Chardan South China Acquisition Acquisition (stock symbol: CSCA.OB), which raised $34.5 million when it went public in August 2005, has announced that is merging with Head Dragon Holdings Limited, the largest engineering company serving the distributed power generation industry in China.
Chardan South China Acquisition Corp. Announces Signing of an Agreement in Principle to Acquire the Leading Distributed Power Generation Company in China
Wednesday January 31, 3:19 pm ET
SAN DIEGO & SHENYANG, China--(BUSINESS WIRE)--Chardan South China Acquisition Corporation ("CSCA") (OTCBB: CSCA - News, CSCAU - News and CSCAW - News), announced today that it has entered into an Agreement in Principle to merge with Head Dragon Holdings Limited ("Head Dragon"), the Hong Kong Holding Corporation that owns 100% of Liaoning Gaoke Energy Group ("Gaoke" or the "Company"). Gaoke is the largest private Chinese engineering company providing design, construction, installation, and operating expertise for distributed power generation and micro power networks in China.
Micronetworks are local energy generation systems that create cost-effective and continuous electricity and heat supply at or near the site where they are installed. In China, these micro grids usually involve "co-generation," using waste steam from a factory boiler to generate electricity and provide space heating. In addition to meeting the electrical and heating needs of the factory, any excess supply can be sold locally or, in the case of electricity, can be sold for distribution over China's national power grid.
Gaoke has designed and installed, or is in the process of installing, distributed power systems ranging in size from a few megawatts to 300 megawatts for customers in the chemical, steel, ethanol, cement, construction materials and food processing businesses. The Company also designs and develops, under contract, stand-alone power and heat generating facilities.
On an un-audited Chinese GAAP basis, Gaoke had after-tax earnings of 55.6 million RMB for the year ending December 31, 2006.
According to China's National Development and Reform Commission, the annual expenditure on China's power development will be 500 to 600 billion RMB per year through 2010 and Gaoke management estimates that distributed power has the potential to capture 10% of this total expenditure. The total expenditure on micro power networks in China was estimated to be less than 1 billion RMB in 2006.
At the close of the transaction the Head Dragon Stockholders will receive 13,000,000 shares of CSCA common stock in exchange for all of the outstanding common stock of Head Dragon.
As additional purchase price, the Head Dragon Stockholders will be issued, on an all or none basis each year, an aggregate of 9,000,000 shares of common stock of CSCA (1,000,000 each year for 2007, 2008 and 2009; and 2,000,000 each year for 2010, 2011 and 2012), if, on a consolidated basis, it has after-tax profits on a U.S. GAAP basis of the following amounts for the indicated 12-month periods ending December 31:
Fiscal Year After Tax Profit
2007 $14,000,000
2008 $19,000,000
2009 $29,000,000
2010 $44,000,000
2011 $63,000,000
2012 $87,000,000
Mr. Kerry Propper, CSCA's CEO, commented, "We believe that energy infrastructure will continue to experience rapid growth as China attempts to meet its surging energy needs, and that distributed power generation will play an increasingly important role in meeting this demand. Gaoke, as a leading micronetwork developer in China, presents us with an ideal opportunity to participate in China's developing energy infrastructure."
"Since being founded in 2003, Gaoke has focused on building its engineering prowess, continuously improving on the functionality of its systems and on supporting the development of new green technologies that it may employ in the future."
"The company has grown impressively since its inception, and due to recent contract wins and a newly placed emphasis on distributed networks by the Chinese central government in their latest 5-Year Plan, Gaoke is anticipating further acceleration of its growth."
"Gaoke is not only well-positioned to take advantage of the opportunity in China but also throughout Southeast Asia. The company has recently been awarded contracts in India, and it has received invitations to bid on additional projects in India, as well as on projects in Indonesia."
Mr. Propper continued, "In addition to its expertise in micro power networks, Gaoke, through its academic technology development partnerships, is actively pursuing wind, solar, biomass and heat pump solutions for distributed power. These exclusive academic relationships are with Tsinghua University, the most distinguished scientific research university in China, and with the China Science Academy in Guangzhou, one of the leading research institutes in Asia for developing new energy technologies. We are very excited about the alternative energy technology pipeline that Gaoke has amassed, and are confident that it will be able to add a number of these to its armamentarium of green alternative energy solutions in the coming years."
Head Dragon is currently undergoing a U.S. GAAP audit, and an S-4 registration statement will be submitted to the SEC promptly after completion of that audit. In the meantime, the parties will be drafting the definitive agreement governing the transaction.
To accomplish the acquisition, CSCA will form its own wholly-owned subsidiary under the laws of in the British Virgin Islands under the name China Energy Technology Limited ("CETL"). At closing, CSCA will merge with and into CETL.
About CSCA
CSCA is a blank check company incorporated in March 2005 to acquire an operating business based south of the Yangtze River in the People's Republic of China ("PRC"). Although Gaoke's principal offices are located north of the Yangtze River, CSCA's board and management will obtain shareholder approval in the normal course of closing the transaction.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, about Chardan South, Goake and their combined business after completion of the proposed acquisition. Forward looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of Chardan South's and Gaoke's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Gaoke is engaged; fluctuations in customer demand; management of rapid growth; intensity of competition from or introduction of new and superior products by other providers in the industry; timing, approval and market acceptance of new product introductions; general economic conditions; geopolitical events and regulatory changes, as well as other relevant risks detailed in Chardan South's filings with the Securities and Exchange Commission, including its report on Form 10-QSB for the period ended September 30, 2006. The information set forth herein should be read in light of such risks. Neither Chardan South nor Gaoke assumes any obligation to update the information contained in this press release.
Contact:
Chardan South China Acquisition Corp.
Kerry Propper, 646-465-9088
Chief Executive Officer
or
Chardan Capital
Mark Brewer, 619-795-4627
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Source: Chardan South China Acquisition Corporation
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