Attached files
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported): November 5, 2009 (October 30,
2009)
GC
China Turbine Corp.
(Exact
name of registrant as specified in Charter)
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NEVADA
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333-141641
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98-0536305
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(State
or other jurisdiction of
incorporation
or organization)
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(Commission
File No.)
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(IRS
Employee Identification
No.)
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No.
86, Nanhu Avenue, East Lake Development Zone,
Wuhan,
Hubei Province 430223
People’s Republic of
China
(Address
of Principal Executive Offices)
+8627-8798-5051
(Issuer
Telephone number)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Forward
Looking Statements
This
Current Report on Form 8-K (“Form 8-K”) and other
reports filed by the Registrant from time to time with the Securities and
Exchange Commission (collectively the “Filings”) contain or
may contain forward looking statements and information that are based upon
beliefs of, and information currently available to, the Registrant’s management
as well as estimates and assumptions made by the Registrant’s management. When
used in the filings the words “anticipate”, “believe”, “estimate”, “expect”,
“future”, “intend”, “plan” or the negative of these terms and similar
expressions as they relate to the Registrant or the Registrant’s management
identify forward looking statements. Such statements reflect the current view of
the Registrant with respect to future events and are subject to risks,
uncertainties, assumptions and other factors (including the risks contained in
the section of this report entitled “Risk Factors”) relating to the Registrant’s
industry, the Registrant’s operations and results of operations and any
businesses that may be acquired by the Registrant. Should one or more of these
risks or uncertainties materialize, or should the underlying assumptions prove
incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended or planned.
Although
the Registrant believes that the expectations reflected in the forward looking
statements are reasonable, the Registrant cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, the
Registrant does not intend to update any of the forward-looking statements to
conform these statements to actual results. The following discussion should be
read in conjunction with the Registrant’s pro forma financial statements and the
related notes filed with this Form 8-K.
In
this Form 8-K, references to “we,” “our,” “us,” “GC China Turbine” the “Company”
or the “Registrant” refer to GC China Turbine Corp., a Nevada
corporation.
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Item 1.01
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Entry
into a Material Definitive
Agreement
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On October
30, 2009 (the “Closing
Date”), GC China Turbine Corp. (formerly known as “Nordic Turbines,
Inc.”), a Nevada corporation (“GC China Turbine” or
“Company”),
closed a voluntary share exchange transaction with a wind turbines manufacturer
based in China pursuant to a Share Exchange Agreement (the “Exchange Agreement”)
by and among the Company, Luckcharm Holdings Limited (“Luckcharm”), a
company incorporated in Hong Kong Special Administrative Region, Golden Wind
Holdings Limited (“BVI”), a company
incorporated in the British Virgin Islands and owner of 100% of the issued and
outstanding equity interest of Luckcharm, and Wuhan Guoce Nordic New Energy Co.,
Ltd. (“GC
Nordic”), a company organized in the People’s Republic of China (the
“PRC” or “China”) and
wholly-owned subsidiary of Luckcharm. Throughout this Form 8-K, GC
China Turbine, Luckcharm and GC Nordic are sometimes collectively referred to as
“GC China Turbine Group.”
Prior to
the voluntary share exchange under the Exchange Agreement (“Exchange
Transaction”), we were a public reporting “shell company,” as defined in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended. As a
result of the Exchange Transaction, the BVI became our controlling shareholder,
Luckcharm became our wholly-owned subsidiary, and the Company acquired the
business and operations of GC China Turbine Group.
The
following is a brief description of the terms and contingent conditions of the
Exchange Agreement and the transactions contemplated thereunder that are
material to the Company. A copy of the Exchange Agreement is filed herewith as
Exhibit 2.1.
Issuance of Common
Stock. At the closing of the Exchange Transaction on the Closing Date,
the Company issued 32,383,808 shares of its common stock to the BVI in
exchange for 100% of the issued and outstanding capital stock of Luckcharm and
US$ 10,000,000 in previously issued convertible promissory notes were converted
into 12,500,000 shares of the Company’s common stock. Immediately prior to the
Exchange Transaction, the Company had 7,686,207 shares of common stock issued
and outstanding. Immediately after the Exchange Transaction and notes
conversion (and taking into account 40,500,000 shares of common stock
surrendered by former Company officers and directors for cancellation on
September 11, 2009 and 1,298,793 additional shares of common stock surrendered
for cancellation on October 1, 2009), the Company had 58,970,015 shares of
common stock issued and outstanding.
Change in Management.
As a condition to closing the Exchange Agreement and as more fully described in
Item 5.02 below, Mr. John J. Lennon has resigned as the Company’s
Chief Executive Officer, Chief Financial Officer, President, Secretary,
Treasurer and director on the Closing Date, and Mr. Marcus Laun remains as a
director. Effective as of September 4, 2009, Mr. Hou Tie Xin, Ms. Qi
Na and Mr. Xu Jia Rong were appointed to the Company’s board of
directors. Mr. Hou was appointed as Chairman of the board of
directors. Effective on the Closing of the Exchange Transaction, Qi Na was
appointed as Chief Executive Officer; Zhao Ying was appointed as Chief Financial
Officer; Tomas Lyrner was appointed as Chief Technology Officer; and Chris
Walker Wadsworth was appointed to the Company’s board of directors.
2
Additional
Financing. The consummation of the Exchange Transaction was
also contingent on: (a) US$ 8,000,000 being subscribed for, and funded into
escrow, by certain accredited and institutional investors (“Investors”) for the
purchase of 6,400,000 shares of the Company’s Common Stock (the “Equity Financing”);
and (b) the closing of a debt financing transaction with Clarus Capital Ltd. for
the aggregate amount of US$ 1,000,000, which shall be convertible into
Company’s Common Stock at US$ 2.00 per share and have a 2 year repayment (the
“Debt
Financing”). Both the
Equity Financing and the Debt Financing are described more fully in Item 2.01
below. The Equity Financing shall close concurrently with the closing
of the Exchange Transaction and the Debt Financing shall close upon the
effective date of delivery of 20 wind turbine systems by GC Nordic to its
customers (the “Effective Delivery
Date”), under the terms and conditions approved by the Company’s board of
directors.
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Item 2.01
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Completion
of Acquisition or Disposition of
Assets
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The
Exchange Transaction
On
October 30, 2009, GC China Turbine acquired Luckcharm and its business
operations as a result of the Exchange Transaction. Reference is made to
Item 1.01, which is incorporated herein, which summarizes the terms of the
Exchange Transaction.
From and
after the Closing Date, our primary operations consist of the business and
operations of GC China Turbine Group, which are conducted in the PRC. Therefore,
we disclose information about the business, financial condition, and management
of GC China Turbine Group in this Form 8-K.
Effective
as of September 4, 2009, Hou Tie Xin, Qi Na and Xu Jia Rong were appointed to
the Company’s board of directors. Mr. Hou was appointed as Chairman
of the board of directors. Effective as of the Closing Date, Mr. John
J. Lennon resigned as Chief Executive Officer, President, Chief Financial
Officer, Treasurer, Secretary and director, and Qi Na was appointed as Chief
Executive Officer, Zhao Ying was appointed as Chief Financial Officer, Tomas
Lyrner was appointed as Chief Technology Officer, and Chris Walker Wadsworth was
appointed as a member of the board of directors. The following
persons consist of the Company’s new executive officers and
directors:
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Name
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Position
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Hou
Tie Xin
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Chairman
of the Board
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Qi
Na
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Chief
Executive Officer, Director
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Zhao
Ying
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Chief
Financial Officer
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Tomas
Lyrner
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Chief
Technology Officer
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Xu
Jia Rong
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Director
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Chris
Walker Wadsworth
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Director
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The
Company previously filed and mailed the Information Statement required
under Rule 14(f)-1 to its shareholders on August 25, 2009, and the 10-day
period as required under Rule 14(f)-1 expired on September 4,
2009. Additional information regarding the above-mentioned directors
and/or executive officers is set forth below under the section titled
“Management”.
The
Financing Transactions
Equity
Financing
Between October 5, 2009 and October 30,
2009, the Company entered into Securities Purchase Agreements with the
Investors, pursuant to which the Investors agreed to purchase up to
6,400,000 shares of common stock of the Company, at a purchase price of US$
1.25 per share for an aggregate offering price of US
$8,000,000. Additionally, the Company issued warrants to each Investor
in an amount equal to 10% of the number of shares that such Investor
purchased, with each warrant having an exercise price of US$ 1.00 per share and
being exercisable at any time within 3 years from the date of
issuance (the “Warrants”).
3
In
connection with the Securities Purchase Agreements, BVI entered into a make good
escrow agreement whereby BVI pledged 640,000 shares of common stock of the
Company to the Investors in order to secure the Company’s make good obligations.
In the make good escrow agreement, the Company established a minimum after tax
net income threshold of $12,500,000 for the fiscal year ending December 31,
2010. If the minimum after tax net income threshold for the fiscal year 2010 is
not achieved, then the Investors will be entitled to receive additional shares
of the Company’s common stock held by BVI based upon a pre-defined formula
agreed to between the Investors and BVI. BVI deposited a total of 640,000 shares
of common stock of the Company, into escrow with the escrow agent under the make
good escrow agreement.
Additionally, if the minimum after tax
net income threshold for the fiscal year 2010 is not achieved, then the
Investors will be entitled to have the exercise price of the Warrants adjusted
lower based upon a pre-defined formula agreed to between the Investors and the
Company.
The
private placement was conducted by the Company and certain placement
agents. In certain cases where investors were introduced to the Company,
the Company paid a 7% cash fee for the aggregate amount of $630,000 to the
respective placement agent and issued a warrant to purchase an amount equal to
5% of the shares sold through such placement agent. The
7% cash fee is based on the gross proceeds received by the Company
from the investors introduced by the respective placement agent. An
aggregate of 560,000 warrants have been reserved for such issuances and each
such warrant has an exercise price of US$ 1.00 per share and can be
exercised at any time within 3 years from the date of
issuance.
Debt Financing
On October 30, 2009, the Company
entered into a Note Purchase Agreement with Clarus Capital Ltd. ("Clarus") whereby
Clarus agreed to loan US $1,000,000 to the Company upon the Effective Delivery
Date. The loan will be in the form of a convertible promissory note
which shall bear interest at a rate of 1% per month (the "Note"), and have a
maturity date of 2 years from the date of issuance of the
Note. Additionally, the principal and accrued interest underlying the
Note (the "Debt") may be
converted by Clarus at US$ 2.00 per share into shares of common stock of the
Company at any time prior to the maturity date. Six months from the Effective
Delivery Date, the Company may at its option, convert the Debt at US$ 2.00 per
share into shares of its common stock anytime thereafter.
DESCRIPTION
OF BUSINESS
Except as
otherwise indicated by the context, references to “we”, “us” or “our”
hereinafter in this Form 8-K are to the consolidated business of GC China
Turbine Group, except that references to “our common stock”, “our shares of
common stock” or “our capital stock” or similar terms shall refer to the common
stock of the Registrant.
