
comments on the preliminary proxy statement (although the SEC staff may always
perform an additional review and have additional comments, and neither the SEC
nor the SEC staff passed on the accuracy or adequacy of the proxy statement) and
on November 26, 2008 the Company’s registrar and transfer agent mailed the proxy
statement to the Company’s stockholders of record to schedule a special meeting
to consider the extension amendments for December 10, 2008. During the period
from November 26, 2008 to the special stockholders meeting on December 10, 2008,
Capital Ally Investments Limited (“Capital Ally”) together with ARCH Digital
Holdings, Ltd. (“ARCH”), purchased 2,685,200 of the Company’s Class B Common
Stock for an ownership interest of 87.40% and 92.03% of the outstanding Class B
Common Stock at December 31, 2008 and June 30, 2009, respectively. Capital Ally
and ARCH hold 67% and 33%, respectively, of the ordinary shares of Pypo. On
December 10, 2008, the extension amendments were approved by the common
stockholders and the Class B stockholders. As a result of the extension
amendments, the Company had until August 31, 2009 to complete its proposed
Business Combination with Pypo before it must liquidate.
With respect to a Business Combination
which was approved and consummated, any Class B common stockholders who voted
against the Business Combination could demand that the Company redeem their
shares for cash. The conversion price would equal $8.24 per share of Class B
common stock, plus (i) a pro-rata share of the interest earned in the Trust
Account (see below) in excess of the lesser of $1,200,000 or 50% of such
interest (prior to the payment of any federal and state taxes due by the
Company), and (ii) a pro-rata share of the income tax refund receivable of
$240,000. Such amount aggregated approximately $8.51 at December 31, 2008, and
was approximately $8.52 on June 29, 2009.
9
MIDDLE KINGDOM ALLIANCE CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 1 Basis of presentation, organization and
proposed business operations and summary of significant accounting policies -
continued
Organization and Operations -
continued
The Company’s Certificate of
Incorporation provided that the Company would proceed with a Business
Combination only if the holders of a majority of the Class B shares cast at the
meeting to approve the Business Combination vote in favor of the Business
Combination and Class B stockholders owning less than 20% of the outstanding
Class B shares (684,060 shares) vote against the Business Combination and
exercise their conversion rights to have their shares redeemed for cash.
However, in connection with the December 10, 2008 special meeting to consider
the extension amendments, Class B stockholders who voted against the extension
amendment had the right to demand that the Company redeem their Class B shares
for cash. The holders of 348,042 Class B shares, or 10.17% of the Class B shares
outstanding, elected to redeem their shares for cash, and such shares were
redeemed by the Company in December, 2008 for an aggregate of $2,933,542 using
the proceeds of the partial sale of investments held in the Trust
Account.
As a result of these December 10, 2008
redemptions, the Company would then proceed with a Business Combination only if
the holders of less than 336,019 Class B shares (9.82% of the number of Class B
shares originally issued and less than 10.94% of the Class B shares that remain
outstanding as of the date of the special meeting of the stockholders) elected
to redeem their shares for cash. In connection with the vote required for any
Business Combination, all our officers, directors and sponsor agreed to vote any
Class B common stock owned by them prior to the public offering in accordance
with the majority of the Class B shares voted by the public Class B
stockholders.
At the special meeting of the Company’s
stockholders on June 29, 2009 at which the transactions contemplated by the
merger agreement with Pypo were approved, the holders of 154,670 shares of the
Company’s Class B common stock voted against the proposed Business Combination
with Pypo and elected to convert their shares into the right to receive cash.
Such 154,670 Class B shares were redeemed at a price of approximately $8.52 per
share, or $1,317,348 in the aggregate, on July 10, 2009 in connection with the
closing of the Business Combination with Pypo, and are presented as a liability
on the accompanying balance sheet as of June 30, 2009.
The amounts of $25,891,135 and
$25,918,923 were being held in a trust account (“Trust Account”) at June 30,
2009 and December 31, 2008, respectively. Prior to June 24, 2009 these funds
were invested until the earlier of (i) the consummation of a Business
Combination or (ii) the liquidation of the Company, and subsequent to June 24,
2009, the funds were held in cash as described below. The investments held by
the Trust Account at December 31, 2008 were as follows (see Note
2):
|
Face
amount
|
Original
cost
|
Fair
value
|
Maturity
date
|
|||||||||
December 31,
2008
|
|
|
|||||||||||
Federal Home Loan Bank discount
note
|
25,928,000 | $ | 25,894,521 | $ | 25,922,555 |
January 16, 2009
|
On January 16, 2009 the Company
instructed the Trustee of the Trust Account to re-invest the proceeds from the
maturing Federal Home Loan Bank discount note in a Federal National Mortgage
Association discount note maturing April 21, 2009. On April 21, 2009, the
Company instructed the Trustees for the Trust Account to re-invest the proceeds
from the maturing Federal National Mortgage Association discount note in a
United States Treasury Bill (“US T-bill”), maturing on June 4, 2009, which was
re-invested on that date in a US T-bill, maturing on June 24,
2009.
On June 24, 2009, in contemplation of
the June 29, 2009 stockholders’ meeting and the subsequent completion of the
Business Combination (including any redemption of shares of Class B common stock
that elected redemption at that time), the Company instructed the Trustee to
convert all of the amounts in the Trust Account into cash to be held in a
non-interest bearing account. At June 30, 2009 the amounts in the Trust Account
are held in a non-interest bearing account at JPMorgan Chase Bank, N.A. Under
the FDIC’s Transaction Account Guarantee Program, such non-interest bearing
accounts are insured up to their full amount during the life of the program,
which the FDIC has scheduled to end on December 31,
2009.
10
MIDDLE KINGDOM ALLIANCE CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 1 Basis of presentation, organization and
proposed business operations and summary of significant accounting policies -
continued
Organization and Operations -
continued
The amount in the Trust Account included
$1,055,187 of contingent underwriting compensation (the “Compensation”) at
December 31, 2008. If no additional Class B shares were redeemed for cash in
connection with a Business Combination, then the underwriter was entitled to
such Compensation upon the completion of a Business Combination. As a result of
the redemption of 154,670 shares of Class B common stock in connection with the
vote on the Business Combination, the Compensation that the underwriter was
entitled to was reduced by $49,494 ($.32 per share). The underwriter was thus
entitled to $1,005,694 of the Compensation upon the closing of the Business
Combination, and such amount is reflected as a liability at June 30,
2009.
One half of the interest earned in the
Trust Account (prior to the payment of any federal and state taxes due by the
Company) up to a maximum of $1,200,000 was available to the Company to fund
legal, accounting and continuing general and administrative expenses. At June
30, 2009, the Company had withdrawn a total of $1,041,311 of the interest earned
on the Trust Account. At June 30, 2009, a remaining balance of $158,689 may be
withdrawn by the Company before reaching the maximum allowable amount of
$1,200,000. However, due to declining interest rates, the Company believes that
the Trust Account will not earn sufficient interest through August 31, 2009 to
make available the remaining $158,689 distributable to the
Company.
11
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS – continued
Note 2 Summary of Significant Accounting
Policies
Cash and cash
equivalents:
The Company has defined cash and cash
equivalents as highly liquid investments with original maturities of ninety days
or less. The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. As of June 30, 2009 and December 31,
2008, there were no bank balances in excess of FDIC insurance limits. The
Company has not experienced any losses in such accounts.
Net income (loss) per common
share:
Net income (loss) per share has been
computed by dividing net income (loss) for the period by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
give effect to dilutive options and warrants outstanding during the period. No
effect has been given to potential issuances of common shares, aggregating
5,777,355 at June 30, 2009 and 2008 from warrants or the underwriters purchase
option in the computation of the diluted income (loss) per share, as the
outstanding warrants and underwriters purchase option are contingently
exercisable, commencing on the later of the consummation by the Company of a
Business Combination or December 13, 2007.
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 revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Investments held in trust
account:
Through June 24, 2009 the investments
held in trust were invested in United States government securities (“US
Securities”) with a maturity of 180 days or less. The US Securities were
classified as held-to-maturity and measured at their amortized cost, which
approximates fair value (see Note 1). The excess of fair value (amortized cost)
over cost, exclusive of the deferred interest described below, is considered
accrued interest which is included in interest income in the accompanying
Statements of Operations. These US Securities are typically purchased at a
discount from their face value in order to create a yield which is fixed through
their maturity.
In December, 2008 the Company sold a
portion of the securities in the Trust Account to fund the redemption of the
shares of Class B common stock redeemed in connection with the special meeting
to vote on the extension amendment (see Note 1). The Company does not believe
that the sale affects its intent or ability to hold the remaining securities in
the Trust Account to maturity as the sale was the result of an isolated and
nonrecurring event.
As discussed in Note 1, on June 24, 2009
the Company converted the amounts held in the Trust Account into non-interest
bearing cash deposits.
