-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cq88udIaBnsC7vF5P/Vjxhb7y/0H78uWWAeaKafFwoCHHRDzX/Gkm648HQwW1bzL XPzpOQfv8WenZn8sfEiXLQ== 0000950124-08-002447.txt : 20080522 0000950124-08-002447.hdr.sgml : 20080522 20080522161700 ACCESSION NUMBER: 0000950124-08-002447 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080522 DATE AS OF CHANGE: 20080522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Asia Automotive Acquisition Corp. CENTRAL INDEX KEY: 0001332552 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 203022522 STATE OF INCORPORATION: DE FISCAL YEAR END: 1205 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-51831 FILM NUMBER: 08854930 BUSINESS ADDRESS: STREET 1: 2711 CENTERVILLE RD , SUITE 400 CITY: WILMINGTON STATE: DE ZIP: 19808 BUSINESS PHONE: 1-248-593-8330 MAIL ADDRESS: STREET 1: 199 PIERCE STREET, SUITE 202 CITY: BIRMINGHAM STATE: MI ZIP: 48009 10QSB 1 k26824qe10qsb.txt QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2008 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED: MARCH 31, 2008 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 333-127755 ASIA AUTOMOTIVE ACQUISITION CORPORATION DELAWARE 20-3022522 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)
401 SOUTH OLD WOODWARD, SUITE 450 BIRMINGHAM, MICHIGAN (Address of principal executive 48009 offices) (Zip Code)
(248) 593-8330 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate the number of shares of each of the issuer's classes of common stock as of the latest practicable date. The number of shares outstanding of the registrant's common stock as of May 1, 2008 was 6,386,250. ASIA AUTOMOTIVE ACQUSITION CORPORATION Table of Contents PART I - FINANCIAL INFORMATION Item 1. Condensed Financial Statements Condensed Balance Sheet Condensed Statements of Operations Condensed Statements of Cash Flows Notes to Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Controls and Procedures PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Exhibits SIGNATURES CERTIFICATIONS
PART 1. FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS ASIA AUTOMOTIVE ACQUISITION CORPORATION (a corporation in the development stage) CONDENSED BALANCE SHEETS
MARCH 31, 2008 DECEMBER 31, 2007 -------------- ----------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 7,338 $ 35,611 Other assets Deferred income taxes 687,466 442,659 Investments in the Trust Account 39,860,860 39,507,229 ----------- ----------- Total assets $40,555,664 $39,985,499 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accrued expenses $ 1,292,562 $ 595,500 Accrued taxes payable 120,000 Warrant liability 9,515,100 14,562,188 Deferred underwriter's fee, net of $241,379 in common stock, subject to conversion 966,121 966,121 ----------- ----------- Total current liabilities 11,893,783 16,123,809 ----------- ----------- Common stock, subject to possible conversion, 1,005,746 shares at conversion value plus interest income of $454,382 and $408,433, approximately $7.89 per share and $7.88 per share, respectively 7,934,240 7,888,291 STOCKHOLDERS' EQUITY Preferred stock, $.001 par value, authorized 1,000,000 shares; none issued -- -- Common stock, $.001 par value, authorized 39,000,000 shares; issued and outstanding 6,380,250 shares (of which 1,005,746 shares subject to possible redemption) 6,380 6,380 Additional paid-in capital 22,327,433 22,327,433 Deficit accumulated during the development stage (1,606,172) (6,360,414) ----------- ----------- Total stockholders' equity 20,727,641 15,973,399 ----------- ----------- Total liabilities and stockholders' equity $40,555,664 $39,985,499 =========== ===========
See accompanying notes to condensed financial statements. 1 ASIA AUTOMOTIVE ACQUISITION CORPORATION (a corporation in the development stage) CONDENSED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS THREE MONTHS JUNE 20, 2005 ENDED ENDED (INCEPTION) TO MARCH 31, 2008 MARCH 31, 2007 MARCH 31, 2008 -------------- -------------- -------------- Other income (expense), net $ 353,631 $ 470,559 $ 3,496,998 Unrealized gain (loss) on warrant liability 5,047,088 690,078 (2,132,287) Formation and operating costs (725,335) (359,527) (2,036,877) ---------- ---------- ----------- Other income (loss) before taxes 4,675,384 801,110 (672,166) Income tax benefit (expense) 124,807 113,904 (479,624) ---------- ---------- ----------- Net income (loss) $4,800,191 $ 915,014 $(1,151,790) ---------- ---------- ----------- Income applicable to common stockholders subject to possible conversion $ 45,949 61,142 $ 454,382 Income (loss) applicable to common stockholders not subject to possible conversion $4,754,242 853,872 $(1,606,172) Weighted average common shares outstanding: Basic 6,380,250 6,380,250 4,883,267 Diluted 8,188,133 8,130,428 4,883,267 ========== ========== =========== Income (loss) per share, basic $ .75 $ .14 $ (.24) Income (loss) per share, diluted $ .59 $ .11 $ (.24)
See accompanying notes to condensed financial statements. 2 ASIA AUTOMOTIVE ACQUISITION CORPORATION (a corporation in the development stage) CONDENSED STATEMENTS OF CASH FLOWS