Overview
We are a
leading manufacturer of state-of-the-art 2-bladed wind turbines located in Wuhan
City of Hubei Province, China. The Company sought to license and
develop a groundbreaking technology in the wind energy space that would have a
high likelihood of meeting rigorous requirements for low-cost and high
reliability. We identified a 2-bladed wind turbine technology that was developed
through a 10 year research project costing over US$ 75 million. While the
2-blade technology is less commonly used in the market, the development project
that created our technology has been operating for 10 years with 97%
availability (for generation). Further, the 2-blade technology has
the benefits of lower manufacturing cost, lower installation cost and lower
operational costs. Therefore, the product is uniquely positioned to fulfill the
Company’s mission. Our launch product is a 1.0 megawatt (“MW”) utility scale
turbine with designs for a 2.3MW and 3.0MW utility scale turbine in
development. The Company’s initial efforts have been rewarded with
contracts of approximately US$ 128 million, including 3 contracts executed on
August 30, 2007, September 1, 2008 and July 17, 2009, to be carried out in the
next 1 to 2 years.
We are
producing the 1.0MW 2-blade wind turbines with a focus on our chosen Chinese
markets. The Company plans to penetrate the broader reaches of the Chinese
market with the launch of our larger 2.3 and 3.0 MW 2-blade wind
turbines. The 3.0 MW wind turbine is targeted for offshore
applications. We have already successfully won three wind farm
contracts and begun delivering turbines to fulfill some of these
contracts. We are developing a track record and brand-awareness
through the execution of our first three contracts.
The
Company was founded in 2006 by certain members of GC Nordic’s management team
and certain shareholders who formed Guoce Science and Technology Stock Co., Ltd.
(“Guoce Science and
Technology”), a leading technology provider to the Chinese utilities
industry. Guoce Science and Technology has a long history as a preferred
provider to the utilities industry in China. It is a producer of hydraulic
systems and electronic control systems that enjoy dominant market share of
approximately 40% in the PRC hydro-electric generation industry. GC
Nordic was founded as part of a strategy of expanding Guoce Science and
Technology’s product offerings in a business that closely parallels its current
business. Guoce Science and Technology is a company with great reputation in the
industry with businesses covering the whole power industrial chain with
productions ranging from power generation to power transmission to every sector
of power utilization. The management team of Guoce Science and
Technology also forms the core management team of our Company.
4
Company
Organization and Recent Events
Luckcharm
was originally incorporated in Hong Hong on June 15, 2009 by Fernside
Limited. On June 29, 2009, Fernside Limited transferred all of the
equity interest of Luckcharm to BVI. On August 1, 2009, Luckcharm
entered into an agreement to acquire 100% of the equity of GC Nordic from the
original nine individual shareholders (the “Founders”). On
August 5, 2009, GC Nordic received approval of this acquisition from the Bureau
of Commerce of the Wuhan City, Hubei Province, PRC. Prior to the Exchange
Transaction, on September 30, 2009, the Founders obtained 100% voting interests
in BVI in the same proportion as their ownership interest in GC Nordic, through
certain Call Option and Voting Trust Agreements with Xu Hong Bing, the sole
shareholder of BVI.
GC Nordic
was organized in the PRC on August 21, 2006 as a limited liability company upon
the issuing of a license by the Administration for Industry and Commerce of the
Wuhan City, Hubei Province, PRC with an operating period of 10 years to August
20, 2016. On August 5, 2009, all of the outstanding equity interests of GC
Nordic were acquired by Luckcharm, and GC Nordic became a wholly foreign owned
enterprise under PRC law. GC Nordic holds the government licenses and approvals
necessary to operate the wind turbines business in
China.
On May
22, 2009, GC Nordic entered into a Letter of Intent ("LOI") with GC China
Turbine Corp. f.k.a. Nordic Turbines, Inc., a Nevada corporation (“Nordic Turbines”)
whereby Nordic Turbines would purchase all of the issued and outstanding shares
of GC Nordic from the shareholders, and the shareholders of GC Nordic would
receive a 54% ownership interest in the Company. Further on July 31,
2009, an Amended and Restated Binding Letter of Intent ("Revised LOI") was
entered between Luckcharm, GC Nordic, Nordic Turbines, New Margin Growth Fund
L.P. ("New
Margin"), Ceyuan Ventures II, L.P. ("CV") and Ceyuan
Ventures Advisors Fund II, LLC ("CV Advisors") whereby
Nordic Turbines would purchase all of the issued and outstanding shares of
Luckcharm from the shareholders, and the shareholders of Luckcharm would receive
a 54% ownership interest in the Company. The Revised LOI further provides that
(i) upon consummation of the Exchange Transaction, Nordic Turbines shall
directly or indirectly own all of the outstanding capital stock of GC Nordic;
(ii) the closing date for the Exchange Transaction shall be thirty days from the
date GC Nordic completes an audit of its financial statements as required under
U.S. securities laws; and (iii) the obligation of GC Nordic to consummate the
Exchange Transaction is conditioned upon an additional financing of at least US$
10 million into the combined entities at closing.
On May
22, 2009, GC Nordic entered into a promissory note in favor of us in the
principal amount of US$ 1 million. On July 31, 2009, Luckcharm
entered into an amended and restated promissory note in favor of us in the
principal amount of US$ 1 million. The promissory note is secured by
the assets of Luckcharm, accrues interest at 6% per annum calculated annually
from May 31, 2009, and is due 24 months from the closing of the Exchange
Transaction. Upon closing of the agreements as described above, the
promissory note, excluding any interest accrued, will be considered an
inter-company loan. If the proposed transactions are not completed by December
8, 2009, and the principal, together with interest, have not been fully repaid
by June 8, 2010, Nordic Turbines will have the right, at its option, to convert
the promissory note to a percentage equity interest in Luckcharm, equal to 4.44%
multiplied by that fraction of the principal not repaid by June 8,
2010.
On July
31, 2009, Luckcharm, GC Nordic, Nordic Turbines, New Margin, CV and CV Advisors
entered into an amended and restated financing agreement (the "Financing
Agreement"). The Financing Agreement provides that Nordic Turbines agreed
to lend Luckcharm (i) US$ 2.5 million before July 24, 2009 and (ii) US$ 7.5
million before July 31, 2009. In order to guarantee Luckcharm’s lending
obligations under the Financing Agreement, New Margin agreed to lend US$ 5
million to us and CV and CV Advisors each agreed to lend the aggregate of US$ 5
million to the Company prior to the dates indicated above. Upon the consummation
of the Exchange Transaction, the US$ 10 million aggregate loan amount made to us
by each of New Margin, CV and CV Advisors will be converted into shares of our
common stock at a conversion price equal to US$ 0.80 per share.
On July
31, 2009, Luckcharm entered into a promissory note in favor of us in the
principal amount of US$ 10 million in connection with Nordic Turbines’s loan
made to Luckcharm as described above. Under the terms of the promissory note, we
shall forgive the debt and cancel the promissory note so long as (i) the
Exchange Transaction is completed pursuant to its terms or (ii) if the Exchange
Transaction is not completed pursuant to its terms, the debt is converted
pursuant to the Financing Agreement. If the Exchange Transaction is not
completed and the debt is not converted pursuant to the Financing Agreement, the
debt shall be due and payable within 180 days from the date of the promissory
note.
5
Our
Corporate Structure
The
following diagram illustrates our corporate structure from and after the
Exchange Transaction:
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(1)
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From
and after the Exchange Transaction, the management of GC China Turbine
includes: Hou Tie Xin as Chairman, Qi Na as Chief Executive Officer and
director, Zhao Ying as Chief Financial Officer, Tomas Lyrner as Chief
Technology Officer, and Xu Jia Rong, Marcus Laun and Chris Walker
Wadsworth as members of the board of directors. As of the date of this
Form 8-K, none of the management owns any shares of GC China Turbine
common stock. Mr. Hou, Ms. Qi, Ms. Zhao and Mr. Xu, however, are parties
to a Call Option Agreement dated September 30, 2009 pursuant to which they
have the right to acquire the shares of GC China Turbine common stock
issued to the BVI in connection with the Exchange Agreement, and to a
Voting Trust Agreement dated September 30, 2009 pursuant to which they are
voting trustees under a voting trust created to hold all such
shares.
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(2)
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The
management of Luckcharm is comprised of Xu Hong Bing as the sole
director.
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(3)
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The
management of GC Nordic includes: Hou Tie Xin as Chairman, Qi
Na as General Manager, Wu Wei as Deputy General Manager, Zhao Ying as
Chief Financial Officer, and Xu Jia Rong as Deputy General
Manager.
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Our
Industry
Wind
Power
Wind
power is the conversion of wind energy into more useful forms of energy, such as
electricity, using wind turbines. Humans have been using wind power
for at least 5,500 years to propel sailboats and sailing ships, and architects
have used wind-driven natural ventilation in buildings since similarly ancient
times.
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Compared
to the environmental effects of traditional energy sources, the environmental
effects of wind power are relatively minor. Wind power consumes no fuel, and
emits no air pollution, unlike fossil fuel power sources. The energy consumed to
manufacture and transport the materials used to build a wind power plant is
equal to the new energy produced by the plant within a few months of
operation.
The power
in the wind can be extracted by allowing it to blow past moving wings that exert
torque on a rotor. The amount of power transferred is directly proportional to
the density of the air, the area swept out by the rotor, and the cube of the
wind speed. The mass flow of air that travels through the swept area of a wind
turbine varies with the wind speed and air density. Because so much power is
generated by higher wind speed, much of the average power available to a
windmill comes in short bursts. As a general rule, wind generators
are practical where the average wind speed is 10 mph (16 km/h or 4.5 m/s) or
greater. An ideal location would have a near constant flow of non-turbulent wind
throughout the year and would not suffer too many sudden powerful bursts of
wind. An important turbine siting factor is access to local demand or
transmission capacity. The wind blows faster at higher altitudes because of the
reduced influence of drag on the surface (sea or land) and the reduced viscosity
of the air. The increase in velocity with altitude is most dramatic
near the surface and is affected by topography, surface roughness, and upwind
obstacles such as trees or buildings. As the wind turbine extracts
energy from the air flow, the air is slowed down, which causes it to spread out
and divert around the wind turbine to some extent. Betz' law states
that a wind turbine can extract at most 59% of the energy that would otherwise
flow through the turbine's cross section. The Betz limit applies
regardless of the design of the turbine. Intermittency and the
non-dispatchable nature of wind energy production can raise costs for
regulation, incremental operating reserve, and (at high penetration levels)
could require demand-side management or storage solutions.
Wind
Turbines
A wind
turbine is a rotating machine which converts the kinetic energy in wind into
mechanical energy. If the mechanical energy is used directly by
machinery, such as a pump or grinding stones, the machine is usually called a
windmill. If the mechanical energy is then converted to electricity,
the machine is called a wind generator, wind turbine, wind power unit (WPU),
wind energy converter (WEC), or aerogenerator.
Wind
turbines require locations with constantly high wind speeds. Wind
turbines are designed to exploit the wind energy that exists at a
location. Small wind turbines for lighting of isolated rural
buildings were widespread in the first part of the 20th century. The
modern wind power industry began in 1979 with the serial production of wind
turbines by Danish manufacturers Kuriant, Vestas, Nordtank, and
Bonus. These early turbines were small by today's standards, with
capacities of 20–30 kilowatts each. Since then, they have increased
greatly in size, while wind turbine production has expanded to many
countries.