Deferred
interest:
Deferred interest represents the portion
of the interest earned on the investments in the Trust Account that is credited
to the carrying amount of the Class B common stock subject to possible
redemption. The amount of interest treated as deferred interest consists of
19.99% of the interest attributable to the Class B common stockholders through
December 10, 2008, and 9.82% of such interest for the period December 11, 2008
to December 31, 2008 and 9.82% for the period from January 1, 2009 to June 29,
2009. The interest income attributable to the Class B common stockholders is
computed as total interest income earned in the Trust Account in excess of the
lesser of $1,200,000 or 50% of such interest prior to the payment of any federal
and state taxes due by the Company. Deferred interest of $130,510 is included in
the value of the Class B common stock subject to possible redemption at December
31, 2008 in the accompanying Balance Sheets. At June 30, 2009 the liability for
the redemption of the 154,670 shares of Class B common stock that elected
redemption in connection with the June 29, 2009 vote on the proposed Business
Combination with Pypo includes $60,074 of deferred interest attributable to
those shares.
12
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS – continued
Note 2 Summary of Significant Accounting
Policies - continued
Income taxes:
The Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company’s financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
As of January 1, 2007, the Company has
adopted FIN 48, Accounting for Uncertainty in Income Taxes, as
amended.
Overnight reverse repurchase
agreements:
The Company may invest its excess cash
held in its checking account in overnight reverse repurchase agreements, with
its bank. In connection with these transactions, it is the policy of the bank to
deposit the underlying collateral in US Government Agency obligations with the
Federal Reserve for the benefit of the Company. The fair value of the underlying
collateral exceeds the principal amount of the overnight reverse repurchase
agreement, including accrued interest.
New accounting
pronouncements:
In May 2009, the FASB issued Statement
No. 165, Subsequent Events. Statement 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the financial statements are issued or are available to be issued.
Statement 165 was effective for interim and annual periods ending after June 15,
2009. All subsequent events were disclosed through August 14,
2009.
The Company does not believe that any
recently issued, but not yet effective, accounting standards if currently
adopted would have a material effect on its financial position or results of
operations.
13
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 3 Merger with
Pypo
On September 5, 2008, the Company signed
an Agreement and Plan of Merger, Conversion and Share Exchange (the “merger
agreement”) with Pypo Digital Company Limited (“Pypo or Pypo Cayman”). Pypo, a
Cayman Islands exempted company, through its subsidiaries in China and Hong
Kong, is a distributor of Samsung wireless communication devices and other
related products. The transactions contemplated by the merger agreement would
constitute a Business Combination. As discussed in Note 1, on June 29, 2009 the
Company’s stockholders approved the transactions contemplated by the merger
agreement, and the transactions contemplated by the merger agreement were
consummated on July 9, 2009.
As part of the series of transactions
contemplated by the merger agreement, the Company established MK Arizona Corp.
(“MK Arizona”), a wholly owned Arizona subsidiary. Through June 30, 2009 MK
Arizona had no material transactions. On July 9, 2009 the Company effected a
short-form merger, pursuant to which the Company merged with and into MK
Arizona, with MK Arizona remaining as the surviving corporation. After the
merger, MK Arizona became a Cayman Islands exempted company (“MK Cayman”)
pursuant to a conversion and continuation procedure under Arizona and Cayman
Islands law. The reorganization changed Middle Kingdom’s place of incorporation
from Delaware to the Cayman Islands (“the redomestication”) and the outstanding
securities of the Company were converted into securities of MK
Cayman.
Pursuant to the merger agreement, after
the redomestication, MK Cayman acquired all of the outstanding shares of Pypo
Cayman by issuing the Pypo Cayman shareholders an aggregate of 45,000,000 MK
Cayman ordinary shares and 3,400,000 MK Cayman Class B warrants. In addition, MK
Cayman agreed to issue the Pypo Cayman shareholders up to an additional
23,000,000 MK Cayman ordinary shares pursuant to an earn-out provision in the
merger agreement based on the adjusted net income of the combined company during
the fiscal years ending March 31, 2010, 2011 and potentially
2012.
As a result of the consummation of the
Business Combination with Pypo (and considering the affect of the shares of the
Company’s Class B common stock that elected to be redeemed, as discussed above),
as of July 9, 2009 the stockholders of the Company beneficially own
approximately 8.1% of the outstanding ordinary shares of MK Cayman, and as of
July 9, 2009 the stockholders of Pypo beneficially own approximately 91.9% of
the outstanding ordinary shares of MK Cayman, assuming the earn-out is not
achieved. If the earn-out is achieved, then the stockholders of the Company
would beneficially own approximately 5.5% of the issued and outstanding ordinary
shares of MK Cayman, and the Pypo shareholders would beneficially own
approximately 94.5% of the issued outstanding ordinary shares of MK Cayman. None
of the foregoing percentages reflects the potential effect of an exercise of
either the currently outstanding warrants, the warrants to be issued to the Pypo
shareholders or the option to purchase Series A Units and Series B Units by the
Representative of the underwriters.
14
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 4 Offerings
Public
Offering
On December 19, 2006, the Company sold
198,000 Series A Units at $8.00 per unit and 3,300,000 Series B Units at $8.00
per unit to the public. On January 4, 2007, and January 26, 2007, the
underwriters exercised a portion of their over-allotment option for 27,200
Series A Units at $8.00 per unit and 120,305 Series B Units at $8.00 per unit,
respectively. Each Series A Unit consists of one share of the Company’s common
stock, $.001 par value, and five non-redeemable common stock purchase Class A
warrants. Each Series B Unit consists of one share of the Company’s Class B
common stock, $.001 par value, and one redeemable common stock purchase Class B
warrant.
Each Class A warrant will entitle the
holder to purchase from the Company one share of common stock at an exercise
price of $5.00 commencing on the later of (a) one year from the Effective Date
of the Public Offering, being December 13, 2007 or (b) the completion of a
Business Combination with a company, and expiring seven years from the Effective
Date of the Public Offering, being December 13, 2013. Each Class B warrant will
entitle the holder to purchase from the Company one share of common stock at an
exercise price of $5.00 commencing on the later of (a) one year from the
Effective Date of the Public Offering, being December 13, 2007 or (b) the
completion of a Business Combination with a company, and expiring seven years
from the Effective Date of the Public Offering, being December 13, 2013 or
earlier upon redemption.
The Company sold to the Representatives
of the underwriters, for $100, an option to purchase up to a total of 19,800
Series A Units at a per-unit price of $10.00 and/or up to a total of 330,000
Series B Units at a per-unit price of $10.00. The Series A Unit and Series B
Unit that would be issued upon the exercise of this option are identical to
those sold in the Offerings, provided that the exercise price of the Class A
Warrants and Class B Warrants underlying the Series A Units and Series B Units,
respectively, will have an exercise price of $10.00 per share (200% of the
exercise price of the Class A Warrants and Class B Warrants included in the
units sold in the Offerings). This option is exercisable at $10.00 per Series A
Unit and Series B Unit on the later of the completion of a Business Combination
or one year from the Effective Date of the Public Offering, being December 13,
2007 and expiring five years from the Effective Date of the Public Offering,
being December 13, 2011. The option may not be sold, transferred, assigned,
pledged or hypothecated for a period of one hundred eighty days from the
Effective Date of the Public Offering, being June 11, 2007, except to officers
and partners of the underwriters and members of the selling group and/or their
officers and partners. The option has a life of five years from the Effective
Date, being December 13, 2011. The sale of the option is accounted for as an
equity transaction. Accordingly, there has not been any net impact on the
Company’s financial position or results of operations, except for the recording
of the $100 proceeds from the sale.
Private
Placement
In February 2006, the Company sold to
its principal stockholder, officers and directors an aggregate of 90,450 Series
A Units at $8.00 per unit. The Series A Units consist of one share of the
Company’s common stock, $.001 par value, and five non-redeemable common stock
purchase Class A warrants. The Series A Units sold in the Private Placement are
identical to the Series A Units sold in the Public
Offering.
15
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 5 Accounts payables and accrued
liabilities
Accounts payable and accrued liabilities
at June 30, 2009 and December 31, 2008, consist of the
following:
June 30,
2009
|
December 31,
2008
|
|||||||
Audit fees
|
$ | 274,207 | $ | 151,671 | ||||
Legal fees
|
1,539,091 | 896,079 | ||||||
Management
fees
|
90,000 | 45,000 | ||||||
Filings and
printing
|
512,306 | 167,000 | ||||||
Other accrued
expenses
|
141,878 | 104,772 | ||||||
$ | 2,557,482 | $ | 1,364,522 |
Note 6 Bank Line of
Credit
On December 19, 2006, Wachovia Bank
provided the Company with a line of credit for $250,000 to finance the Company’s
general working capital needs. At June 30, 2009 and December 31, 2008, the
Company had $249,000 outstanding under the line of credit, respectively. The
outstanding balance at June 30, 2009 was repaid to Wachovia Bank on July 10,
2009.