JUNE 20, 2005 THREE MONTHS THREE MONTHS (DATE OF ENDED ENDED INCEPTION) TO MARCH 31, 2008 MARCH 31, 2007 MARCH 31, 2008 -------------- -------------- -------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 4,800,191 $ 915,014 $ (1,151,790) Adjustments to reconcile net income (loss) to net cash provided by operations: Deferred income tax benefit (244,807) (282,785) (687,466) Changes in operating liabilities: Warrant liability (5,047,088) (690,078) 2,132,287 Accrued taxes payable 120,000 168,881 120,000 Accrued expenses 697,062 253,712 1,292,562 ----------- --------- ------------ Net cash provided by operating activities 325,358 364,744 1,705,593 ----------- --------- ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: Investment in the Trust Account (353,631) 57,942 (39,860,860) ----------- --------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable 45,250 Proceeds from issuance of common stock to existing stockholders' 25,000 Proceeds from sale of options to the underwriter 100 Proceeds from the issuance of common stock in the public offering 40,250,000 Repayment of notes payable to stockholders (45,250) Payments of offering costs (2,112,495) ----------- --------- ------------ Net cash provided by financing activities -- -- 38,162,605 ----------- --------- ------------ Net increase (decrease) in cash and cash equivalents (28,273) 422,686 7,338 Cash and cash equivalents, beginning of period 35,611 384,162 -- Cash and cash equivalents, end of period $ 7,338 $ 806,848 $ 7,338 ----------- --------- ------------
See accompanying notes to condensed financial statements. 3 ASIA AUTOMOTIVE ACQUISITION CORPORATION (a corporation in the development stage) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF BUSINESS OPERATIONS The accompanying condensed financial statements as of March 31, 2008 and for the three months ended March 31, 2008 and for the period June 20, 2005 (inception) to March 31, 2008, have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial statements and pursuant to the instructions on the Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Certain financial information and footnote disclosures normally included in the financial statements prepared in accordance U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made that are considered necessary for a fair presentation of the financial position, results of operations, and cash flows of the Company for all periods presented. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results of operations to be expected for a full fiscal year. These condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2007 as reported on the Company's Annual Report on Form 10-KSB filed with the SEC. The condensed balance sheet as of December 31, 2007 was derived from the Company's audited financial statements but does not include all disclosures required by U.S. GAAP. Asia Automotive Acquisition Corporation (the "Company") was incorporated in Delaware on June 20, 2005 as a blank check company formed to acquire, through merger, capital stock exchange, asset acquisition or other similar business combination, a business in the automotive supplier industry. The Company has neither engaged in any operations nor generated revenues to date. The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting By Developmental State Enterprises" and is subject to the risks associated with activities of development stage companies. The Company has elected December 31st as its fiscal year end. The registration statement for the Company's initial public offering (the "Public Offering") was declared effective on April 11, 2006. The Company consummated the Public Offering on April 18, 2006 and received net proceeds of approximately $ 37,171,000. The Company's management has broad discretion with respect to the specific application of the net proceeds of the Public Offering (the "Offering") (as described in Note 4), although substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating a business combination with a target company. As used herein, a "target business" shall include an operating business in the security industry and a "business combination" shall mean the acquisition by the Company of a target business. Of the proceeds of the Offering, $37,418,000 (plus interest income) is being held in a trust account ("Trust Account") and invested until the earlier of (i) the consummation of the first business combination or (ii) the distribution of the Trust Account as described below. The amount in the Trust Account include $ 1,207,500 of contingent underwriting compensation, which will be paid to the underwriters if a business combination is consummated, but which will be forfeited in part if public stockholders elect to have their shares redeemed for cash if a business combination is not consummated. Deferred underwriter's fee is reflected on the balance sheet at $966,121, an additional $241,379 is included in common stock, subject to possible conversion, for a total of $1,207,500. The remaining proceeds may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF BUSINESS OPERATIONS (CONTINUED) The Company, after signing a definitive agreement for the acquisition of a target business, will submit such transaction for stockholder approval. In the event that public stockholders owning a majority of the outstanding stock sold in the Offerings vote against the business combination and elect to have the Company redeem their shares for cash, including all of the officers and directors of the Company ("Initial Stockholders"), have agreed to vote their 1,349,000 founding shares of common stock in accordance with the vote of the majority in interest of all other stockholders of the Company with respect to any business combination and to vote any shares they acquire in the aftermarket in favor of the business combination. After consummation of the Company's first business combination, all of these voting safeguards will no longer be applicable. With respect to the first business combination which is approved and consummated, any holder of shares sold in the Public Offering, other than the Initial Stockholders and their nominees (the "Public Stockholders") who voted against the business combination may demand that the Company redeem his or her shares. The per share redemption price will equal $ 7.44 per share plus interest earned thereon in the Trust Account. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares sold in this offering and the private placement may seek redemption of their shares in the event of a business combination. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Development Stage Company: The Company complies with the reporting requirements of SFAS No. 7 "Accounting and Reporting by Development Stage Enterprises." Basis of presentation The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America, and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the "SEC"). Common stock: On January 23, 2006, the Company effected a stock split in the form of a dividend of .233 shares of common stock for each outstanding share of common stock. All references in the accompanying financial statements to the number of shares of common stock and loss per share have been retroactively restated to reflect these transactions. Warrant liability: The Company has outstanding warrants, which provides for the Company to register the shares underlying the warrants and is silent as to the penalty to be incurred in the absence of the Company's ability to deliver registered shares to the warrant holders upon warrant exercise. Under EITF No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" ("EITF No. 00-19"), registration of the common stock underlying the Company's warrants is not within the Company's control. As a result, the company must assume that it could be required to settle the warrants on a net-cash basis, thereby necessitating the treatment of the potential settlement obligation as a liability. EITF No. 00-19 also requires the Company to record the potential settlement liability at each reporting date using the current estimated fair value of the warrants, with any changes being recorded through the Company's statement of operations. The potential settlement obligation related to the warrants will continue to be reported as a liability until such time that the warrants are exercised, expire, or the Company is otherwise able to modify the registration requirements in the warrant agreement to remove the 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) provisions which require this treatment. The fair value of the warrant liability is determined using the trading value of the warrants. Investments in the Trust Account: Cash held in the Trust Account is invested in U.S. Treasury Securities. The Company recognizes cash held in the Trust Account as a non-current asset in the accompanying balance sheet, and totaled $39,860,860 as of March 31, 2007. The carrying value of cash equivalents approximates fair value. Interest income is recorded on an accrual basis. Income (loss) per common share: Income (loss) per common share is based on the weighted average number of common shares outstanding. The Company complies with SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires dual presentation of basic and diluted income (loss) per share for all periods presented. Basic loss per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then share in the income of the Company. The Company's condensed statements of operations include a presentation of income (loss) per share for common stock subject to possible conversion in a manner similar to the two-class method of earnings per share in accordance with Emerging Issue Task Force Abstracts, Topic No. D-98 "Classification and Measurement of Redeemable Securities". Basic and diluted net income (loss) per share amounts for the number of common shares subject to possible conversion are calculated by dividing the net interest income applicable to common shares subject to conversion (approximately $46,000 and $61,000 for the three months ended March 31, 2008 and 2007, respectively, and $454,000 for the period June 20, 2005 (inception) to March 31, 2008) by the weighted average number of shares subject to possible conversion. Redeemable common stock: The Company accounts for redeemable common stock in accordance with Emerging Issue Task Force ("EITF") D-98 "Classification and Measurement of Redeemable Securities". Securities that are redeemable for cash or other assets are classified outside of permanent equity if they are redeemable at the option of the holder. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the redeemable common stock to equal its redemption value at the end of each reporting period. Concentration of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution which, at times, may exceed the Federal depository insurance coverage. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts. Cash and cash equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recently issued accounting standards: In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements where the FASB requires or permits fair value measurements but does not require any new fair value measurements. In February 2008, FASB issued FASB Staff Position No. 157-2, "Effective Date of FASB Statement No. 157" ("FSP No. 157-2"), which delayed the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted SFAS 157 for financial assets and liabilities on January 1, 2008. SFAS 157 did not have any impact on the Company's results of operations or financial position. The disclosures required under SFAS 157 are set forth in Note 5. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities- Including an amendment of FASB Statement No. 155" ("SFAS 159"). This statement permits entities to choose to measure selected assets and liabilities at fair value. The Company adopted SFAS 159 on January 1, 2008 resulting in no impact to the Company's financial condition, results of operations or cash flows. In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the fair value of identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date. SFAS 141(R) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51" ("SFAS 160"). SFAS 160 requires reporting entities to present noncontrolling (minority) interests as equity as opposed to as a liability or mezzanine equity and provides guidance on the accounting for transactions between an entity and noncontrolling interests. SFAS 160 is effective the first fiscal year beginning after December 15, 2008, and interim periods within that fiscal year. SFAS 160 applies prospectively as of the beginning of the fiscal year SFAS 160 is initially applied, except for the presentation and disclosure requirements which are applied retrospectively for all periods presented subsequent to adoption. The adoption of SFAS 160 will not have a material impact on the Company's results of operations or financial position; however, it could impact future transactions entered into by the Company. Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company's financial statements. 3. THE OFFERING On April 18, 2006, the Company sold 5,031,250 units (including the underwriters full exercise of an over allotment option with respect to 656,250 units) to the public at a price of $8.00 per unit. Each unit consists of one share of the Company's common stock, $0.001 par value, and one redeemable common stock purchase warrant ("warrant"). Each warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing the later of the completion of a business combination with a target business or April 10, 2007 and expiring April 11, 2012. The warrants are redeemable at a price of $.01 per warrant upon 30 days notice after the warrants become exercisable, only in the event that the last sale price of the common stock is at least $10.00 per share for any 20 trading days within a 30 trading day period ending three business days before we send the notice of redemption. 4. INCOME TAXES Income tax benefit (expense) for the three months ended March 31, 2008 and 2007, and the period from June 20, 2005 (date of inception) to March 31, 2008 was approximately $125,000, $114,000, and ($480,000) respectively, which is net of the expense for current federal income taxes and the deferred tax benefit recorded for the three months ended March 31, 2008 and 2007, and the period from June 20, 2005 (date of inception) to March 31, 2008. The Company has not begun its trade or business for U.S. tax purposes. Accordingly, it could not yet recognize losses for start-up expenditures. As a result a deferred tax asset of approximately $687,000 at March 31, 2008 was established for these start-up expenditures. Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. The Company adopted FIN 48, which had no effect on the Company's financial statements at this time given its limited operations and activities. 5. FAIR VALUE MEASUREMENTS Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurement , or SFAS 157, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In accordance with the provisions of FSP no. FAS 157-2, Effective Date of FASB Statement No. 157, the Company has elected to defer implementation of SFAS 157 as it relates to its non-financial assets and non-financial liabilities that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis until January 1, 2009. The Company is evaluating the impact, if any, this standard will have on its non-financial assets and liabilities. The adoption of SFAS 157 to the Company's financial assets and liabilities did not have an impact on the Company's financial results. The following table presents information about the Company's cash equivalents and cash held in trust that are measured at fair value on a recurring basis as of March 31, 2008, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability: 5. FAIR VALUE MEASUREMENTS (CONTINUED)
SIGNIFICANT QUOTED PRICES IN SIGNIFICANT OTHER UNOBSERVABLE MARCH 31, ACTIVE MARKETS OBSERVABLE INPUTS INPUTS DESCRIPTION 2008 (LEVEL 1) (LEVEL 2) (LEVEL 3) - ----------- ----------- ---------------- ----------------- ------------- Assets: Cash equivalents $ 7,388 $ 7,388 $-- $-- Cash and cash equivalents held in trust 39,860,860 39,860,860 -- -- ----------- ----------- --- --- Total $39,868,248 $39,868,248 $-- $--