Wind
Industry
The wind
industry is the world's fastest growing energy sector and offers an
excellent opportunity to begin the transition to a global economy based on
sustainable energy. A report published by The Global Wind Energy Council (“GWEC”) and Greenpeace
in October 2008 references multiple studies that indicate that the long-term
potential supply using existing technology could be double the current worldwide
electricity demand. Prior GWEC reports indicate that there are no
technical, economic or resource barriers to supplying 12% of the world's
electricity needs with wind power alone by 2020, as compared to the challenging
projection of two thirds increase of electricity demand by 2020.
According
to the GWEC, by the end of 2007 (2008 figures not currently available), the
capacity of global wind energy installations had reached a generation capacity
level of over nearly 94,000 MW, an increase of nearly 20,000 MW over 2006
figures and representing a worldwide investment of over US$ 50 billion. Europe
accounts for 56,500 MW or 60% of the total installed capacity followed by the
U.S. with 17.9% or 16,800 MW. The fastest growing market is China
with 145% growth or 3,304 MW added in 2007 to over 5,900 MW by the end of
2007. Each of these markets is expected to continue to drive the
worldwide growth of wind turbine installations. The total value of
installed equipment worldwide in 2007 was approximately US$ 1.8 million per MW
for a turbine equipment market size of US$ 36 billion on a total investment of
US$ 50 billion.
Internationally,
demand for electricity has dramatically increased as our society has become more
technologically driven. Demand for “green” energy has also
dramatically increased due to consumers’ desire to become environmentally
conscious. Both trends are expected to
continue. Significant new capacity for the generation of electricity
will be required to meet anticipated demand.
7
Most of
the world’s primary energy sources are still based on the consumption of
non-renewable resources such as petroleum, coal, natural gas and
uranium. While still a small segment of the energy supply, renewable
sources such as wind power are growing rapidly in market share. Wind
power delivers multiple environmental benefits. It operates without
emitting any greenhouse gases and has one of the lowest greenhouse gas lifecycle
emissions of any power technology. Wind power does not result in any
harmful emissions, extraction of fuel, radioactive or hazardous wastes or use of
water to steam or cool. Wind projects are developed over large areas, but their
carbon footprint is light. Farmers, ranchers and most other land
owners can continue their usual activities after wind turbines are installed on
their property.
According
to the U.S. Department of Energy, Energy Information Administration’s
publication “Renewable Resources in the U.S. Electricity Supply,” wind power
generation was and is projected to increase eight-fold between 1990 and 2010, a
rate of 10.4% per year. Annual growth in the wind power industry for
the past 10 years has exceeded 28% per year according to the
GWEC. Although wind power produces under 1% of electricity worldwide
according to the GWEC’s Global Wind 2007 Report, it is a leading renewable
energy source and accounts for 19% of electricity production in Denmark
(according to the U.S. Department of Energy’s Energy Facts web page), 10% in
Spain and 7% in Germany (according to the GWEC’s Europe region web
page).
Chinese
Wind Industry
Wind-power
generation is a mature technology that is embraced in China due to its
relatively low cost (compared to other renewable energy sources such as solar
power) and abundance of wind resources. Satisfying rocketing
electricity demand and reducing air pollution are also main driving forces
behind the development of wind energy in China. Given the country’s
substantial coal resources and still relatively low cost of coal-fired
generation, cost reduction of wind power is an equally crucial
issue. This is being addressed through the development of large scale
projects and boosting local manufacturing of turbines. The Chinese
government believes that the localization of wind turbine manufacturing brings
benefits to the local economy and helps keep costs down. Moreover,
since most good wind sites are located in remote and poorer rural areas, wind
farm construction benefits the local economy through the annual income tax paid
to county government, local economic development, grid extension for rural
electrification as well as employment in wind farm construction and
maintenance.
Current
Chinese government guideline mandates that 30,000 MW of wind power be installed
by 2020. The Brussels-based GWEC reported that in 2008, China added more than
6,000 MW of wind-power generation capacity, bringing China’s total installed
wind-power generating capacity to over 12,000MW. Moreover, the Chinese
government has mandated that 70% of wind components be sourced domestically by
2010. The wind manufacturing industry in China is
booming. In the past, imported wind turbines dominated the market,
but this is changing rapidly as the growing market and clear policy direction
have encouraged domestic production. At the end of 2007, there were
40 Chinese manufacturers involved in wind energy, accounting for about 56% of
the equipment installed during the year, an increase of 21% over
2006. This percentage is expected to increase substantially in the
future. Total domestic manufacturing capacity is now about 8,000 MW,
and expected to reach about 12 GW by 2010.
Wind
energy resources are widely distributed in China, with rich resources broken
into the southeast coastal areas, the three northern regions (northeast, north,
and northwest) and inland regions including but not limited to Hunan, Hubei,
Jiangxi, Shanxi, Henan, Chongqing, and Yunnan.
Presently,
the thriving locations for the development of wind farms are the three northern
regions. However, inland regions where wind resources are abundantly
distributed are at an early development stage, and thus the market potential is
large. Further, some provinces in the inland regions have planned or
promulgated preferential policies for the development of wind power, and thus
the inland wind power industry may also become the new thriving points for
China‘s wind power development.
Abundant
wind energy resource areas along the southeast coast and its coastal areas
mainly include Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong, Guangxi
and Hainan and other provinces and cities’ coastal zones of nearly 10km
wide with annual wind power density above 200 w/m² and wind power density line
parallels to the coastlines.
Abundant
wind energy resource areas distributed in north areas mainly include, three
north provinces, Hebei, Inner Mongolia, Gansu, Ningxia and Xinjiang and other
provinces and districts’ of nearly 200 km wide with wind power density above
200—300 w/m², some of which could up to 500 w/m² more, such as Alashankou, Daban
City, Huitengxile, Huitengliang of Xilinhaote, Chengde and
Weichang.
Abundant
wind energy resource areas distributed in inland areas mainly include, Hunan,
Hubei, Jiangxi, Shanxi, Henan, Chongqing, Yunnan and other areas, with a general
wind power density of 100—200 w/m². Wind energy resources are also
abundant in some areas due to the impacts by the lakes and topography.
Technological accepted development capacity for wind power in inland areas
exceeds 12,000,000 kilowatts.
8
China
Wind Power Potential
Today,
wind power in China is developing rapidly and receives particularly strong
government support. The new Renewable Energy Law and its detailed incentive
policies reflect the Chinese government’s intention to build up this industry.
By 2020, China plans to have 30 gigawatts of wind power. European
companies dominate China’s wind power equipment market. Among U.S. companies,
only GE Wind Power is active in China. In 2005, GE Wind Power occupied 3% of the
in-grid wind turbine market in China.
According
to the China Academy of Meteorological Sciences, the country possesses a total
235 gigawatts of practical onshore wind power potential that can be utilized at
10 meters above the ground. Annual potential production from wind
power could reach 632.5 gigawatts if the annual, full-load operation reaches
2,000-2,500 hours. A detailed survey is needed, however, for economically
utilizable wind power resources. The potential for offshore wind
power is even greater, estimated at 750 gigawatts. Offshore wind
speed is higher and more stable than onshore wind, and offshore wind farm sites
are closer to the major electricity load centers in eastern
China. Areas rich in wind power resources are mainly concentrated in
two areas: northern China’s grasslands and Gobi desert, stretching from Inner
Mongolia, Gansu and Xinjiang provinces; and in the east coast from Shangdong and
Liaoning and the southeast coast in Fujian and Guangdong provinces.
In 1986,
China built its first wind farm in Rongcheng, Shandong Province. From 1996 to
1999, in-grid wind power developed very quickly, entering a localization stage.
By the end of 2004, there were 43 wind farms with 1291 wind turbines in China,
with 764 MW of installed capacity. Liaoning, Xinjiang, Inner Mongolia and
Guangdong experienced the fastest wind power development, representing 60% of
the installed power generating capacity of national wind power. Currently,
Xinjiang’s Dabancheng is the largest wind farm in China, with 100 MW of
installed power generating capacity. Most generators range from 500 kilowatts to
1 MW, accounting for 84% of China’s wind turbine generators.
Our
Products
Our
Company’s core product is the 2-bladed wind turbine which is designed with
technologies of soft concept, compact transmission chain, overall damping,
condition monitoring and other proprietary technologies that reduce vibration
and overheating, lower installation and transportation cost as well as improve
service life and utilization rate with the ultimate benefits of improving wind
turbine quality and lowering the costs of manufacturing, installation and
maintenance.
We use
“soft technology” which is a combination of a passive yaw system, teeter style
hub and the soft tower. By using the soft technology as a damping system for the
vibration and loads of the system, we can produce a transmission chain that does
not have to absorb those forces. Therefore, the transmission chain is
more compact, cheaper, proprietary, and more reliable than other
designs. The technology offers a new approach and significant
opportunities for large scale wind farms including remote onshore and offshore
installations. Additionally, constant feedback ensures we achieve the
highest efficiency.
The key
advantages of the 2-bladed wind turbine with influences on costs by proprietary
technologies are as follows:
|
Proprietary
Technologies
|
Design
Features
|
Influence
on Costs and
Benefits
|
|
Soft
technology
|
Passive
yaw system
|
·
Yaw is a term used to describe the mechanical system of aiming the
turbine blades into the wind.
·
GC China Turbine has a passive yaw system, eliminating the need for
mechanical yaw braking system.
·
The passive yaw reduces loads on the tower and foundation thereby
allowing for a lighter tower and smaller foundation as well as reducing
the manufacturing costs for a complete machine.
|
||
|
Teeter-style
hub
|
·
The teeter-style hub reduces the negative effects of imbalanced air
pressure on the blades not unlike the function of rubber engine mounts in
a motor vehicle. The rubber bushings greatly reduce twisting loads on the
transmission chain, tower and other components and increase the service
lives of these components. This technology is characterized by rubber
mountings of the blades to the main gearbox.
|
|||
|
Soft
tower
|
·
The soft tower is lighter than a stiff tower so as to directly save
raw material costs. This is achieved by designing a tower that is allowed
to flex during operation. This is partially possible because the turbine
and blades are significantly lighter than a 3-blade
system.
|
|||
|
Compact
transmission chain
|
Support
tube
|
·
Generator, gearbox and high-speed shaft are directly connected
which greatly improves the service lives of the key components in
transmission chain.
|
||
|
Integrated
gearbox
|
·
Because GC China Turbine’s design eliminates the main shaft and
main bearing of 3-bladed designs, the Company enjoys a lower cost profile
and eliminates a significant component sourcing bottleneck.
·
Integrated main shaft has a longer service life, improves the
availability rate and reduces maintenance costs.
|
|||
|
Overall
damping design
|
Teeter
and hub rubber elements, nacelle chassis rubber elements
|
·
Significantly reduces fatigue loads on all moving parts, extends
the service life and reduces operational costs.
|
||
|
Condition
monitoring
|
Conducts
maintenance according to actual conditions, instead of preventive and
post-fault maintenance
|
·
Extends service life of wind turbine and reduces maintenance
costs.
|
9
As shown
in the table above, GC China Turbine Group’s 2-blade 1.0MW wind turbine is
designed with proprietary technologies of soft concept, compact transmission
chain, overall damping, condition monitoring and other proprietary technologies
that reduce vibration and operating temperature as well as improve service life
and utilization rate. The resulting benefits are high wind turbine quality, low
manufacturing cost and cheaper installation and maintenance.