The line of credit was initially
established to mature in 24 months from the date of the Public Offering, on
December 19, 2008. On July 1, 2008, Wachovia Bank extended the line of credit
from December 19, 2008 to September 1, 2009. Interest is charged at LIBOR plus
2% per annum, which at June 30, 2009 and December 31, 2008 was 2.32% and 3.90%,
respectively, with interest payable monthly and the outstanding principal and
interest due and payable at maturity.
In accordance with the terms of the line
of credit, the bank must authorize all distributions to the Company to the
extent that the aggregate sum of interest distributed to the Company from the
Trust Account exceeds $900,000. In July 2008, August 2008, September 2008,
November 2008, January 2009, March 2009, April 2009 and June 2009, Wachovia Bank
authorized the distribution to the Company from the Trust Account the Company’s
share of the interest earned up to the $1,200,000 limit discussed in Note
1.
Note 7 Related Party
Transactions
The Company agreed to pay several of the
officers and directors and/or their affiliated companies an aggregate monthly
fee of $7,500 for general and administrative services including office space,
utilities, and secretarial support in Shanghai, China and Atlanta, Georgia from
the Effective Date of the Public Offering through the completion of a Business
Combination. The administrative fee of $7,500 per month is allocated among
Primus Capital LLC, an affiliate of Mr. Tanenbaum, CEO; Mr. Marks, President;
MTP Holdings Ltd. an affiliate of Messrs. Yao (officer and director), Chai
(officer), and Ding (officer); and Mr. Lam, an officer and director. At June 30,
2009 and December 31, 2008, the Company accrued balanced for the fees due to the
above mentioned officers and directors and/or their affiliated companies of
$90,000 and $45,000, respectively,
In November and December, 2008, certain
of the Company’s Officers, Directors and Sponsor advanced the Company $137,935.
In January 2009, February 2009, March 2009 and April 2009, additional advances
of $91,014 were made to the Company by certain of the Company’s Officers,
Directors and Sponsor. The loans are interest free and were repaid upon the
consummation of the proposed Business Combination with Pypo (see Note
1).
Note 8 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. At June 30, 2009 and December 31, 2008, no
preferred shares were issued and outstanding.
16
MIDDLE KINGDOM ALLIANCE
CORP.
(a development stage
company)
NOTES TO FINANCIAL STATEMENTS
– continued
Note 9 Income Taxes
The provision for income taxes consists
of the following:
For the Three Months
Ended
|
||||||||
June 30,
2009
|
June 30,
2008
|
|||||||
Current -
Federal
|
$ | — | $ | — | ||||
Current - State and
Local
|
— | — | ||||||
Deferred -
Federal
|
— | — | ||||||
Deferred - State and
Local
|
— | — | ||||||
Total
|
$ | — | $ | — |
No (benefit) provision for income taxes
has been made at June 30, 2009 as the Company had operating losses for the
three and six months ending on that date. The financial statements do not
reflect a benefit for any possible carry-back claim for the operating losses
incurred in the three and six month period ending June 30,
2009.
For the Three Months
Ended
|
||||||||
June
30,
2009
|
|
June
30,
2008
|
|
|||||
Statutory federal income tax
rate
|
34 | % | 34 | % | ||||
State and local income
taxes
|
4 | % | 4 | % | ||||
Valuation
Allowance
|
-38 | % | -38 | % | ||||
Effective tax
rate
|
0 | % | 0 | % |
17
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
Forward Looking
Statements
This
Quarterly Report on Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements 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 or contribute to such a discrepancy
include, but are not limited to, those described under Item 1A “Risk
Factors” in our Annual Report on Form 10-K/A and in our other Securities and
Exchange Commission filings. The following discussion should be read in
conjunction with our Financial Statements and related Notes thereto included
elsewhere in this report.
Overview
We were
formed on January 17, 2006, to serve as a vehicle to effect a merger,
capital stock exchange, asset purchase or other similar business combination
(“Business Combination”) with a company having its primary or substantial
operations in China. We intend to utilize cash derived from the proceeds of our
Initial Public Offering (“Public Offering”), Private Placement, our capital
stock, debt or a combination of cash, capital stock and debt, in completing a
Business Combination. We are currently a shell company, and we will remain a
shell company until we engage in a Business Combination.
All
activities for the period from January 17, 2006 (inception) through
June 30, 2009 and through the date of this Form 10-Q filing, relate to the
Company’s formation, the completion of the Public Offering, the search for a
company with whom to effect a Business Combination, the negotiation and
preparation of the September 5, 2008 merger agreement, as defined below,
with Pypo Digital Company Limited (“Pypo or Pypo Cayman”), the preparation of
required filings with the SEC, the holding of the special meetings of the
Company’s stockholders on December 10, 2008 and June 29, 2009 and the
completion of the Business Combination with Pypo.
On
September 5, 2008, the Company signed an Agreement and Plan of Merger,
Conversion and Share Exchange (the “merger agreement”) with Pypo. Pypo, a Cayman
Islands exempted company, through its subsidiaries in China and Hong Kong, is a
leading distributor of Samsung wireless communication devices and other related
products. The transactions contemplated by the merger agreement would constitute
a Business Combination.
The
Company filed a initial registration statement on Form S-4 related to the
proposed Business Combination with Pypo on September 15, 2008, and
thereafter filed an amended registration statement on Form S-4/A on
December 8, 2008, and the Company’s wholly owned subsidiary MK Arizona
Corp. (“MK Arizona”) filed eight amended registration statements on Form S-4/A
on January 16, 2009, March 6, 2009, April 6, 2009, April 30,
2009, May 11, 2009, May 13, 2009 and May 14, 2009. The
amended registration statement was declared effective at 5:30 p.m. on that
May 14, 2009.
On
May 14, 2009, the Company mailed the combined proxy statement for a special
meeting of the stockholders of the Company and prospectus of Pypo China Holdings
Limited to its stockholders of record as of that date. As described below, the
special meeting of the stockholders of the Company was held on June 29,
2009 at which time the transactions contemplated by the merger agreement were
approved. The transactions contemplated by the merger agreement were consummated
on July 9, 2009.
The
Company’s Certificate of Incorporation, prior to an amendment filed on
December 10, 2008, as discussed below, provided for mandatory liquidation
of the Company, in the event that the Company does not complete a Business
Combination within 18 months after the Effective Date of the Public Offering on
December 13, 2006, being June 13, 2008 (or within 24 months after the
effective date of the Public Offering if a letter of intent, agreement in
principle or definitive agreement had been executed within 18 months after the
effective date of the Public Offering and the Business Combination has not been
completed within such 24 month period, being December 13, 2008). On
May 23, 2008 the Company issued a press release in connection with its
execution of a letter of intent to complete a Business Combination with a
company having its principle operations in China. Pursuant to the Company’s
Certificate of Incorporation, execution of the letter of intent affords the
Company an extension to complete the Business Combination, until
December 13, 2008. On November 3, 2008 the Company filed with the SEC
a preliminary proxy statement for a special meeting of the stockholders of the
Company at which the stockholders were asked to vote to approve amendments to
the Company’s Certificate of Incorporation that would extend the
December 13, 2008 date by which the Company must complete a Business
Combination to August 31, 2009. On November 25, 2008 the SEC advised
the Company that it had completed its limited review of the preliminary proxy
statement without any further comments and on November 26, 2008 the
Company’s registrar and transfer agent mailed the proxy statement to the
Company’s stockholders of record to schedule a special meeting to consider the
extension amendments for December 10, 2008. During the period from
November 26, 2008 to the special stockholders meeting on December 10,
2008, Capital Ally Investments Limited (“Capital Ally”) together with ARCH
Digital Holdings, Ltd. (“ARCH”), purchased 2,685,200 of the Company’s Class B
Common Stock for an ownership interest of 87.40% and 92.03% of the outstanding
Class B Common Stock at December 31, 2008 and June 30, 2009,
respectively. Capital Ally and ARCH hold 67% and 33%, respectively, of the
ordinary shares of Pypo. On December 10, 2008, the extension amendments
were approved by the common stockholders and the Class B stockholders. As the
result of the extension amendments, the Company had until August 31, 2009
to complete its proposed Business Combination with Pypo before it must
liquidate.
18
With
respect to a Business Combination which was approved and consummated, any Class
B common stockholders who voted against the Business Combination could demand
that the Company redeem their shares for cash. The conversion price would equal
$8.24 per share of Class B common stock, plus (i) a pro-rata share of the
interest earned in the Trust Account (see below) in excess of the lesser of
$1,200,000 or 50% of such interest (prior to the payment of any federal and
state taxes due by the Company), and (ii) a pro-rata share of the income
tax refund receivable of $240,000. Such amount aggregated approximately $8.51 at
December 31, 2008, at was $8.52 on June 29, 2009.