The fair values of the Company's cash equivalents and cash and cash equivalents held in Trust Account are determined through market, observable and corroborated sources. The carrying amounts reflected in the condensed balance sheets for other current assets and accrued expenses approximate fair value due to their short-term maturies. As disclosed in Note 2 "Warrant liability," the Company's issuance of warrants include provisions which require it to account for the conversion feature. Such financial instruments are recorded at fair value when issued and adjusted to fair value at each reporting date or when extinguished, converted or exercised, with the change in fair value reported in the statements of operations. As a result these changes in fair value, we have recorded a gain for the three months ended March 31, 2008 of approximately $5,047,000. The derivative liabilities are valued using the Black-Scholes pricing model using inputs applicable to each issuance. Such valuation falls under Level 3 of the fair value hierarchy under FAS 157. The following table represents the reconciliation required for Level 3 inputs and the valuation inputs to the Black-Scholes pricing model. Balance - December 31, 2007 $14,562,188 Changes in fair value (5,047,088) ----------- Ending - March 31, 2008 $ 9,515,100 ===========
Unrealized gains (losses) included in earnings for the three months ended March 31, 2008 attributable to derivative liabilities still held at March 31, 2008 $ 5,047,088 =========== - Cumulative $(2,132,287) ===========
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Company presently occupies office space provided by Asia Development Capital LLC ("ADC"), an affiliate of the Company. ADC has agreed that, until the Company consummates a business combination, it will make such office space, as well as certain office and secretarial services, available to the Company, as may be required by the Company from time to time. The Company has agreed to pay such affiliate $7,500 per month for such services commencing on the effective date of the Offering, April 18, 2006. The Company has engaged Rodman & Renshaw, the representative of the underwriters, on a non-exclusive basis, as the Company's agent for the solicitation of the exercise of the warrants. To the extent not inconsistent with the guidelines of the NASD and the rules and regulations of the SEC, the Company has agreed to pay the representative for bona fide services rendered a commission equal to 2.5% of the exercise price for each warrant exercised more than one year after the date of the prospectus if the exercise was solicited by the underwriters. In addition to soliciting, either orally or in writing, the 6. COMMITMENTS AND RELATED PARTY TRANSACTIONS (CONTINUED) exercise of the warrants, the representative's services may also include disseminating information, either orally or in writing, to warrant holders about the Company or the market for our securities, and assisting in the processing of the exercise of the warrants. No compensation will be paid to the representative upon the exercise of the warrants if: - - the market price of the underlying shares of common stock is lower than the exercise price; - - the holder of the warrants has not confirmed in writing that the underwriters solicited the exercise; - - the warrants are held in a discretionary account; - - the warrants are exercised in an unsolicited transaction; or - - the arrangement to pay the commission is not disclosed in the prospectus provided to warrant holders at the time of exercise. The Company has sold to Rodman & Renshaw, LLC (the "Representative" of the underwriters), for $100, as additional compensation, an option to purchase up to a total of 350,000 units at a per-unit price of $10.00. The units issuable upon exercise of this option are also identical to those offered by the Offering except that the warrants included in the option have an exercise price of $6.65 (133% of the exercise price of the warrants included in the units sold in the offering.) The Company will pay the underwriters in the Offering an underwriting discount of 7% of the gross proceeds of this Offering (of which 3% is deferred until the consummation of a business combination). The sale of the option will be accounted for as an equity transaction. Accordingly, there will be no net impact on the Company's financial position or results of operations, except for the recording of the $100 proceeds from the sale. The Company has determined, based upon a Black-Scholes model, that the fair value of the option on the date of sale would be approximately $2.98 per unit, or approximately $1,043,000 total, using an expected life of five years, volatility of 45.47% and a risk-free interest rate of 3.38%. The volatility calculation of 45.47% is based on the 365-day average volatility of a representative sample of ten (10) companies with market capitalizations under $500 million that management believes to be engaged in the business of auto component parts (the "Sample Companies"). Because the Company does not have a trading history, the Company needed to estimate the potential volatility of its common stock price, which will depend on a number of factors which cannot be ascertained at this time. The Company referred to the 365-day average volatility of the Sample Companies because management believes that the average volatility of such