Our
Company’s advantage is a combination of simple design that makes it cost
effective and that advantage will be enhanced by the replacement of imported
components with high quality Chinese components, which in many cases, come from
well established state-owned enterprises and public companies, and part of which
come from our Company’s European component manufacturers. In order to
sustain the low-cost advantage, the Company has also been actively seeking and
identifying domestic suppliers of all key components that will make it possible
to complete the assembly of 100% Chinese-content wind turbines as of this year
with full distribution into the market by end of 2009. These efforts
will greatly reduce our manufacturing costs and will help to further enhance the
low-cost advantage of our product.
Our
Sales and Marketing
The
Company will continue to compete in the mainstream wind farm bids as well as
seek out more niche projects where the light weight and easy transportation and
installation of our 2-bladed wind turbine offers additional advantages over the
competition. These projects would include mountainous areas. The Company intends
to bid for offshore application wind turbine bids when the research and
development for 3.0MW wind turbines is completed.
We divide
the Chinese market into 3 segments:
|
|
1)
|
Northeast
and northwest wind farms
|
The wind
resource in this area is allocated between 5 large utility companies. It is
currently deploying product into the Daqing project within this
market.
|
2)
|
Inland
wind farms
|
Inland
wind farms have less wind resources and more mountainous terrain that will give
GC China Turbine additional advantages over the competition.
|
3)
|
Coastal
and offshore wind farms
|
This area
has good wind resource and involves technically more difficult
installations. Thus, the simpler installation of 2-blade turbines has
an advantage over the 3-blade turbine.
China is
actively pursuing a plan to increase the percentage of energy supplied by
renewable means. We have a healthy pipeline of wind farm projects on which to
bid. Some of these projects are considered local projects which gives
GC China Turbine Group an inside track. The Company intends to create production
facilities in many provinces so that it can enjoy the privileges of being a
local manufacturer across many markets. The Company can create numerous
manufacturing facilities efficiently as warehouse space is inexpensive and the
production of these turbines is not labor intensive. Labor costs for production
is approximately 1% of COGS.
10
GC Nordic
has established a good relationship with local and central government
departments through its relationship with Guoce Science and Technology to source
potential contracts. Given that all the potential wind farms projects have to be
pre-approved by the central National Development and Reform Commission (the
“NDRC”) or the
NDRC at the provincial level, our relationship with the government will provide
us with first hand information of the potential wind farm projects in our
targeted markets and allow us to compete for such projects.
The first
step of the selling process includes setting up initial communications with the
owner and obtaining wind conditions, terrain and other project specifications.
Once we have obtained the bidding information on a project, we can begin the
design process. This would include working with the farm developer to make sure
that the GC Nordic is included in the specifications as a possible turbine type.
At this stage it is crucial that the owner understands the characteristics and
advantages of our products before making a selection. The average sales process
for a wind farm takes 6 to 9 months.
The
Company is also planning to adopt a “Resources Exchange Model” to win bids for
potential wind farm projects. The Company sometimes signs wind farm projects
directly with the government and then invites the investors to buy, invest or
co-invest in the projects. As a condition for invitation, these wind farm
projects have to purchase and use of our 2-blade wind turbines.
As a
newcomer to the industry, due to the lack of actual turbines in use, some
cautious customers were taking a wait and see approach to making purchase
decisions from our Company. Now that our wind turbines have been
running steadily for over half a year in Daqing wind farm with positive
operating results, buyers will be more confident in our Company and
brand.
Currently,
there are 6 members of the sales team, handling the following responsibilities:
planning, project management, technical support and
administration. In the future, GC China Turbine Group will increase
the size of the planning, project management and technical support teams as
necessary to support these functions.
Our sales
goals and targeted milestones from 2009 to 2015 are as follows:
2009-2010
|
|
·
|
Using
the model project of Daqing wind farm, GC China Turbine Group will target
inland wind farms as the entry point to gain a foothold in the market,
with a goal of being one of the top three producers in that
market.
|
|
|
·
|
Further
exploring northeast/northwest wind farm opportunity starting in 2009, and
adopting resources exchange model to conduct the market development and
striving to compete against large manufacturers with our low-cost
advantage.
|
|
|
·
|
Launch
offshore markets and overseas
markets.
|
2011-2013
|
|
·
|
Set
up 2 to 3 production and research bases in coastal areas, achieving top 3
production status.
|
|
|
·
|
Develop
equipment for a number of projects in Eastern Europe, Africa and South
America markets, striving to become a top 5 exporter of Chinese
turbines.
|
2013-2015
|
|
·
|
Continue
to extend inland market share.
|
|
|
·
|
To
have top 3 market share in the coastal wind farm
market.
|
11
Our
Customers
The Company is currently executing
three contracts with the following entities: Daqing Longjiang Wind Power Co.,
Ltd (“Daqing
Longjiang”), Wuhan Kaidi Electric Engineering Co., Ltd (“Wuhan Kaidi”) and
Kelipu Wind Power Co., Ltd. (“Kelipu”).
|
|
1.
|
Daqing
Longjiang
|
Daqing
Longjiang has signed a wind turbine purchasing contract with GC Nordic for 50
units of 1.0MW wind turbines. These wind turbines will be installed in Daqing
City, Heilongjiang Province. Daqing Longjiang was established in 2007
and is a company within the Daqing Ruihao Energy Group specializing in the
research, development, construction and operation of wind power generation. The
company is mainly engaged in wind power project operations of new energy and
high efficient energy-saving technology and environmental protection technology
and currently possesses the exclusive development right of wind power in Dumeng
County.
|
|
2.
|
Wuhan
Kaidi
|
Wuhan
Kaidi has signed a purchase contract with GC Nordic for 50 units of 1.0MW wind
turbines. These wind turbines will be installed in Pinglu City, Shanxi Province.
Wuhan Kaidi is joint-stock high-tech enterprise registered at Wuhan East Lake
High-Tech Development Zone, and it is a subsidiary of Wuhan Kaidi Holding
Investment Co., Ltd. The company was established in 2004 with businesses in
coal-fired power generation, biomass power generation, wind power, hydropower
and other power construction including power plant consulting, design, equipment
procurement, construction, installation and commissioning and commercial
operation.
|
|
3.
|
Kelipu
|
Kelipu
executed a purchase contract with GC Nordic for 50 units of 1.0MW wind turbines
in July 2009. These wind turbines will be installed at Kelipu’s wind
farm located in Tu Quan County of Inner Mongolia. However, as of date
of this Form 8-K, Kelipu has applied for but has not yet received final approval
of its wind farm entry procedure from the local
government. Therefore, implementation of this contract with Kelipu
may be delayed until it has received the relevant approvals from the local
government.
Production
and Quality Control
The
Company is using production of the 1.0 MW turbines to grow market share by
exploiting its low-cost advantage. Concurrently the Company is investing in
research and development for its larger turbines. The Company is targeting
production of its large turbines for 2010.
The
Company implements quality control in respect of purchasing, production, and
provision and after sale services as follows:
|
|
(1)
|
Purchasing:
We choose reliable suppliers and require complete background information
and test data from such suppliers to make sure their supplies meet our
rigorous standards.
|
|
|
(2)
|
Production:
We run inspections throughout the whole manufacturing and production
process. We conduct follow-up inspections and use specialized instruments
to guarantee the specifications of moment of force and gap. We implement
several check points throughout the process from component manufacturing
to provision, such as a check point for the size and flatness of the
bottom portion of the turbine, a check point for the yaw gear gap of 0.7mm
to 0.9 mm, a check point for the moment of force of the binding bolt, and
a check point for parameters in operation. We keep detailed test data of
the check points and keep a detailed profile of such
information.
|
|
|
(3)
|
Provision
and after sale services: We strictly follow guidelines in adjustment of
lubrication, hydraulic cooling and hydro-electric control
system.
|
The
Company conformed to the quality management system standard ISO 9001:2000 for
the process of manufacturing and servicing wind turbines on September 10,
2008.
12
Our
Suppliers
The Chinese government’s support of the
wind turbine industry has created significant capacity for components. The
Company has signed contracts with all domestic component suppliers. For key
components, GC China Turbine Group has investigated several alternative
suppliers, 2 to 3 of which will be selected to sign supply contracts with us,
thereby ensuring the supply of components for future production needs.
After components are successfully trial produced by the suppliers,
components will then be tested by the original manufacturers, and each component
is also tested by GC China Turbine Group for performance before installation
into our wind turbines. Our principal Chinese suppliers include Yong
Jin Gear Co., Ltd., Chuan Run Stock Co., Ltd., Xiang Tan Generator Stock Co.,
Ltd. and Zhong Neng Wind Power Device Co., Ltd. Our other principal
suppliers include Brevini, Jahnel-Kestermann Getriebewerke GmbH, Mita—Teknik
A/S, Weier Antriebe Und Energietechnik GmbH, and CA-VerkenAB.
Logistics
and Inventory
Because
supply of wind turbines outpaces demand, the Company follows a make-to-order
policy. We make annual orders with our suppliers at the beginning of the year
based on the forecast of our sales. We start production of the wind turbines
upon execution of sales contracts with our customers and upon receipt of a
deposit on such contracts. We generally hold a 10% inventory in case of
unexpected demand.
Seasonality
Our
Company’s operating results are not affected by seasonality.
Competition
The wind power market is rapidly
evolving and is expected to become intensively competitive. Some of
our competitors have established a market position more prominent than ours and
if we fail to attract and retain customers and establish a successful
distribution network for our wind turbines, we may be unable to increase our
sales and market share. We compete with major international and PRC
companies including Dongfang Steam Turbine, Dalian Huarui, Gold Wind, CSIC,
Spanish Gamesa, and Indian Suzion. Some of these companies are older
and more established than us with established manufacturing
capabilities. Some of these companies are well-capitalized and
benefit from earlier development advantages. We also expect that our
future competition will include new entrants to the wind power market offering
new technological solutions.
However,
we believe that the cost and performance of our technologies, products and
services will have advantages compared to competitive technologies, products and
services. Some of our competitors are large enterprises resulting in
inflexible operations. Some of our competitors receive less
government support. We also have the following advantages over our
competitors:
1. Our
Cost Advantage
We
believe our 2-bladed wind turbine and technological process provides for lower
manufacturing costs resulting from significantly more efficient material usage,
use of fewer parts and fewer manufacturing steps for our product as compared to
our competitors, which commonly use a 3-bladed wind turbine. The
installation costs of our product are also significantly lower as compared to
our competitors because our 2-bladed wind turbine has a simple structure,
lighter total weight and can be more easily installed at less cost than the cost
of installation of 3-bladed wind turbines used by our
competitors. Further, use of our 2-bladed wind turbine can also
significantly reduce overall maintenance costs for a wind farm because it is
equipped with condition monitoring system which monitors the operational
condition of the wind turbine, and signals for maintenance based on actual
turbine condition, increasing revenue and reducing maintenance
costs. These cost advantages greatly reduce the initial investment,
installation costs and maintenance costs of wind farm for owners using our
2-bladed wind turbine.
2. Our
Relationship with Guoce Science and Technology
Since GC
China Turbine Group was formed by certain founders of Guoce Science and
Technology which also formed our core management team, we have the advantage of
initial strategic guidance and the supply of necessary start-up resources. The
main businesses of Guoce Science and Technology’s include research and
development, production, sales, and system engineering services of power testing
instrument, computer-based monitoring system for hydropower station, hydropower
governor, hydropower station excitation, direct current system, substation
automation, power dispatching automation, network monitoring, cluster server,
and computer storage technology.