The
Company’s Certificate of Incorporation provided that the Company would proceed
with a Business Combination only if the holders of a majority of the Class B
shares cast at the meeting to approve the Business Combination vote in favor of
the Business Combination and Class B stockholders owning less than 20% of the
outstanding Class B shares (684,060 shares) vote against the Business
Combination and exercise their conversion rights to have their shares redeemed
for cash. However, in connection with the December 10, 2008 special meeting
to consider the extension amendments, Class B stockholders who voted against the
extension amendment had the right to demand that the Company redeem their Class
B shares for cash. The holders of 348,042 Class B shares, or 10.17% of the Class
B shares outstanding, elected to redeem their shares for cash, and such shares
were redeemed by the Company in December, 2008 for an aggregate of $2,933,542
using the proceeds of the partial sale of investments held in the Trust
Account.
The
special meeting of the Company’s stockholders to consider the transactions
contemplated by the merger agreement with Pypo was held on June 29, 2009 at
which time the transactions contemplated by the merger agreement were approved.
The holders of 154,670 shares of the Company’s Class B common stock voted
against the proposed Business Combination with Pypo and elected to convert their
shares into the right to receive cash. Such 154,670 Class B shares were redeemed
at a price of approximately $8.52 per share, or $1,317,348 in the aggregate, on
July 10, 2009 in connection with the closing of the Business Combination
with Pypo, and are presented as a liability on the accompanying balance sheet as
of June 30, 2009.
As part
of the series of transactions contemplated by the merger agreement, the Company
established MK Arizona, a wholly owned Arizona subsidiary, and on July 9, 2009
the Company effected a short-form merger, pursuant to which the Company merged
with and into MK Arizona, with MK Arizona remaining as the surviving
corporation. After the merger, MK Arizona became a Cayman Islands exempted
company (“MK Cayman”) pursuant to a conversion and continuation procedure under
Arizona and Cayman Islands law. The reorganization changed Middle Kingdom’s
place of incorporation from Delaware to the Cayman Islands (“the
redomestication”) and the outstanding securities of the Company were converted
into securities of MK Cayman.
Pursuant
to the merger agreement, after the redomestication, MK Cayman acquired all of
the outstanding shares of Pypo Cayman by issuing the Pypo Cayman shareholders an
aggregate of 45,000,000 MK Cayman ordinary shares and 3,400,000 MK Cayman Class
B warrants. In addition, MK Cayman agreed to issue the Pypo Cayman shareholders
up to an additional 23,000,000 MK Cayman ordinary shares pursuant to an earn-out
provision in the merger agreement based on the adjusted net income of the
combined company during the fiscal years ending March 31, 2010, 2011 and
potentially 2012.
As a
result of the consummation of the Business Combination with Pypo (and
considering the affect of the shares of the Company’s Class B common stock that
elected to be redeemed, as discussed above), as of July 9, 2009 the stockholders
of the Company beneficially own approximately 8.1% of the outstanding ordinary
shares of MK Cayman, and as of July 9, 2009 the stockholders of Pypo
beneficially own approximately 91.9% of the outstanding ordinary shares of MK
Cayman, assuming the earn-out is not achieved. If the earn-out is achieved, then
the stockholders of the Company would beneficially own approximately 5.5% of the
issued and outstanding ordinary shares of MK Cayman, and the Pypo shareholders
would beneficially own approximately 94.5% of the issued outstanding ordinary
shares of MK Cayman. None of the foregoing percentages reflects the potential
effect of an exercise of either the currently outstanding warrants, the warrants
to be issued to the Pypo shareholders or the option to purchase Series A Units
and Series B Units by the Representative of the underwriters.
19
Critical Accounting
Policies
Through
June 24, 2009 the investments held in a trust account (“Trust Account”) were
invested in United States government securities (“US Securities”) with a
maturity of 180 days or less. The US Securities have been classified as
held-to-maturity and measured at their amortized cost, which approximates fair
value. The excess of fair value (amortized cost) over cost, exclusive of the
deferred interest, is considered accrued interest which is included in interest
income in the accompanying Statements of Operations. These US Securities are
typically purchased at a discount from their face value in order to create a
yield which is fixed through their maturity. On June 24, 2009 the Company
converted the amounts held in the Trust Account into non-interest cash
deposits.
The sale
in December, 2008 of a portion of the securities in the Trust Account to fund
the redemption of the shares of Class B common stock redeemed in connection with
the special meeting to vote on the extension amendment is not considered by the
Company to affect its intent or ability to hold the remaining securities in the
Trust Account to maturity as the sale was the result of an isolated and
nonrecurring event.
Deferred
interest represents the portion of the interest earned on the investments in the
Trust Account that is credited to the carrying amount of the Class B common
stock subject to possible redemption. The amount of interest treated as deferred
interest consists of 19.99% of the interest attributable to the Class B common
stockholders through December 10, 2008, and 9.82% of such interest for the
period December 11, 2008 to December 31, 2008 and 9.82% for the period
from January 1, 2009 to June 29, 2009. The interest income
attributable to the Class B common stockholders is computed as total interest
income earned in the Trust Account in excess of the lesser of $1,200,000 or 50%
of such interest prior to the payment of any federal and state taxes due by the
Company. Deferred interest of $130,510 is included in the value of the Class B
common stock subject to possible redemption at December 31, 2008 in the
accompanying Balance Sheets. At June 30, 2009 the liability for the
redemption of the 154,670 shares of Class B common stock that elected redemption
in connection with the June 29, 2009 vote on the proposed Business
Combination with Pypo includes $60,074 of deferred interest attributable to
those shares.
In May
2009, the FASB issued Statement No. 165, Subsequent Events. Statement 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. Statement 165 was effective for interim
and annual periods ending after June 15, 2009. All subsequent events were
disclosed through August 14, 2009.
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.
Results of
Operations
Six months ended
June 30, 2009 and 2008. For the six months ending June 30, 2009
we had a net loss of $1,360,816. Since we did not have any operations, all of
our income was derived from interest income, most of which was earned on funds
held in the Trust Account. Our operating expenses during the period were
$1,377,499 and consisted primarily of expenses related to pursuing a Business
Combination, professional fees and the monthly administrative fee for services
including office space, utilities, and secretarial support in China and Atlanta,
Georgia owed to several of the officers and directors and/or their affiliated
companies (see Note 8 of Notes to Financial Statements). No (benefit) provision
for income taxes has been made at June 30, 2009 as the Company had
operating losses for the six months then ended and as of December 31, 2008
the Company had carried back the maximum amount of operating losses. The balance
sheet as of December 31, 2008 and June 30, 2009 reflects an income tax
refund receivable of $240,000 for the fiscal 2008 operating losses carried back
to recover taxes paid in prior years, and as of December 31, 2008 and
June 30, 2009 the Company has net operating loss carryforwards for which it
has provided a full valuation allowance as realization is not likely to
occur.
For the
six months ending June 30, 2008 we had a net loss of $277,622. Since we did
not have any operations, all of our income was derived from interest income,
most of which was earned on funds held in the Trust Account. Our operating
expenses during the period were $656,365 and consisted primarily of expenses
related to pursuing a Business Combination, professional fees and the monthly
administrative fee for services including office space, utilities, and
secretarial support in China and Atlanta, Georgia owed to several of the
officers and directors and/or their affiliated companies (see Note 8 of Notes to
Financial Statements). No (benefit) provision for income taxes has been made at
June 30, 2008 as the Company had operating losses for the six months then
ended.
Three months ended
June 30, 2009 and 2008. For the three months ending June 30,
2009 we had a net loss of $805,147. Since we did not have any operations, all of
our income was derived from interest income, most of which was earned on funds
held in the Trust Account. Our operating expenses during the period were
$809,514 and consisted primarily of expenses related to pursuing a Business
Combination, professional fees and the monthly administrative fee for services
including office space, utilities, and secretarial support in China and Atlanta,
Georgia owed to several of the officers and directors and/or their affiliated
companies (see Note 8 of Notes to Financial Statements). No (benefit) provision
for income taxes has been made at June 30, 2009 as the Company had
operating losses for the three months then ended.
20
For the
three months ending June 30, 2008 we had a net loss of $191,469. Since we
did not have any operations, all of our income was derived from interest income,
most of which was earned on funds held in the Trust Account. Our operating
expenses during the period were $343,154 and consisted primarily of expenses
related to pursuing a Business Combination, professional fees and the monthly
administrative fee for services including office space, utilities, and
secretarial support in China and Atlanta, Georgia owed to several of the
officers and directors and/or their affiliated companies (see Note 8 of Notes to
Financial Statements). No (benefit) provision for income taxes has been made at
June 30, 2008 as the Company had operating losses for the three months
ending on that date.