companies is a reasonable benchmark to use in estimating the expected volatility of the Company's common stock post-business combination. Although an expected life of five years was taken into account for purposes of assigning a fair value to the option, if the Company does not consummate a business combination within the prescribed time period and liquidates, the option would become worthless. Pursuant to letter agreements with the Company and the Representative, the Initial Stockholders have waived their right to receive distributions with respect to their founding shares upon the Company's liquidation. Certain of the Company's officers, directors, or their designees have agreed with the Representative that upon consummation of the Offering and during the 45 trading day period commencing on the later of the date that the securities comprising the units begin separate trading or 60 days following the consummation of the Offering, that they will purchase up to 320,000 warrants in the public marketplace at prices not to exceed $1.40 per Warrant. As of March 31, 2008, William R Herren, Mr. Rudy Wilson, Chun Hao and Asia Development Capital held 290,000 warrants to purchase the Company's securities. The Initial Stockholders will be entitled to registration rights with respect to their founding shares pursuant to an agreement to be signed prior to or on the effective date of the Offering. The holders of the majority of these shares are entitled to make up to two demands that the Company register these shares at any time commencing three months prior to the third anniversary of the 6. COMMITMENTS AND RELATED PARTY TRANSACTIONS (CONTINUED) effective date of the Offering. In addition, the Initial Stockholders have certain "piggy-back" registration rights on registration statements filed subsequent to the third anniversary of the effective date of the Offering. Rodman & Renshaw has entered into a letter agreement with us pursuant to which it agreed to purchase up to 125,000 warrants in the public marketplace at prices not to exceed $1.40 per warrant during the 45 trading day period commencing on the later of the date separate trading of the warrants has commenced or 60 days following the consummation of this offering. Chardan Capital Markets has entered into a letter agreement with us pursuant to which it agreed to purchase up to 125,000 warrants in the public marketplace at prices not to exceed $1.40 per warrant during the 45 trading day period commencing on the later of the date separate trading of the warrants has commenced or 60 days following the consummation of this offering. On February 8, 2006, five stockholders entered into five separate letter agreements with the representatives of the underwriters pursuant to which they agreed to purchase in aggregate up to $2,000,000 in warrants at prices not to exceed $1.40 per warrant during the 45 day trading period commencing on the later of the date separate trading of the Warrants has commenced or 60 calendar days following the consummation of the Offering. These entities have agreed that any warrants purchased by them pursuant to this agreement will not be sold or transferred until after a completed business combination. As of March 31, 2008, these five stockholders held 20,000 warrants to purchase the Company's securities. 7. PREFERRED STOCK The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of March 31, 2008, the Company has not issued any shares of preferred stock. 8. SUBSEQUENT EVENTS The board of directors of Asia Automotive Acquisition Corporation ("AAAC") has unanimously approved the acquisition of Hunan Tongxin Enterprise Co., Ltd. ("Hunan Tongxin"), an operating company in the People's Republic of China, pursuant to an Equity Acquisition Agreement whereby AAAC will purchase 100% of the shares of Hunan Tongxin held by the stockholders (the "Hunan Tongxin Stockholders"). The board of directors of AAAC also has unanimously approved the simultaneous reincorporation of AAAC from the State of Delaware to the British Virgin Islands through a Redomestication with TI. In the Redomestication, AAAC will exchange its securities for the outstanding securities of TI. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This Quarterly Report on Form 10-QSB 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 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. We were formed on June 20, 2005, to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business. Our initial business combination must be with a target business or businesses whose fair market value is at least equal to 80% of net assets at the time of such acquisition. We intend to utilize cash derived from the proceeds of our recently completed public offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination. Since our initial public offering, we have been actively engaged in sourcing a suitable business combination candidate. We have met with target companies, service professionals and other intermediaries to discuss with them our company, the background of our management and our combination preferences. In the course of these discussions, we have also spent time explaining the capital structure of the initial public offering, the combination approval process, and the timeline under which we are operating before the proceeds of the offering are returned to investors. Most