13
Guoce
Science and Technology has a strong reputation as a provider of technology
services in the energy industry. Its businesses cover the whole power
industrial chain with products ranging from power generation to power
transmission to every sector of power utilization. With the complete product
framework, it expects to hold the leading position in the industry for a long
time.
Our
relationship with Guoce Science and Technology has many benefits
including:
|
|
·
|
access
to engineering prowess
|
|
|
·
|
access
to established technology in the turbine control
arena
|
|
|
·
|
access
to the utilities industry in China as it has large market share for their
products
|
|
|
·
|
credibility
within the utilities industry because it has long-standing relationships
and operating history within the
industry
|
The entire wind power industry also
faces competition from other power generation sources, both conventional and
emerging technologies. Large utility companies dominate the energy
production industry. Coal continues to dominate as the primary
resource for electricity production. Other conventional resources,
including natural gas, oil and nuclear compete with wind energy in generating
electricity. Wind power has some advantages and disadvantages when
compared to other power generating technologies. Wind power is
plentiful and widely distributed. It is a renewable source of
energy. Since wind power does not generate greenhouse gases, it does
not contribute to global warming. Wind power produces no water or air
pollution that can contaminate the environment because no chemical processes are
involved in wind power generation. As a result, wind power reduces
toxic atmospheric gas emissions. However, wind turbines require
locations with constantly high wind speeds and since wind is unpredictable, wind
power is not predictably available.
Research
and Development
GC China
Turbine identified a 2-bladed wind turbine technology that was developed through
a 10 year research project costing over US$ 75 million. While the 2-bladed
technology is relatively less commonly used in the market, the development
project that created GC China Turbine’s technology has been operating for 10
years with 98% availability (for generation). Further, the 2-bladed technology
has the benefits of lower manufacturing cost, lower installation cost and lower
operational costs.
The
2-bladed wind turbine was developed by a firm called Deltawind AB (“Deltawind”). GC
China Turbine has a 10 year license with Deltawind, with opportunity for
renewal, which allows us to manufacture and distribute these turbines in the
Chinese markets. GC China Turbine has successfully retained the
services of some members of the Deltawind team and those executives are
assisting in the research and development efforts as well as the testing of the
new Chinese components. Deltawind was subsequently purchased by a
U.S. licensee of the technology named Nordic Windpower Ltd.
Our
launch product is a 1.0MW utility scale turbine with designs for a 2.3MW and
3.0MW utility scale turbine in development. The Company’s initial efforts have
been rewarded with contracts of approximately US$ 128 million. The
Company is using production of the 1.0 MW turbines to grow market share by
exploiting its low-cost advantage. For fiscal years 2007 and 2008, we
have spent US$ 0 and US$ 94,300, respectively, on research and development
expenses. The Company plans to continue investing more in research and
development for its larger turbines. The Company is targeting production of its
2.3MW and 3.0MW turbines for 2010.
Intellectual
Properties and Licenses
The
following table describes the intellectual property currently owned by GC
Nordic:
|
Type
|
Name
|
Category
Number and Description
|
Issued
By
|
Duration
|
Description
|
|
Trademark
|
GC-NORDIC
|
39
(transport; packaging and storage of goods; travel
arrangement)
|
State
Trademark Administration
|
September
28, 2009 to September 27, 2019
|
N/A
|
|
Trademark
|
Nordic
|
39
(transport; packaging and storage of goods; travel
arrangement)
|
State
Trademark Administration
|
June
21, 2009 to June 20, 2019
|
N/A
|
|
Trademark
|
诺德
|
7
(Machines and machine tools; motors and engines (except for land
vehicles); machine coupling and transmission components (except for land
vehicles); agricultural implements other than hand-operated; incubators
for eggs)
|
State
Trademark Administration
|
June
7, 2009 to June 6, 2019
|
N/A
|
14
GC China
Turbine Group takes all necessary precautions to protect our intellectual
property. Aside from registering our trademarks with the State
Trademark Administration to protect our intellectual property, our marketing
team also diligently conducts market research to ensure that our intellectual
property is not being violated. However, we cannot assure you that we will be
able to protect or enforce our intellectual property rights. In the
event of any infringement upon our intellectual property rights, we will pursue
all legal rights and remedies.
China
Economic Incentive Policies
To
support the development of wind power technology and growth of the in-grid wind
power market, the Chinese government has implemented a series of projects and
also stipulated a series of economic incentive policies:
Ride the Wind Program
To import
technology from foreign companies and to establish a high-quality Chinese wind
turbine generator sector, the former State Development and Planning Commission
(“SDPC”)
initiated the “Ride the Wind Program” in 1996. This initiative led to two joint
ventures, NORDEX (Germany) and MADE (Spain). These joint ventures
effectively introduced a 600 kilowatts wind turbine generator manufacturing
technology into China.
National
Debt Wind Power Program
To
encourage the development of domestic wind power equipment manufacturing, the
former State Economic & Trade Commission (“SETC”) implemented
the “National Debt Wind Power Program.” This program required the
purchase of qualified, locally-made wind power components for new generation
projects. China’s government provided bank loans with subsidized
interest to wind farm owners as compensation for the risk of using locally-made
wind turbine generators. These loans funded construction of
demonstration project wind farms with a total installed capacity of
8MW. This program has been completed.
Wind
Power Concession Project
The NDRC
initiated the “Wind Power Concession Project” in 2004 with a 20-year operational
period. This program aims to reduce the in-grid wind power tariff by
building large capacity wind farms and achieving economies of scale. Each of the
wind farms built under this program must reach a 100MW capacity. By 2006, NDRC
had approved 5 wind farms, in Jiangsu, Guangdong, Inner Mongolia, and Jilin
Province.
In
February 2005, China’s Renewable Energy Law was formulated and was put into
effect on January 1, 2006. The law stipulates that the power grid
company must sign a grid connection agreement with the wind power generating
company and purchase the full amount of the wind power generated by
it. The wind power tariff will be determined by the wind farm project
tendering. The winner’s quoted tariff will be the tariff of that wind
farm project.
Wind
power is a priority “National Clean Development Mechanism Project” of the
Chinese government. Wind farm developers can sell Certified Emission
Reduction Certificates (“CER’s”) to developed
countries under the terms of the Kyoto Protocol.
Governmental
Regulations
This
section sets forth a summary of the most significant regulations or requirements
that affect our business activities in China.
15
Compliance with Circular 75, Circular 106 and the 2006 M&A
Regulations
China’s
State Administration of Foreign Exchange (“SAFE”) issued a
public notice known as “Circular 75” in October 2005, requiring PRC residents to
register with the local SAFE branch before establishing or acquiring the control
of any company outside of China for the purpose of financing that offshore
company with assets or equity interest in a PRC company. PRC residents that are
shareholders of offshore special purpose companies established before November
1, 2005 were required to conduct the overseas investment registration with the
local SAFE branch before March 31, 2006, and once the special purpose vehicle
has a major capital change event (including overseas equity or convertible bonds
financing), the residents must conduct a registration relating to the change
within 30 days of occurrence of the event. On May 29, 2007, the SAFE issued an
additional notice known as “Circular 106,” clarifying some outstanding issues
and providing standard operating procedures for implementing the prior notice.
According to the new notice, SAFE sets up seven schedules that track
registration requirements for offshore fundraising and roundtrip
investments.
Likewise,
the “Provisions on Acquisition of Domestic Enterprises by Foreign Investors,”
issued jointly by the Ministry of Commerce (“MOFCOM”), State-owned
Assets Supervision and Administration Commission, State Taxation Bureau, State
Administration for Industry and Commerce, China Securities Regulatory Commission
and SAFE in September 2006, impose approval requirements from MOFCOM for
“round-trip” investment transactions, including acquisitions in which equity was
used as consideration.
Dividend
Distribution
The
principal laws, rules and regulations governing dividends paid by our PRC
operating subsidiary include the Company Law of the PRC (1993), as amended in
2006, Wholly Foreign Owned Enterprise Law (1986), as amended in 2000, and Wholly
Foreign Owned Enterprise Law Implementation Rules (1990), as amended in 2001.
Under these laws and regulations, our PRC subsidiary may pay dividends only out
of its accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, our PRC subsidiary is required to set
aside at least 10% of its after-tax profit based on PRC accounting standards
each year to its statutory surplus reserve fund until the accumulative amount of
such reserve reaches 50% of its respective registered capital. These reserves
are not distributable as cash dividends. The board of directors of a
wholly foreign-owned enterprise has the discretion to allocate a portion of its
after-tax profits to its staff welfare and bonus funds. After the
allocation of relevant welfare and funds, the equity owners can distribute the
rest of the after-tax profits provided that all the losses of the previous
fiscal year have been made up.
Taxation
The
applicable tax laws, regulations, notices and decisions (collectively referred
to as “Applicable Tax
Law”) related to foreign investment enterprises and their investors
include the follows:
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·
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Enterprise
Income Tax Law of the People’s Republic of China issued by the National
People’s Congress of China on January 1,
2008;
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·
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Implementing
Rules of the Enterprise Income Tax Law of the People’s Republic of China
promulgated by the State Council of China, which came into effect on
January 1, 2008;
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·
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Interim
Regulations of the People’s Republic of China Concerning Value-added Tax
promulgated by the State Council came into effect on January 1,
2009;
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·
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Implementation
Rules of The Interim Regulations of the People’s Republic of China
Concerning Value-added Tax promulgated by the Treasury Department of China
came into effect on January 1,
2009;
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·
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Business
Tax Interim Regulations of the People’s Republic of China promulgated by
the State Council came into effect on January 1,
2009;
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·
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Implementation
Rules of The Business Tax Interim Regulations of the People’s Republic of
China promulgated by the Treasury Department of China came into effect on
January 1, 2009.
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Income
Tax on Foreign Investment Enterprises
GC Nordic
is subject to income tax at a rate of 25.0% of their taxable income starting
from January 1, 2008 according to the Enterprise Income Tax Law and its
Implementation Rules of People’s Republic of China.
16
Before
the implementation of the Enterprise Income Tax (“EIT”) law (as
discussed below), Foreign Invested Enterprises established in the People’s
Republic of China are generally subject to an EIT rate of 33.0%, which includes
a 30.0% state income tax and a 3.0% local income tax. On March 16, 2007,
the National People’s Congress of China passed the new Corporate Income Tax Law
(“CIT Law”),
and on November 28, 2007, the State Council of China passed the Implementation
Rules for the CIT Law (“Implementation
Rules”) which took effect on January 1, 2008. The CIT Law and
Implementation Rules impose a unified EIT of 25.0% on all domestic-invested
enterprises and foreign invested enterprises (“FIEs”), unless they
qualify under certain limited exceptions. Therefore, nearly all FIEs are subject
to the new tax rate alongside other domestic businesses rather than benefiting
from the old tax laws applicable to FIEs, and its associated preferential tax
treatments, beginning January 1, 2008.
Value-added
Tax
The new
Interim Regulations of the People’s Republic of China on Value-added Tax
promulgated by the State Council came into effect on January 1, 2009 and its
Implementation Rules promulgated by the Treasury Department of China came into
effect on January 1, 2009. Under these regulation and rules,
value-added tax is imposed on goods sold in or imported into the PRC and on
processing, repair and replacement services provided within the
PRC.