Period from January 17,
2006 (inception) to June 30, 2009. For the period from
January 17, 2006 (inception) to June 30, 2009 we had a net loss of
$2,371,524. Since we did not have any operations, all of our income was derived
from interest income, most of which was earned on funds held in the Trust
Account. Our operating expenses during the period were $4,316,362 and consisted
primarily of expenses related to pursuing a Business Combination, professional
fees and the monthly administrative fee for services including office space,
utilities, and secretarial support in China and Atlanta, Georgia owed to several
of the officers and directors and/or their affiliated companies (see Note 8 of
Notes to Financial Statements). We also provided for $22,896 in income taxes,
attributable to taxable income earned in the 2007 calendar year net of the
benefit of the operating losses carry-back claim reflected at December 31,
2008.
Liquidity and Capital
Resources
In
February 2006, the Company completed a Private Placement and received net
proceeds of $723,600 from the sale of 90,450 Series A Units at $8.00 per unit to
its then principal stockholder, officers and directors. The Series A Units
consist of one share of the Company’s Common Stock, $.001 par value, and five
non-redeemable common stock purchase Class A Warrants. The Series A Units
sold in the Private Placement are identical to the Series A Units sold in the
Public Offering.
On
December 19, 2006, the Public Offering closing date, the Company sold
198,000 Series A Units at $8.00 per unit and 3,300,000 Series B Units at $8.00
per unit and received proceeds of $26,394,963, net of underwriters’ discount of
$1,119,360 and offering expenses of $469,677. On January 4, 2007, and
January 26, 2007, the underwriters exercised a portion of their
over-allotment option for 27,200 Series A Units at $8.00 per unit and 120,305
Series B Units at $8.00 per unit, respectively, resulting in the Company
receiving additional proceeds of $1,144,639, net of underwriters’ discount of
$35,401. Each Series A Unit consists of one share of the Company’s Common Stock,
$.001 par value, and five non-redeemable common stock purchase Class A
Warrants. Each Series B Unit consists of one share of the Company’s Class B
common stock, $.001 par value, and one redeemable common stock purchase Class B
Warrant. Each Class A Warrant will entitle the holder to purchase from the
Company one share of Common Stock at an exercise price of $5.00 commencing on
the later of (a) one year from the Effective Date of the Public Offering,
being December 13, 2006 (the “Effective Date”) or (b) the completion
of a Business Combination with a company, and expiring seven years from the
Effective Date. Each Class B Warrant will entitle the holder to purchase from
the Company one share of Common Stock at an exercise price of $5.00 commencing
on the later of (a) one year from the Effective Date or (b) the
completion of a Business Combination with a company, and expiring seven years
from the Effective Date or earlier upon redemption. Our Common Stock, Class B
common stock, Class A and Class B Warrants started trading separately as of
March 13, 2007.
The net
proceeds from the sale of the Series A and Series B units, after deducting
certain offering expenses of $1,624,438 including underwriting discounts and
commissions and the proceeds from a private placement completed prior to Middle
Kingdom’s IPO, were $28,263,302. Of this amount, $28,183,313 or $8.24 per Series
B unit, was placed in the trust account, and the remaining proceeds of $79,989
were available to be used by Middle Kingdom to provide for business, legal and
accounting due diligence on prospective acquisitions and continuing general and
administrative expenses. On December 10, 2008, at a special meeting of
Middle Kingdom’s stockholders, the stockholders approved an extension amendment
whereby Middle Kingdom extended the time it has to complete its proposed
Business Combination with Pypo from December 13, 2008 to August 31,
2009. In conjunction with the vote on the extension amendment, stockholders
owning 348,042 Class B shares elected to convert their shares for cash, and such
shares were converted in December, 2008 for an aggregate of $2,933,542 using the
proceeds of the partial sale of investments held in the trust account. The net
proceeds deposited into the trust account remain on deposit in the trust account
earning interest through late June, 2009, at which time, in contemplation of the
June 29, 2009 stockholders meeting and the subsequent completion of the
Business Combination (including any redemption of shares of Class B common stock
that elected redemption at that time), the Company instructed the trustee to
convert all of the amounts in the Trust Account into cash to be held in a
non-interest bearing account. At June 30, 2009 the amounts in the Trust
Account are held in a non-interest bearing account at the JPMorgan Chase Bank,
N.A. Under the FDIC’s Transaction Account Guarantee Program, such non-interest
bearing accounts are insured up to their full amount during the life of the
program, which the FDIC has scheduled to end on December 31,
2009.
21
During
the six months ended June 30, 2009 Middle Kingdom transferred a total of
$44,800 from the trust account to the operating account, consisting of $20,311
being Middle Kingdom’s 50% share of the interest earned on the trust account for
the Company’s payment of various general and administrative expenses incurred
and $24,489 for the payment of state tax obligations. As of June 30, 2009,
there was $24,573,787 held in the trust account after providing $1,317,348 to be
paid to the 154,670 redeeming Class B shares and together with the income tax
refund of $240,000 and an overpayment of Federal provisional taxes of
approximately $29,000 totaling $24,842,787 or approximately $8.52 per Class B
common stock.
As
discussed above, on July 9, 2009 the transactions contemplated by the merger
agreement with Pypo were consummated. At that time $1,317,348 of the amount in
the trust account was used to redeem the shares of the holders of 154,670 Class
B shares who voted against the proposed Business Combination with Pypo and
elected to convert their shares into the right to receive cash. The remaining
amounts in the trust account were released, and became a part of the working
capital of Pypo. Pypo will use those funds, or other funds available to it, to
pay the $1,005,187 of the deferred compensation due to the underwriters of
Middle Kingdom’s IPO (see Note 1 of Notes to Financial Statements), to pay
Middle Kingdom’s other liabilities, and to pay the expenses of the Business
Combination.
Off Balance Sheet
Arrangements
Warrants
issued in conjunction with our Private Placement and Public Offering are equity
linked derivatives and accordingly represent off balance sheet arrangements. The
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.
On the
Closing Date of the Public Offering, Wachovia Bank provided the Company with a
line of credit for $250,000 to finance the Company’s general working capital
needs, but which does not include any expenses associated with dissolution and
liquidation or any amounts that may be due to or reserved for payment to
creditors. The line of credit will mature in 24 months from the Closing Date of
the Public Offering, being December 19, 2008. On July 1, 2008,
Wachovia Bank extended the line of credit from December 19, 2008 to
September 1, 2009. Interest is charged at an annual rate of LIBOR plus 2%,
which at June 30, 2009 and December 31, 2008 was 2.32% and 3.90%,
respectively. Interest is payable monthly and the outstanding principal and
interest is due and payable at maturity. In accordance with the terms of the
line of credit, the bank must authorize all distributions to the Company to the
extent that the aggregate sum of interest distributed to the Company from the
Trust Account exceeds $900,000. In July 2008, August 2008, September
2008, October 2008, November 2008, January 2009, March 2009,
April 2009 and June 2009, Wachovia Bank authorized the distribution to the
Company from the Trust Account the Company’s share of the interest earned. At
June 30, 2009, the Company had $249,000 outstanding under the line of
credit. The outstanding balance at June 30, 2009 was repaid to Wachovia
Bank on July 10, 2009.
Contractual
Obligations
The
Company does not have any long term debt, capital lease obligations, operating
lease obligations, purchase obligations or other long term
liabilities.
The
Company has agreed to pay several of the officers and directors and/or their
affiliated companies an aggregate monthly administrative fee of $7,500 for
general and administrative services including office space, utilities, and
secretarial support in Shanghai, China and Atlanta, Georgia from the Effective
Date of the Public Offering through the completion of a Business Combination.
The administrative fee of $7,500 per month is allocated among Primus Capital
LLC, an affiliate of Mr. Tanenbaum, CEO; Mr. Marks, President; MTP
Holdings Ltd. an affiliate of Messrs. Yao (officer and director), Chai
(officer), and Ding (officer); and Mr. Lam, an officer and director. At
June 30, 2009 and December 31, 2008, the Company accrued balanced for the
fees due to the above mentioned officers and directors and/or their affiliated
companies of $90,000 and $45,000, respectively,
ITEM 3. Quantitative
and Qualitative Disclosures about Market Risk
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. We are not presently engaged in any substantive commercial business.
Accordingly, we are not and, until such time that we consummate the merger
agreement, we will not be, exposed to risks associated with foreign exchange
rates, commodity prices, equity prices or other market-driven rates or prices.
The net proceeds of our initial public offering held in a Trust Account have
been invested only in United States government securities meeting certain
conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940.
Given our limited risk in our exposure to United States government securities,
we do not view the interest rate risk to be significant.