of the activity from June 20, 2005 (inception) to March 31, 2008 relates to the Company's formation and public offering described below. Three Months Ended March 31, 2008 For the three months ended March 31, 2008, we had net income of approximately $4,800,000 consisting of interest income of $354,000, a gain on warrant liability of approximately $5,047,000 and formation and operating costs of $725,000. Interest income is derived primarily from investment of our cash balances held in trust, which aggregated approximately $39,861,000 at March 31, 2008. The cash balance held in trust is invested primarily in treasury bills. Three Months Ended March 31, 2007 For the three months ended March 31, 2007, we had net income of approximately $915,000 consisting of interest income of $471,000, a gain on warrant liability of approximately $690,000 and formational operating costs of $360,000. Interest income is derived primarily from investment of our cash balances held in trust, which aggregated approximately $38,669,000 at March 31, 2007. The cash balance held in trust was invested primarily in treasury bills. LIQUIDITY AND CAPITAL RESOURCES On April 19, 2006, we consummated our initial public offering of 5,031,250 units including an additional 656,250 units that were subject to the underwriters' over-allotment option. Each unit consists of one share of common stock and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. Of the proceeds of the Offering, $37,418,000 (plus interest expense) is being held in a trust account ("Trust Account") and invested until the earlier of (i) the consummation of the first business combination or (ii) the distribution of the Trust Account as described below. The amount in the Trust Account includes $1,207,500 of contingent underwriting compensation, which will be paid to the underwriters if a business combination is consummated, but which will be forfeited in part if public stockholders elect to have their shares redeemed for cash if a business combination is not consummated. Deferred underwriter's fee is reflected on the balance sheet at $966,121, an additional $241,379 is included in common stock, subject to possible conversion, for a total of $1,207,500. The remaining proceeds may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. We pay Asia Development Capital LLC., an affiliate, an aggregate fee of $7,500 per month which includes the cost of the office space and the cost of other general and administrative services provided to us by such affiliate. ITEM 3. CONTROLS AND PROCEDURES Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the Company's effectiveness of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-QSB. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures have not been operating effectively as of the end of the period covered by this report. In connection with the preparation of our Report of Form 10-QSB, management identified a material weakness, due to an insufficient number of resources in the accounting and finance department, resulting in (i) an ineffective review, monitoring and analysis of schedules, reconciliations and financial statement disclosures and (ii) the misapplication of U.S. GAAP and SEC reporting requirements. Due to the pervasive effect of the lack of resources, including a lack of resources that are appropriately qualified in the areas of U.S. GAAP and SEC reporting, and the potential impact on the financial statements and disclosures and the importance of the annual and interim financial closing and reporting process, in the aggregate, there is more than a remote likelihood that a material misstatement of the annual financial statements would not have been prevented or detected. There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS There are no material legal proceedings pending against us. Item 2. EXHIBITS
Exhibit No. Description of Exhibits - ----------- -------------------------------------------------------- 31.1 Section 302 Certification of Principal Executive Officer 32.1 Section 906 Certification
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 22, 2008 By: /s/Rudy Wilson Rudy Wilson Chief Executive Officer (Principal Executive Officer) By: /s/David J. Brophy David J. Brophy Chief Financial Officer (Principal Financial and Accounting Officer) EX-31.1 2 k26824qexv31w1.txt SECTION 302 CERTIFICATIONS Exhibit 31.1 CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER I, Rudy Wilson, certify that: 1. I have reviewed this Quarterly Report on Form 10-QSB of Asia Automotive Acquisition Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, mot misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: May 22, 2008 /s/ Rudy Wilson Rudy Wilson Chief Executive Officer EX-32.1 3 k26824qexv32w1.txt SECTION 906 CERTIFICATIONS Exhibit 32.1 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Asia Automotive Acquisition Corporation, a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that: The Quarterly Report on Form 10-QSB for the quarter ended March 31, 2008 (the "Form 10-QSB") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-QSB fairly presents, in all material aspects, the financial condition and results of operations of the Company. Dated: May 22, 2008 /s/ Rudy Wilson Rudy Wilson Chief Executive Officer /s/ David J. Brophy David J. Brophy Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----