Value-added
tax payable in the PRC is charged on an aggregated basis at a rate of 13% or 17%
(depending on the type of goods involved) on the full price collected for the
goods sold or, in the case of taxable services provided, at a rate of 17% on the
charges for the taxable services provided but excluding, in respect to both
goods and services, any amount paid in respect of value-added tax included in
the price or charges, and less any deductible value-added tax already paid by
the taxpayer on purchases of goods and service in the same financial
year.
Business
Tax
The new
Interim Regulations on Business Tax of the People’s Republic of China
promulgated by the State Council came into effect on January 1, 2009, providing
that the business tax rate for a business that provides services, assigns
intangible assets or sells immovable property will range from 3% to 5% of the
charges of the services provided, intangible assets assigned or immovable
property sold, as the case may be except that the entertainment industry shall
pay a business tax at a rate ranging from 5% to 20% of the charges of the
services provided.
Tax
on Dividends from PRC Enterprise with Foreign Investment
According
to the Enterprise Income Tax Law, income resulting from rental properties,
royalties and profits in the PRC derived by a foreign enterprise which has no
establishment in the PRC or has establishment but the income has no relationship
with such establishment is subject to a 10% withholding tax, subject to
reduction as provided by any applicable double taxation treaty, unless the
relevant income is specifically exempted from tax under the Enterprise Income
Tax Law.
Wholly
foreign-owned enterprise
Wholly
foreign-owned enterprises are governed by the Law of the People’s Republic of
China Concerning Enterprises with Sole Foreign Investments, which was
promulgated on 12th April, 1986 and amended on 31 October 2000, and its
Implementation Regulations promulgated on 12th December, 1990 and amended on 12
April 2001 (together the “Foreign Enterprises
Law”).
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(a)
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Procedures
for establishment of a wholly foreign-owned
enterprise
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The
establishment of a wholly foreign-owned enterprise will have to be approved by
the Ministry of Commerce of the PRC (“MOC”) (or its
delegated authorities). If two or more foreign investors jointly
apply for the establishment of a wholly foreign-owned enterprise, a copy of the
contract between the parties must also be submitted to the MOC (or its delegated
authorities) for its record. A wholly foreign-owned enterprise must
also obtain a business license from the State Administration for Industry &
Commerce of the PRC (“SAIC”) before it can
commence business.
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(b)
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Nature
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A
wholly foreign-owned enterprise is a limited liability company under the
Foreign Enterprises Law. It is a legal person which may
independently assume civil obligations, enjoy civil rights and has the
right to own, use and dispose of property. It is required to
have a registered capital contributed by the foreign
investor(s). The liability of the foreign investor(s) is
limited to the amount of registered capital contributed. A
foreign investor may make its contributions by installments and the
registered capital must be contributed within the period as approved by
the MOC (or its delegated authorities) in accordance with relevant
regulations.
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17
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(c)
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Profit
distribution
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The
Foreign Enterprise Law provides that after payment of taxes, a wholly
foreign-owned enterprise must make contributions to a reserve fund, an
enterprise development fund and an employee bonus and welfare
fund. The allocation ratio for the employee bonus and welfare
fund may be determined by the enterprise. However, at least 10%
of the after-tax profits must be allocated to the reserve fund. If the
cumulative total of allocated reserve funds reaches 50% of an enterprise’s
registered capital, the enterprise will not be required to make any
additional contribution. The reserve fund may be used by a wholly
foreign-owned enterprise to make up its losses and with the consent of the
examination and approval authority, can also be used to expand its
production operations and to increase its capital. The enterprise is
prohibited from distributing dividends unless the losses (if any) of
previous years have been made up. The development fund is used for
expanding the capital base of the company by way of capitalization issues.
The employee bonus and welfare fund can only be used for the collective
benefit and facilities of the employees of the wholly foreign-owned
enterprise.
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Environmental
Protection Regulations
The PRC
has expressed a concern about pollution and other environmental hazards.
Although we believe that we comply with current national and local government
regulations, if it is determined that we are in violation of these regulations,
we can be subject to financial penalties as well as the loss of our business
license, in which event we would be unable to continue in business. Further, if
the national or local government adopts more stringent regulations, we may incur
significant costs in complying with such regulations. If we fail to comply with
present or future environmental regulations, we may be required to pay
substantial fines, suspend production or cease operations. Any failure by us to
control the use of, or to restrict adequately the discharge of, hazardous
substances could subject us to potentially significant monetary damages and
fines or suspensions in our business operations.
Renewable
Energy Regulations
China
formulated and promulgated the “Renewable Energy Law of the People’s Republic of
China” in February 28, 2005 (“Renewable Energy
Law”) which has been carried out from January 1, 2006 to further
facilitate the development and utilization of renewable energy including wind
energy, increase the energy supply, protect the environment, and improve energy
structure. Following the promulgation of the Renewable Energy Law, the PRC
Government has also successively carried out various relevant ancillary
measures, including the “Circular Regarding Requirements of Administration of
Wind Power Construction,” the “Relevant Provisions for Administration of
Renewable Energy Resource Electricity Generation,” the “Renewable Energy
Industry Development Guidance Catalogue” and the “Trial Measures for
Administration of Renewable Energy Power Generation Pricing and Expenses
Sharing” to lay down special rules and regulations to facilitate the development
of wind power industry in the PRC.
The
Ministry of the PRC issued the “Provisional Measures for Administration of
Special Capital on Developing Renewable Energy Resources," stipulating the
establishment of “Special Capital on Developing Renewable Energy Resources” by
utilization of the central budget to promote the development of renewable
energy, especially on the local production of the mechanical equipments for the
development and utilization of renewable energy.
In 2006,
the State Council promulgated “National Guideline on Medium-and Long-Term
Program for Science and Technology
Development (2006-2020)” (the “Guideline”),
stipulating the priority research on large types of wind power facilities in
terms of the low-cost and large-scale of the development and utilization of
renewable energy resources. Following the above-mentioned Guideline, in 2007,
the PRC Development and Reform Committee promulgated the ancillary notice the
“Eleventh Five-Year Plan of High Technology Industry” to promote the research,
commercial use, industrialization of the wind turbines and its key
assembly.
Foreign
Exchange Controls
In August
2008, the Foreign Exchange Bureau issued the Foreign Exchange Administration
Regulation, as amended. Under the Regulation, the Renminbi (“RMB”) is freely
convertible for current account items, including the distribution of dividends,
interest payments, trade and service-related foreign exchange transactions, but
not under the “capital account,” which includes foreign direct investment, loans
and investments in securities outside of China, unless the prior approval of the
SAFE is obtained and prior registration with the SAFE is made. These limitations
could affect the PRC company’s ability to obtain foreign exchange through debt
or equity financing. This could negatively impact our financial performance as
it may limit our ability to reallocate capital and to take advantage of market
opportunities.
18
On August
29, 2008, SAFE promulgated a notice entitled Circular 142, regulating the
conversion by a foreign-invested company of foreign currency into RMB by
restricting the use of converted RMB. The notice requires that the registered
capital of a foreign-invested company settled in RMB converted from foreign
currencies may only be used for purposes within the business scope stated in the
business license and may not be used for equity investments within PRC. In
addition, SAFE strengthened its supervision of the flow and use of the
registered capital of a foreign-invested company settled in RMB converted
from foreign currencies. The use of such RMB capital may not be changed without
SAFE’s prior approval, and may not in any case be used to repay RMB loans if the
proceeds of such loans have not been used.
Since a
significant amount of our future revenue will be denominated in RMB, any
existing and future restrictions on currency exchange may limit our ability to
utilize revenue generated in RMB to fund our business activities outside China
that are denominated in foreign currencies. We cannot be certain that the
Chinese regulatory authorities will not impose more stringent restrictions on
the convertibility of the RMB.
Employees
The
following table sets forth the number of our employees for each of our areas of
operations and as a percentage of our total workforce as of June 30,
2009:
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Number of
Employees
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% of
Employees
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Production
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16 | 27.12 | % | |||||
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Sales
& Marketing and Quality Assurance
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8 | 13.56 | % | |||||
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Purchasing
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4 | 6.78 | % | |||||
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Finance
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5 | 8.47 | % | |||||
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Management
& Administration
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6 | 10.16 | % | |||||
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Technology
& Project Development
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11 | 18.64 | % | |||||
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Administration
& Logistics
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9 | 15.26 | % | |||||
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TOTAL
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59 | 100 | % | |||||
The
Company has 59 employees, most of whom have signed employment contracts and
confidentiality agreements with the Company. Generally, the employment contract
is 5 to 10 years for senior management personnel; 3 years for middle management
personnel, marketing staff, technicians and other special staff; and 2 years for
the rest. For non-experienced staff, the employment contract is 1 year. We
believe that our relationship with our employees is good.
We are in
full compliance with Chinese labor laws and regulations and are committed to
providing safe and comfortable working conditions and accommodations for
our employees. We believe in the importance of
maintaining our social responsibilities, and we are committed to
providing employees with a safe, clean and comfortable working
environment and accommodations. Our employees are also entitled to time off
during public holidays. In addition, we frequently monitor contract
manufacturers’ working conditions to ensure their compliance with related labor
laws and regulations. We are in full compliance with our obligations to provide
pension benefits to our workers, as mandated by the PRC government. We strictly
comply with Chinese labor laws and regulations, and offer reasonable wages, life
insurance and medical insurance to our workers.
Compliance
with Environmental Laws
We are
required to comply with several domestic environmental protection laws and
regulations, including Environmental Protection Law of the People’s Republic of
China, Law of the People’s Republic of China on Prevention and Control of
Water Pollution, Law of the People’s Republic of China on the
Prevention and Control of Atmospheric Pollution, Law of the People’s Republic of
China on the Prevention and Control of Environmental Pollution by Solid Waste,
Law of the People’s Republic of China on Prevention and Control of Pollution
From Environmental Noise, Law of the People’s Republic of China on Appraising of
Environment Impact and Regulations on the Administration of Construction Project
Environmental Protection.
19
In
accordance with the Environmental Protection Law of the People’s Republic of
China adopted by the Standing Committee of the National People’s Congress on
December 26, 1989, the bureau of environmental protection of the State Council
sets the national guidelines for the discharge of pollutants. The provincial and
municipal governments of provinces, autonomous regions and municipalities may
also set their own guidelines for the discharge of pollutants within their own
provinces or districts in the event that the national guidelines are inadequate.
The subdivision environmental protection laws on control of pollution of water,
air, solid waste and noise set more detailed rules, standards and specifications
with respect to their areas of regulation.
Pursuant
to the Environmental Protection Law and its subdivision laws, a company or
enterprise which causes environmental pollution and discharges other polluting
materials which endanger the public should implement environmental protection
methods and procedures into their business operations. This may be achieved by
setting up a system of accountability within the company’s business structure
for environmental protection; adopting effective procedures to prevent
environmental hazards such as waste gases, water and residues, dust powder,
radioactive materials and noise arising from production, construction and other
activities from polluting and endangering the environment. The environmental
protection system and procedures should be implemented simultaneously with the
commencement of and during the operation of construction, production and other
activities undertaken by the company. Any company or enterprise which discharges
environmental pollutants should report and register such discharge with relevant
bureaus of environmental protection and pay any fines imposed for the discharge.