22
ITEM 4. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed and
intended to ensure that information required to be disclosed in the Company’s
reports submitted under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC. These controls and
procedures also are intended to ensure that information required to be disclosed
in such reports is accumulated and communicated to management to allow timely
decisions regarding required disclosures.
The
Company’s Chief Executive Officer and Chief Financial Officer, with the
participation of other members of the Company’s management, have evaluated the
effectiveness and operation of the Company’s disclosure controls and procedures
(as such term is defined in Rules 13a – 15(e) and 15d – 15(e) under the Exchange
Act) and have concluded that the Company’s disclosure controls and procedures
were effective for their intended purposes as of the end of the period covered
by this report.
While the
Company believes that its existing disclosure controls and procedures have been
effective to accomplish their objectives, the Company intends to continue to
examine, refine and document its disclosure controls and procedures and to
monitor ongoing developments in this area.
Changes
in Internal Control over Financial Reporting
During
the quarter ended June 30, 2009, there were no changes (including
corrective actions with regard to significant deficiencies or material
weaknesses) in the Company’s internal controls over financial reporting that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
23
PART
II. OTHER INFORMATION
ITEM 1. Legal
Proceedings
None
ITEM 1A. Risk
Factors
Investors
should consider the Risk Factors disclosed in our Form 10-K/A for the year ended
December 31, 2008, and in the May 14, 2009 prospectus/proxy statement
of MK Arizona (SEC Registration Statement No. 333-153492) prior to making
an investment decision with respect to our securities.
ITEM 2. Unregistered
Sales Of Equity Securities And Use Of Proceeds
There
were no sales of unregistered securities during the three months ended
June 30, 2009.
ITEM 4. Submission
of Matters To a Vote of Security Holders
On
June 29, 2009 the Company held a special meeting of it stockholders to vote
upon the transactions contemplated by the merger agreement with Pypo as set
forth in the Company’s proxy statement dated May 14, 2009. The following
sets forth the votes cast for and against each of the proposals in the proxy
statement, as well as the abstentions and votes withheld (including broker no
votes).
Votes for
|
Votes against
|
Votes withheld
|
Abstentions and
broker no-votes
|
||||||||||||||
Proposal
1
|
Approval
of corporate reorganization of Middle Kingdom to a Cayman Islands exempted
company (“Redomestication Proposal”)
|
3,625,305
|
139,165 | 368,943 | 4,500 | ||||||||||||
Proposal
2
|
Authorization
of MK Cayman’s board of directors to complete business combination with
Pypo (“Business Combination Proposal’)
|
2,750,975
|
154,670 | 1,229,268 | 4,500 | ||||||||||||
Proposal
3
|
Authorization
to increase the authorized ordinary shares of MK Cayman to 1,000,000,000
ordinary shares (“Share Increase Proposal’)
|
3,673,200
|
58,980 | 368,443 | 37,290 | ||||||||||||
Proposal
4
|
Approval
of elimination of classified board of directors (“Declassification
Proposal”)
|
3,770,228
|
58,410 | 269,985 | 39,290 | ||||||||||||
Proposal
5
|
Approval
of the requirement for two-thirds vote to amend MK Cayman’s Memorandum of
Association or Articles of Association (“Amendment
Proposal”)
|
3,768,228
|
59,410 | 269,985 | 40,290 | ||||||||||||
Proposal
6
|
Approval
of the provision in MK Cayman’s Memorandum of Association providing that a
quorum for a meeting of the shareholders will be one-third of the
outstanding shares (“Quorum Proposal”)
|
3,768,228
|
59,410 | 269,985 | 40,290 | ||||||||||||
Proposal
7
|
Approval
of the provision in MK Cayman’s Articles of Association a provision that
shareholders may pass a resolution without holding a meeting of the
shareholders only by a written resolution signed by all shareholders
entitled to vote (“Shareholder Consent Proposal”)
|
3,675,200
|
56,480 | 368,943 | 37,290 | ||||||||||||
Proposal
8
|
Approval
of any adjournment of the special meeting for the purpose of soliciting
additional proxies
|
3,768,228
|
59,410 | 269,985 | 40,290 |
24
As
discussed in Note 1 of Notes to Financial Statements, the holders of 154,670
shares of the Company’s Class B common stock which voted against the proposed
Business Combination with Pypo elected to convert their shares into the right to
receive cash. Such 154,670 Class B shares were redeemed at a price of
approximately $8.52 per share, or $1,317,348 in the aggregate, on July 10, 2009
in connection with the closing of the Business Combination with Pypo, and are
presented as a liability on the Company’s balance sheet as of June 30,
2009.
ITEM
6. Exhibits
(a)
Exhibits:
Exhibit No.
|
Description
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer.
|
|
32.2
|
Section
1350 Certification of Chief Financial
Officer.
|
25
MK
ARIZONA CORP.
(a
wholly-owned subsidiary of Middle Kingdom Alliance Corp.)
(a
development stage company)
TABLE
OF CONTENTS
Page No.
|
||||||
Part
I.
|
FINANCIAL
INFORMATION
|
|||||
Item
1.
|
Financial
Statements
|
27 | ||||
Balance
Sheets, June 30, 2009 (Unaudited) and December 31, 2008 (Unaudited)
|
27 | |||||
Notes
to Financial Statements
|
28 | |||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
31 | ||||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
32 | ||||
Item
4.
|
Controls
and Procedures
|
32 | ||||
Part
II.
|
OTHER
INFORMATION
|
|||||
Item
1.
|
Legal
Proceedings
|
34 | ||||
Item
1A.
|
Risk
Factors
|
34 | ||||
Item
2.
|
Unregistered
Sales Of Equity Securities And Use Of Proceeds
|
34 | ||||
Item
6.
|
Exhibits
|
35 | ||||
SIGNATURES
|
36 |
26
PART
I. FINANCIAL INFORMATION
ITEM
1. Financial Statements
MK
ARIZONA CORP.
(a
wholly-owned subsidiary of Middle Kingdom Alliance Corp.)
(a
development stage company)
BALANCE
SHEETS
December 31,
2008
|
June 30,
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 2 | $ | 2 | ||||
Total
assets, all current
|
$ | 2 | $ | 2 | ||||
LIABILITIES
AND STOCKHOLDER’S EQUITY
|
||||||||
Stockholders’s
Equity:
|
||||||||
Preferred
stock – $.001 par value; Authorized 1,000,000 shares, none
issued
|
$ | — | $ | — | ||||
Common
stock – $.001 par value; Authorized 15,000,000 shares; one share issued
and outstanding
|
— | — | ||||||
Class
B common stock – $.001 par value; Authorized 5,000,000 shares; one share
issued and outstanding
|
— | — | ||||||
Additional
paid-in capital
|
2 | 2 | ||||||
Total
stockholder’s equity
|
2 | 2 | ||||||
Total
liabilities and stockholder’s equity
|
$ | 2 | $ | 2 |
The
accompanying notes should be read
in
conjunction with the financial statements.
27
MK
ARIZONA CORP.
(a
wholly-owned subsidiary of Middle Kingdom Alliance Corp.)
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
Note
1 Organization, proposed business and basis of
presentation
Organization
and Operations
MK
Arizona Corp. (“MK Arizona” or “the Company”), an Arizona corporation, was
formed on September 4, 2008 as a wholly owned subsidiary of Middle Kingdom
Alliance Corp. (“Middle Kingdom”). MK Arizona was formed to facilitate the
change in the domestication of Middle Kingdom from Delaware to the Caymans
Islands in connection with Middle Kingdom’s proposed business combination with
Pypo Digital Company Limited (“Pypo or Pypo Cayman”). See Note 3.
Through
June 30, 2009, MK Arizona’s only transaction has been the September 5, 2008
issuance to Middle Kingdom of one share of common stock, for $1, and one share
of Class B common stock, for $1. All of the costs incurred in the preparation
and filing of the registration statements described below were borne by Middle
Kingdom. Therefore, the Company has not presented statements of operations,
changes in stockholder’s equity or cash flows.
Middle
Kingdom was incorporated in Delaware on January 17, 2006. Middle Kingdom was
formed to complete a merger, capital stock exchange, asset purchase or other
similar business combination (“Business Combination”) with a company in an
unspecified industry with principal or substantial operations in the People’s
Republic of China (“China”). Such company would be small enough to allow Middle
Kingdom to acquire a material minority investment and large enough to have the
organizational and financial infrastructure to operate as a public company.
Middle Kingdom has neither engaged in any operations nor generated any operating
revenue to date. At June 30, 2009, Middle Kingdom had not yet commenced any
operations. All activity of Middle Kingdom through June 30, 2009 relates its
formation, private placement and public offerings and its efforts to complete a
Business Combination.
The
Company and Middle Kingdom are considered to be in the development stage and are
subject to the risks associated with activities of development stage
companies.