A fee may also be imposed on the company for the cost of any work required to
restore the environment to its original state. Companies which have caused
severe pollution to the environment are required to restore the environment or
remedy the effects of the pollution within a prescribed time limit.
In
addition, the Law of the People’s Republic of China on Appraising of Environment
Impact Issued by the National People’s Congress of China which came into effect
on September 1, 2003 provides the methods and institutions for analyzing,
predicting and appraising the impact of operation and construction projects that
might incur after they are carried out. In case a construction project of any
company or enterprise fails to pass the examination, the construction may not be
started. Regulations on the Administration of Construction Project Environmental
Protection Issued by the State Council of China which came into effect on
November 29, 1998 provide that the building of construction projects having
impacts on the environment within the territory of the People's Republic of
China shall compile or submit a report on environmental impact, a statement
on environmental impact or a registration form on environmental
impact in accordance with the extent of environmental impact of construction
projects.
CORPORATE
INFORMATION
The
principal executive office for the Company is located at No.86, Nanhu Avenue,
East Lake Development Zone, Wuhan, Hubei Province, China. The Company’s main
telephone number is (86) 027-8795095 and its fax number is (86)
027-87985096.
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this on Form 8-K before making an investment
decision with regard to our securities. The statements contained in or
incorporated into this Form 8-K that are not historic facts are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those set forth in or implied by
forward-looking statements. If any of the following events described in
these risk factors actually occurs, our business, financial condition
or results of operations could be harmed. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment.
Risks
Relating to Our Business and Industry
Our
limited operating history makes it difficult to evaluate our future prospects
and results of operations.
GC
Nordic, which commenced business in 2006, has a limited operating history.
Accordingly, you should consider our future prospects in light of the risks and
uncertainties experienced by early-stage companies in evolving industries in
China. Some of these risks and uncertainties relate to our ability
to:
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maintain
our market position;
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respond
to competitive market
conditions;
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20
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increase
awareness of our brand;
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respond
to changes in our regulatory
environment;
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maintain
effective control of our costs and
expenses;
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raise
sufficient capital to sustain and expand our business;
and
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attract,
retain and motivate qualified
personnel.
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If we are
unsuccessful in addressing any of these risks and uncertainties, our business
may be materially and adversely affected.
If
we fail to implement our business strategy, our financial performance and our
growth could be materially and adversely affected.
Our
future financial performance and success are dependent in large part upon our
ability to implement our business strategy successfully. Our business strategy
envisions several initiatives, including driving revenue growth and enhancing
operating results by increasing adoption of our products by targeting
high-growth segments, establishing successful distribution networks in our
target markets for our products, anticipating customer needs in the development
of system-level solutions, strengthening our technology leadership while
lowering cost and pursuing targeted strategic acquisitions and alliances. We may
not be able to implement our business strategy successfully or achieve the
anticipated benefits of our business plan. If we are unable to do so, our
long-term growth and profitability may be adversely affected. Even if we are
able to implement some or all of the initiatives of our business plan
successfully, our operating results may not improve to the extent we anticipate,
or at all. Implementation of our business strategy could also be affected by a
number of factors beyond our control, such as increased competition, legal
developments, government regulation, general economic conditions or increased
operating costs or expenses. In addition, to the extent we have misjudged the
nature and extent of industry trends or our competition; we may have difficulty
in achieving our strategic objectives. Any failure to implement our business
strategy successfully may adversely affect our business, financial condition and
results of operations. In addition, we may decide to alter or discontinue
certain aspects of our business strategy at any time.
We
will require additional funds to expand our operations.
In
connection with the development and expansion of our business, we will incur
significant capital and operational expenses. We do not presently have any
funding commitments other than our present credit arrangements which we do not
believe is sufficient to enable us to satisfy our purchase commitments and to
otherwise expand our business. If we are unable to obtain additional funding to
pay our purchase commitments and we cannot find alternative financing we may be
unable to expand our business or finance the growth of our existing business,
which may impair our ability to operate profitably.
Because
of the worldwide economic downturn, we may not be able to raise any additional
funds that we require on favorable terms, if any. The failure to
obtain necessary financing may impair our ability to manufacture our products
and continue in business.
We
are investing heavily in products designed for the wind power industry with no
assurance that a substantial market for wind power will ever
develop.
Our wind
turbines business is based on the assumption that wind power will become a more
significant source of power in the PRC and elsewhere. Although the government of
the PRC has announced a plan which contemplates a significant increase in wind
power in the PRC, at present wind power accounts for an insignificant percentage
of China’s energy needs, and we cannot assure you that wind power will ever
become a significant source of energy in China. Since our growth plan is based
on developing and providing equipment and components for that industry, our
business will be impaired if the market for wind power generation equipment does
not develop or if the market develops but our products are not accepted by the
market. We are making the financial and manpower commitment in our belief that
there will be an increased demand for wind power in China and elsewhere. We
cannot assure you that we will be able to develop this business, and our failure
to develop the business will have a material adverse effect on our overall
financial condition and the results of our operations.
21
Because
we sell capital equipment, our business is subject to our customers’ capital
budget and we may suffer delays or cancellations of orders as a result of the
effects of the worldwide economic downturn.
Our
customers purchase our equipment as part of their capital budget. As a result,
we are dependent upon receiving orders from companies that are either expanding
their business, commencing a new business, upgrading their capital equipment or
who otherwise require capital equipment. Our business is therefore dependent
upon both the economic health of these industries and our ability to offer
products that meet regulatory requirements, including environmental requirements
of these industries and are cost justifiable, based on potential cost savings in
using our equipment in contrast to existing equipment or equipment offered by
others. We cannot predict the extent that the market for capital
equipment in the wind power industries will be affected. However, any
economic slowdown can affect all purchasers and manufactures of capital
equipment, and we cannot assure you that our business will not be significantly
impaired as a result of the worldwide economic downturn.
We
are subject to particularly lengthy sales cycles.
We are
subject to lengthy sale cycles that may last over nine months. These
lengthy and challenging sales cycles may mean that it could take longer before
our sales and marketing efforts result in revenue, if at all, and may have
adverse effects on our operating results, financial condition, cash flows and
stock price.
The
nature of our products creates the possibility of significant product liability
and warranty claims, which could harm our business.
Customers
use some of our products in potentially hazardous applications that can cause
injury or loss of life and damage to property, equipment or the environment. In
addition, some of our products are integral to the production process for some
end-users and any failure of our products could result in a suspension of
operations. We cannot be certain that our products will be completely free from
defects. Moreover, we do not have any product liability insurance and may not
have adequate resources to satisfy a judgment in the event of a successful claim
against us. The successful assertion of product liability claims against us
could result in potentially significant monetary damages and require us to make
significant payments. In addition, because the insurance industry in China is
still in its early stages of development, business interruption insurance
available in China offers limited coverage compared to that offered in many
other countries. We do not have any business interruption insurance. Any
business disruption or natural disaster could result in substantial costs and
diversion of resources.
Our
ability to market wind power equipment in the wind power industry is dependent
upon manufacturing equipment that enables our customers to meet environmental
requirements.
We mainly
market wind power equipment to operators of wind farms. Our ability to market
these products is dependent upon the continued growth of wind farms and our
ability to offer products that enable the operators of the wind farms to produce
electricity through a cleaner process than would otherwise be available at a
reasonable cost. To the extent that government regulations are adopted that
require the wind farms to reduce or eliminate polluting discharges from wind
farms, our equipment would need to be designed to meet such
requirements.
If
we fail to introduce enhancements to our existing products or to keep abreast of
technological changes in our markets, our business and results of operations
could be adversely affected.
Although
certain technologies in the industries that we occupy are well established, we
believe our future success depends in part on our ability to enhance our
existing products and develop new products in order to continue to meet customer
demands. Our failure to introduce new or enhanced products on a timely and
cost-competitive basis, or the development of processes that make our existing
technologies or products obsolete, could harm our business and results of
operations.
Because
we face intense competition from other companies for our operating segment, many
of which have greater resources than we do, we may not be able to compete
successfully and we may lose or be unable to gain market share.
The
markets for products in our business segments are intensely competitive. Many of
our competitors have established more prominent market positions, and if we fail
to attract and retain customers and establish successful distribution networks
in our target markets for our products, we will be unable to increase our sales.
Many of our existing and potential competitors have substantially greater
financial, technical, manufacturing and other resources than we do. Our
competitors’ greater size in some cases provides them with a competitive
advantage with respect to manufacturing costs because of their economies of
scale and their ability to purchase raw materials at lower prices, as well as
securing supplies at times of shortages. Many of our competitors also have
greater brand name recognition, more established distribution networks and
larger customer bases. In addition, many of our competitors have
well-established relationships with our current and potential customers and have
extensive knowledge of our target markets. As a result, they may be able to
devote greater resources to the research, development, promotion and sale of
their products or respond more quickly to evolving industry standards and
changes in market conditions than we can. Our failure to adapt to changing
market conditions and to compete successfully with existing or new competitors
may materially and adversely affect our financial condition and results of
operations.
22
Compliance
with environmental regulations can be expensive, and noncompliance with these
regulations may result in adverse publicity and potentially significant monetary
damages and fines.
As our
manufacturing processes generate noise, wastewater, gaseous and other industrial
wastes, we are required to comply with all national and local regulations
regarding protection of the environment. If we fail to comply with present or
future environmental regulations, we may be required to pay substantial fines,
suspend production or cease operations. We use, generate and discharge toxic,
volatile and otherwise hazardous chemicals and wastes in our research and
development and manufacturing activities. Any failure by us to control the use
of, or to restrict adequately, the discharge of, hazardous substances could
subject us to potentially significant monetary damages and fines or suspensions
in our business operations.
The
success of our businesses will depend on our ability to effectively develop and
implement strategic business initiatives.
We are
currently implementing various strategic business initiatives. In connection
with the development and implementation of these initiatives, we will incur
additional expenses and capital expenditures to implement the initiatives. The
development and implementation of these initiatives also requires management to
divert a portion of its time from day-to-day operations. These expenses and
diversions could have a significant impact on our operations and profitability,
particularly if the initiatives included in any new initiative proves to be
unsuccessful. Moreover, if we are unable to implement an initiative in a timely
manner, or if those initiatives turn out to be ineffective or are executed
improperly, our business and operating results would be adversely
affected.
Failure
to successfully reduce our production costs may adversely affect our financial
results.
A
significant portion of our strategy relies upon our ability to successfully
rationalize and improve the efficiency of our operations. In particular, our
strategy relies on our ability to reduce our production costs in order to remain
competitive. If we are unable to continue to successfully implement cost
reduction measures, especially in a time of a worldwide economic downturn, or if
these efforts do not generate the level of cost savings that we expect going
forward or result in higher than expected costs, there could be a material
adverse effect on our business, financial condition, results of operations or
cash flows.
If
we are unable to make necessary capital investments or respond to pricing
pressures, our business may be harmed.
In order
to remain competitive, we need to invest in research and development,
manufacturing, customer service and support and marketing. From time to time, we
also have to adjust the prices of our products to remain competitive. We may not
have available sufficient financial or other resources to continue to make
investments necessary to maintain our competitive position.
We
must obtain sufficient supply of component materials to conduct our
business.