As
described in Note 3, on September 5, 2008 the Company and Middle Kingdom signed
an Agreement and Plan of Merger, Conversion and Share Exchange (“the Merger
Agreement”) with Pypo. Pypo, a Cayman Islands exempted company, through its
subsidiaries in China and Hong Kong, is a leading distributor of Samsung
wireless communication devices and other related products. The transactions
contemplated by the Merger Agreement would constitute a Business
Combination.
On
September 15, 2008 Middle Kingdom filed a registration statement on Form S-4
containing a prospectus for the transactions contemplated by the Merger
Agreement and a proxy for the special meeting of Middle Kingdom’s stockholders
to vote on the proposed business combination with Pypo. Middle Kingdom
subsequently filed an amended registration statements on Form S-4/A on December
8, 2008, and the Company filed eight amended registration statements on Form
S-4/A on January 16, 2009, March 6, 2009, April 6, 2009, April 30, 2009, May 11,
2009, May 13, 2009 and two filings on May 14, 2009, addressing the SEC staff’s
comments received from each of the first nine filings on October 10, 2008,
December 19, 2008, February 13, 2009, March 23, 2009, April 20, 2009, May 8,
2009, May 12, 2009, May 13, 2009 and May 14, 2009. On May 14, 2009, the SEC
advised the Company that they had no additional comments (although neither the
SEC nor the SEC staff pass on the accuracy or adequacy of the registration
statement) and declared the Form S-4 registration statement effective. On May
14, 2009, Middle Kingdom mailed the combined proxy statement for a special
meeting of the stockholders of Middle Kingdom and prospectus of Pypo China
Holdings Limited to Middle Kingdom’s stockholders of record as of that date. On
June 17, 2009, Middle Kingdom mailed to the stock holders of record a
supplemental proxy and prospectus. The special meeting of the stockholders of
Middle Kingdom was held on June 29, 2009 at which time the transactions
contemplated by the Merger Agreement were approved. The transactions
contemplated by the Merger Agreement were consummated on July 9,
2009.
28
MK
ARIZONA CORP.
(a
wholly-owned subsidiary of Middle Kingdom Alliance Corp.)
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS – continued
Note
1 Organization, proposed business and basis of presentation -
continued
Basis
of Presentation
The
accompanying financial statements (including the notes thereto) at December 31,
2008 and June 30, 2009 are unaudited. In the opinion of management, all
adjustments (consisting of normal accruals) have been made that are necessary to
present fairly the financial position of the Company as of December 31, 2008 and
June 30, 2009. The financial statements presented herein should be read in
conjunction with the financial statements contained in the SEC filings of Middle
Kingdom (commission file number 000-52358).
Note
2 Summary of Significant Accounting Policies
Cash
and cash equivalents:
The
Company has defined cash and cash equivalents as highly liquid investments with
original maturities of ninety days or less. There were no cash balances in
excess of FDIC insurance limits.
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 revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
New
accounting pronouncements:
In May
2009, the FASB issued Statement No. 165, Subsequent Events. Statement 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. Statement 165 was effective for interim
and annual periods ending after June 15, 2009. All subsequent events were
disclosed through August 14, 2009.
The
Company does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on its
financial position or results of operations.
29
MK
ARIZONA CORP.
|
(a
wholly-owned subsidiary of Middle Kingdom Alliance
Corp.)
|
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS – continued
Note
3 Merger with Pypo
On
September 5, 2008, the Company and Middle Kingdom signed the Merger Agreement
with Pypo. Pypo, a Cayman Islands exempted company, through its subsidiaries in
China and Hong Kong, is a distributor of Samsung wireless communication devices
and other related products. The transactions contemplated by the Merger
Agreement would constitute a Business Combination. As discussed in Note 1, on
June 29, 2009 Middle Kingdom’s stockholders approved the transactions
contemplated by the Merger Agreement, and the transactions contemplated by the
Merger Agreement were consummated on July 9, 2009.
As part
of the series of transactions contemplated by the Merger Agreement, Middle
Kingdom established MK Arizona as a wholly owned Arizona subsidiary. As part of
the consummation of the transactions contemplated by the Merger Agreement, on
July 9, 2009, Middle Kingdom effected a short-form merger, pursuant to which
Middle Kingdom merged with and into MK Arizona, with MK Arizona remaining as the
surviving corporation. After the merger, MK Arizona became a Cayman Islands
exempted company (“MK Cayman”) pursuant to a conversion and continuation
procedure under Arizona and Cayman Islands law. The reorganization changed
Middle Kingdom’s place of incorporation from Delaware to the Cayman Islands
(“the redomestication”) and the outstanding securities of the Middle Kingdom
were converted into securities of MK Cayman.
Pursuant
to the Merger Agreement, after the redomestication, MK Cayman acquired all of
the outstanding shares of Pypo Cayman by issuing the Pypo Cayman shareholders an
aggregate of 45,000,000 MK Cayman ordinary shares and 3,400,000 MK Cayman Class
B warrants. In addition, MK Cayman agreed to issue the Pypo Cayman shareholders
up to an additional 23,000,000 MK Cayman ordinary shares pursuant to an earn-out
provision in the Merger Agreement based on the adjusted net income of the merged
companies during the fiscal years ending March 31, 2010, 2011 and potentially
2012.
As a
result of the consummation of the business combination with Pypo, as of July 9,
2009 the stockholders of the Middle Kingdom beneficially own approximately 8.1%
of the outstanding ordinary shares of MK Cayman, and as of July 9, 2009 the
stockholders of Pypo beneficially own approximately 91.9% of the outstanding
ordinary shares of MK Cayman, assuming the earn-out is not achieved. If the
earn-out is achieved, then the stockholders of Middle Kingdom would beneficially
own approximately 5.5% of the issued and outstanding ordinary shares of MK
Cayman, and the Pypo shareholders would beneficially own approximately 94.5% of
the issued outstanding ordinary shares of MK Cayman. None of the foregoing
percentages reflects the potential effect of an exercise of either the currently
MK Cayman outstanding warrants, the MK Cayman warrants issued to the Pypo
shareholders or the MK Cayman option to purchase Series A Units and Series B
Units by the Representative of the underwriters of Middle Kingdom’s initial
public offering.
30
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|
Forward Looking
Statements
This
Quarterly Report on Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements 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 or contribute to such a discrepancy
include, but are not limited to, those described under “Risk Factors” in our
prospectus dated May 14, 2009. The following should be read in conjunction
with (i) the financial statements and notes thereto included herein,
(ii) the SEC filings of Middle Kingdom (commission file number 000-52358)
and (iii) our prospectus dated May 14, 2009.
Overview
MK
Arizona Corp. (“MK Arizona” or “the Company”), an Arizona corporation, was
formed on September 4, 2008 as a wholly owned subsidiary of Middle Kingdom
Alliance Corp. (“Middle Kingdom”). MK Arizona was formed to facilitate the
change in the domestication of Middle Kingdom from Delaware to the Caymans
Islands in connection with Middle Kingdom’s proposed business combination with
Pypo Digital Company Limited (“Pypo or Pypo Cayman”).
Through
June 30, 2009, MK Arizona’s only transaction has been the September 5,
2008 issuance to Middle Kingdom of one share of common stock, for $1, and one
share of Class B common stock, for $1. All of the costs incurred in the
preparation and filing of the registration statements described below were borne
by Middle Kingdom. Therefore the Company has not presented statements of
operations, changes in stockholder’s equity or cash flows.
Middle
Kingdom was incorporated in Delaware on January 17, 2006. Middle Kingdom
was formed to complete a merger, capital stock exchange, asset purchase or other
similar business combination (“Business Combination”) with a company in an
unspecified industry with principal or substantial operations in the People’s
Republic of China (“China”). Such company would be small enough to allow Middle
Kingdom to acquire a material minority investment and large enough to have the
organizational and financial infrastructure to operate as a public company.
Middle Kingdom has neither engaged in any operations nor generated any operating
revenue to date. At June 30, 2009, Middle Kingdom had not yet commenced any
operations. All activity of Middle Kingdom through June 30, 2009 relates
its formation, private placement and public offerings and its efforts to
complete a Business Combination.
The
Company and Middle Kingdom are considered to be in the development stage and are
subject to the risks associated with activities of development stage
companies.
On
September 5, 2008 the Company and Middle Kingdom signed an Agreement and
Plan of Merger, Conversion and Share Exchange (“the Merger Agreement”) with
Pypo. Pypo, a Cayman Islands exempted company, through its subsidiaries in China
and Hong Kong, is a leading distributor of Samsung wireless communication
devices and other related products. The transactions contemplated by the Merger
Agreement would constitute a Business Combination.
On
September 15, 2008 Middle Kingdom filed a registration statement on Form
S-4 containing a prospectus for the transactions contemplated by the Merger
Agreement and a proxy for the special meeting of Middle Kingdom’s stockholders
to vote on the proposed business combination with Pypo. Middle Kingdom
subsequently filed an amended registration statements on Form S-4/A on
December 8, 2008, and the Company filed eight amended registration
statements on Form S-4/A on January 16, 2009, March 6,
2009, April 6, 2009, April 30, 2009, May 11,
2009, May 13, 2009 and two filings on May 14, 2009, addressing
the SEC staff’s comments received from each of the first nine filings on
October 10, 2008, December 19, 2008, February 13,
2009, March 23, 2009, April 20, 2009, May 8,
2009, May 12, 2009, May 13, 2009 and May 14, 2009. On
May 14, 2009, the SEC advised the Company that they had no additional
comments (although neither the SEC nor the SEC staff passed on the accuracy or
adequacy of the registration statement) and declared the Form S-4 registration
statement effective. On May 14, 2009, Middle Kingdom mailed the combined
proxy statement for a special meeting of the stockholders of Middle Kingdom and
prospectus of Pypo China Holdings Limited to Middle Kingdom’s stockholders of
record as of that date. On June 17, 2009, Middle Kingdom mailed to the stock
holders of record a supplemental proxy and prospectus. The special meeting of
the stockholders of Middle Kingdom was held on June 29, 2009 at which time
the transactions contemplated by the Merger Agreement were approved. The
transactions contemplated by the merger agreement were consummated on
July 9, 2009.
31
As part
of the series of transactions contemplated by the Merger Agreement, Middle
Kingdom established MK Arizona as a wholly owned Arizona subsidiary. As part of
the consummation of the transactions contemplated by the Merger Agreement, on
July 9, 2009, Middle Kingdom effected a short-form merger, pursuant to
which Middle Kingdom merged with and into MK Arizona, with MK Arizona remaining
as the surviving corporation. After the merger, MK Arizona became a Cayman
Islands exempted company (“MK Cayman”) pursuant to a conversion and continuation
procedure under Arizona and Cayman Islands law. The reorganization changed
Middle Kingdom’s place of incorporation from Delaware to the Cayman Islands
(“the redomestication”) and the outstanding securities of the Middle Kingdom
were converted into securities of MK Cayman.
Pursuant
to the Merger Agreement, after the redomestication, MK Cayman acquired all of
the outstanding shares of Pypo Cayman by issuing the Pypo Cayman shareholders an
aggregate of 45,000,000 MK Cayman ordinary shares and 3,400,000 MK Cayman Class
B warrants. In addition, MK Cayman agreed to issue the Pypo Cayman shareholders
up to an additional 23,000,000 MK Cayman ordinary shares pursuant to an earn-out
provision in the Merger Agreement based on the adjusted net income of the merged
companies during the fiscal years ending March 31, 2010, 2011 and
potentially 2012.
As a
result of the consummation of the Business Combination with Pypo, as of
July 9, 2009 the stockholders of Middle Kingdom beneficially own
approximately 8.1% of the outstanding ordinary shares of MK Cayman, and as of
July 9, 2009, the stockholders of Pypo beneficially own approximately 91.9%
of the outstanding ordinary shares of MK Cayman, assuming the earn-out is not
achieved. If the earn-out is achieved, then the stockholders of Middle Kingdom
would beneficially own approximately 5.5% of the issued and outstanding ordinary
shares of MK Cayman, and the Pypo shareholders would beneficially own
approximately 94.5% of the issued outstanding ordinary shares of MK Cayman. None
of the foregoing percentages reflects the potential effect of an exercise of
either the currently MK Cayman outstanding warrants, the MK Cayman warrants
issued to the Pypo shareholders or the MK Cayman option to purchase Series A
Units and Series B Units by the Representative of the underwriters of Middle
Kingdom’s initial public offering
Off Balance Sheet
Arrangements
The
Company has no off balance sheet arrangements as of June 30,
2009.
Contractual
Obligations
The
Company does not have any long term debt, capital lease obligations, operating
lease obligations, purchase obligations or other long term
liabilities.
ITEM 3. Quantitative and
Qualitative Disclosures about Market Risk
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. The Company is not presently engaged in any substantive commercial
business. Accordingly, the Company is not and, until such time that we
consummate the Merger Agreement, the Company will not be, exposed to risks
associated with foreign exchange rates, commodity prices, equity prices or other
market-driven rates or prices.
ITEM 4. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed and
intended to ensure that information required to be disclosed in the Company’s
reports submitted under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC. These controls and
procedures also are intended to ensure that information required to be disclosed
in such reports is accumulated and communicated to management to allow timely
decisions regarding required disclosures.
The
Company’s Chief Executive Officer and Chief Financial Officer, with the
participation of other members of the Company’s management, have evaluated the
effectiveness and operation of the Company’s disclosure controls and procedures
(as such term is defined in Rules 13a – 15(e) and 15d – 15(e) under the Exchange
Act) and have concluded that the Company’s disclosure controls and procedures
were effective for their intended purposes as of the end of the period covered
by this report.
While the
Company believes that its existing disclosure controls and procedures have been
effective to accomplish their objectives, the Company intends to continue to
examine, refine and document its disclosure controls and procedures and to
monitor ongoing developments in this area.
32
Changes
in Internal Control over Financial Reporting
During
the quarter ended June 30, 2009, there were no changes (including
corrective actions with regard to significant deficiencies or material
weaknesses) in the Company’s internal controls over financial reporting that
have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
33
PART
II. OTHER INFORMATION
ITEM 1. Legal
Proceedings
None
ITEM 1A. Risk
Factors
Investors
should consider the Risk Factors disclosed in our prospectus dated May 14,
2009 (SEC Registration Statement No. 333-153492) prior to making an
investment decision with respect to our securities.
ITEM 2. Unregistered Sales
Of Equity Securities And Use Of Proceeds
On
September 5, 2008 the Company issued to Middle Kingdom, its parent, one
share of common stock, par value $.001, for cash of $1, and one share of Class B
common stock, par value $.001, for cash of $1. No commissions or fees were paid
in connection with the sales. The sales were made in reliance on the exemption
from registration contained in Section 4(2) of the Securities Act of 1933.
The proceeds of the sale were used to establish a cash balance.
34
ITEM
6. Exhibits
(a)
Exhibits:
Exhibit No.
|
Description
|
|
2.1
|
Agreement
and Plan of Merger, Conversion and Share Exchange (incorporated by
reference to annex A to Amendment No.9 to Form S-4, SEC File No.
333-153492)
|
|
2.2
|
Amendment
No. 1 to Agreement and Plan of Merger, Conversion and Share Exchange
(incorporated by reference to annex B to Amendment No.9 to Form S-4, SEC
File No. 333-153492)
|
|
2.3
|
Amendment
No.2 to Agreement and Plan of Merger, Conversion and Share Exchange
(incorporated by reference to annex D to Prospectus Supplement dated June
17, 2009, SEC File No. 333-153492)
|
|
3.1
|
Articles
of Incorporation of MK Arizona Corp. (incorporated by reference to annex D
to Amendment No.9 to Form S-4, SEC File No. 333-153492)
|
|
3.2
|
By-laws
of MK Arizona Corp. (incorporated by reference to annex E to Amendment
No.9 to Form S-4, SEC File No. 333-153492)
|
|
3.3
|
Memorandum
of Association of MK Cayman (upon completion of redomestication)
(incorporated by reference to annex C to Amendment No.9 to Form S-4, SEC
File No. 333-153492)
|
|
3.4
|
Articles
of Association of MK Cayman (upon completion of redomestication)
(incorporated by reference to annex C to Amendment No.9 to Form S-4, SEC
File No. 333-153492)
|
|
10.1
|
Form
of Voting Agreement among MK Cayman and certain officers, directors and
shareholders of MK Cayman (incorporated by reference to annex F to
Amendment No.9 to Form S-4, SEC File No. 333-153492)
|
|
10.2
|
Form
of Lock-Up Agreement among MK Cayman and the Pypo shareholders
(incorporated by reference to annex G to Amendment No.9 to Form S-4, SEC
File No. 333-153492)
|
|
10.3
|
Form
of Registration Rights Agreement among MK Cayman and the Pypo shareholders
(incorporated by reference to annex H to Amendment No.9 to Form S-4, SEC
File No. 333-153492)
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
32.1
|
Section
1350 Certification of Chief Executive Officer.
|
|
32.2
|
Section
1350 Certification of Chief Financial
Officer.
|
35
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, thereunto
duly authorized.
PYPO
CHINA HOLDINGS LIMITED
|
||
November
10, 2009
|
By:
|
/s/ Dongping Fei |
|
Name:
Dongping Fei
|
|
Title:
Chief Executive Officer
|
||
November
10, 2009
|
By:
|
/s/ Kim Chuan (“Jackie”) Leong |
|
Name:
Kim Chuan (“Jackie”) Leong
|
|
Title:
Chief Financial
Officer
|
36