Our
component and materials suppliers may fail to meet our needs. We
intend to manufacture all of our wind power products using materials and
components procured from a limited number of third-party
suppliers. We do not currently have long-term supply contracts with
our suppliers. This generally serves to reduce our commitment risk
but does expose us to supply risk and to price increases that we have to pass on
to its customers. In some cases, supply shortages and delays in
delivery may result in curtailed production or delays in production, which can
contribute to an increase in inventory levels and loss of profit. We
expect that shortages and delays in deliveries of some components will occur
from time to time. If we are unable to obtain sufficient components
on a timely basis, we may experience manufacturing delays, which could harm our
relationships with current or prospective customers and reduce our
sales. We also depend on a small number of suppliers for certain
supplies that we use in our business. If we are unable to continue to
purchase components from these limited source suppliers or identify alternative
suppliers, our business and operating results would be materially and adversely
affected. We may also not be able to obtain competitive pricing for
some of our supplies compared to its competitors. We also cannot
assure that the component and materials from domestic suppliers will be of
similar quality or quantity as those imported component and materials which may
lead to rejections of component and materials by our customers. In the event the
domestic component and materials do not perform as well as the imported
component and materials or do not perform at all, our business, financial
condition and results of operations could be adversely
affected.
23
A
limited number of customers account for a significant portion of our
sales.
For the
current fiscal year 2009, three customers account for all of our sales
revenue. Our near term, and possibly long term prospects are
significantly dependent upon these three customers. Revenues and
outstanding accounts receivable in 2008 were solely from one customer. As a
result, currently we are substantially dependent upon the continued
participation of these customers in order to maintain and continue to grow our
total revenues. Significantly reducing our dependence on these customers is
likely to take a long time and there can be no guarantee that we will succeed in
reducing that dependence. There is no assurance that any of these
customers will continue to contribute to our total sales revenue in subsequent
years. Under present conditions, the loss of any one of these
customers could have a material effect on our performance, liquidity and
prospects. To reduce this risk, we continue to build our sales
pipeline and diversify our product line.
The
inherent volatility in the market price of electricity could impact our
profitability.
Our
ability to generate revenue has exposure to movements in the market price of
electricity, as sales to the power market are likely to be made at prevailing
market prices. The market price of electricity is sensitive to
cyclical changes in demand and capacity supply, and in the economy, as well as
to regulatory trends and developments impacting electricity market rules and
pricing, and other external factors outside of our control. Energy
from wind generating facilities must be taken “as delivered” which necessitates
the use of other system resources to keep the demand and supply of electric
energy in balance. The inherent volatility in the market price of
electricity could impact our potential revenue, income and cash flow, which
could impact our profitability.
Reduction or
elimination of government subsidies and economic incentives for the wind power
industry could cause demand for our products to decline, thus adversely
affecting our business prospects and results of
operations.
Growth of
the wind power market depends largely on the availability and size of government
subsidies and economic incentives. At present, the cost of wind power
substantially exceeds the cost of conventional power provided by electric
utility grids in many locations around the world. Various governments have used
different policy initiatives to encourage or accelerate the development and
adoption of wind power and other renewable energy sources. Renewable energy
policies are in place in the European Union, most notably Germany and Spain,
certain countries in Asia, including China, Japan and South Korea, and many of
the states in Australia and the United States. Examples of
government-sponsored financial incentives include capital cost rebates, feed-in
tariffs, tax credits, net metering and other incentives to end-users,
distributors, system integrators and manufacturers of wind power products to
promote the use of wind power and to reduce dependency on other forms of energy.
Governments may decide to reduce or eliminate these economic incentives for
political, financial or other reasons. Government subsidies have been
reduced in a few countries and are expected to be further reduced or eliminated
in the future. Reductions in, or eliminations of, government
subsidies and economic incentives before the wind power industry reaches a
sufficient scale to be cost-effective in a non-subsidized marketplace could
reduce demand for our products and adversely affect our business prospects and
results of operations. In addition, reductions in, or eliminations
of, government subsidies and economic incentives may cause the prices for the
products of our customers to decline and we may in turn face increased pressure
to reduce the sale price of our products. To the extent any price
decline cannot be offset by further reduction of our costs, our profit margin
will suffer.
We currently have
a significant amount of debt outstanding. Our substantial indebtedness may limit
our future financing capabilities and could adversely affect our business,
financial condition and results of operations.
Our debt
could have a significant impact on our future operations and cash flow,
including:
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making
it more difficult for us to fulfill payment and other obligations under
our outstanding debt, including repayment of our long- and short-term
credit facilities should we be unable to obtain extensions for any such
facilities before they mature, as well as our obligations under our
convertible notes;
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triggering
an event of default if we fail to comply with any of our payment or other
obligations contained in our debt agreements, which could result in
cross-defaults causing all or a substantial portion of our debt to become
immediately due and payable;
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reducing
the availability of cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes, and
adversely affecting our ability to obtain additional financing for these
purposes;
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24
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potentially
increasing the cost of any additional financing;
and
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putting
pressure on our ADS price due to concerns of our inability to repay our
debt and making it more difficult for us to conduct equity financings in
the capital markets.
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Our
ability to meet our payment and other obligations under our outstanding debt
depends on our ability to generate cash flow in the future or to refinance such
debt. We may not be able to generate sufficient cash flow from operations to
enable us to meet our obligations under our outstanding debt and to fund other
liquidity needs. The current global liquidity and credit crisis has been having
a significant negative impact on our company. If we are not able to generate
sufficient cash flow to meet such obligations, we may need to refinance or
restructure our debt, to sell our assets, to reduce or delay our capital
investments, or to seek additional equity or debt financing. The sale of
additional equity securities could result in dilution to our share holders. The
incurrence of additional indebtedness would result in increased interest rate
risk and debt service obligations, and could result in operating and financing
covenants that would further restrict our operations. In addition, the level of
our indebtedness and the amount of our interest payments could limit our ability
to obtain the financing required to fund future capital expenditures and working
capital. A shortage of such funds could in turn impose limitations on our
ability to plan for, or react effectively to, changing market conditions. We
cannot assure you that future financing will be available in amounts or on terms
acceptable to us, if at all.
Unforeseen or
recurring operational problems at our facilities may cause significant lost
production, which could have a material adverse effect on our business,
financial condition, results of operations and cash flow.
Our
manufacturing processes could be affected by operational problems that could
impair our production capability. Our facilities contain complex and
sophisticated machines that are used in our manufacturing process. Disruptions
at our facilities could be caused by maintenance outages; prolonged power
failures or reductions; a breakdown, failure or substandard performance of any
of our machines; the effect of noncompliance with material environmental
requirements or permits; disruptions in the transportation infrastructure,
including railroad tracks, bridges, tunnels or roads; fires, floods, earthquakes
or other catastrophic disasters; labor difficulties; or other operational
problems. Any prolonged disruption in operations at our facilities could cause
significant lost production, which would have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
We
do not own our facilities or have long- term leases for our facilities which
means that we can be removed from our location without notice or warning which
could cause significant disruption to our business.
Our
manufacturing facility is 36,000 square meters situated in the Donghu
Development District, Wuhan, China. Currently we lease the land under our
facility. There is no expiration date for the lease, which is provided free of
charge by the Administrative Committee of Donghu Development District. We also
lease our office facilities which is provided free of charge by the Wuhan Donghu
New Technology Development Co., Ltd. Because our facilities are provided by the
government free of charge, we can be removed from our location without notice or
warning which could cause significant disruption to our business and
manufacturing process and add unplanned expenses for us to relocate to new
offices and facilities. In the event we get evicted from our current facilities
and we are unable to immediately relocate, our business, financial condition and
results of operations will be adversely affected.
Our
business depends substantially on the continuing efforts of our executive
officers and our ability to maintain a skilled labor force and our business may
be severely disrupted if we lose their services.
Our
future success depends substantially on the continued services of our executive
officers, especially Mr. Hou Tie Xin, the chairman of our board of directors. We
do not maintain key man life insurance on any of our executive officers and
directors. If one or more of our executive officers are unable or unwilling to
continue in their present positions, we may not be able to replace them readily,
if at all. Therefore, our business may be severely disrupted, and we may incur
additional expenses to recruit and retain new officers. In addition, if any of
our executives joins a competitor or forms a competing company, we may lose some
of our customers. Our executive officers and chairman are parties to contractual
agreements as described elsewhere in this Form 8-K. However, if any disputes
arise between our executive officers and us, we cannot assure you, in light of
uncertainties associated with the Chinese legal system, the extent to which any
of these agreements could be enforced in China, where some of our executive
officers reside and hold some of their assets.
25
If
we are unable to attract, train and retain technical and financial personnel,
our business may be materially and adversely affected.
Our
future success depends, to a significant extent, on our ability to attract,
train and retain technical and financial personnel. Recruiting and retaining
capable personnel, particularly those with expertise in our chosen industries,
are vital to our success. There is substantial competition for qualified
technical and financial personnel, and there can be no assurance that we will be
able to attract or retain our technical and financial personnel. If we are
unable to attract and retain qualified employees, our business may be materially
and adversely affected.
Litigation
may adversely affect our business, financial condition and results of
operations.
Nordic
Windpower USA, Inc. ("Nordic Windpower")
has threatened to commence a lawsuit against us by filing a complaint against
Nordic Turbines, Inc. in the U.S. District Court for the Northern District
of California on August 11, 2009, alleging trademark infringement, trademark
dilution, unfair competition and trade dress infringement. To date, we have
not been served with this complaint. Even though we have had and will continue
to have meaningful discussions with Nordic Windpower to resolve any remaining
claims it may assert, we cannot guarantee that any such remaining claims
will be resolved amicably and in the near future. Such litigation may result in
liability material to our financial statements as a whole or may negatively
affect our operating results if changes to our business operation are required.
The cost to defend such litigation may be significant and may require a
diversion of our resources. There also may be adverse publicity associated with
litigation that could negatively affect customer perception of our business,
regardless of whether the allegations are valid or whether we are ultimately
found liable. As a result, litigation may adversely affect our business,
financial condition and results of operations. See "Legal Proceedings" for
further details regarding this pending matter.
Our
failure to protect our intellectual property rights may undermine our
competitive position, and litigation to protect our intellectual property rights
or defend against third-party allegations of infringement may be
costly.
We rely
primarily on trade secret and contractual restrictions to protect our
intellectual property. Nevertheless, these afford only limited protection and
the actions we take to protect our intellectual property rights may not be
adequate. As a result, third parties may infringe or misappropriate our
proprietary technologies or other intellectual property rights, which could have
a material adverse effect on our business, financial condition or operating
results. In addition, policing unauthorized use of proprietary technology can be
difficult and expensive. Litigation may be necessary to enforce our intellectual
property rights, protect our trade secrets or determine the validity and scope
of the proprietary rights of others and the enforcement of intellectual property
rights in China may be difficult. We cannot assure you that the outcome of any
litigation will be in our favor. Intellectual property litigation may be costly
and may divert management attention as well as expend our other resources away
from our business. An adverse determination in any such litigation will impair
our intellectual property rights and may harm our business, prospects and
reputation. In addition, we have no insurance coverage against litigation costs
and would have to bear all costs arising from such litigation to the extent we
are unable to recover them from other parties. The occurrence of any of the
foregoing could have a material adverse effect on our business, results of
operations and financial condition.
Implementation
of China’s intellectual property-related laws has historically been lacking,
primarily because of ambiguities in China’s laws and difficulties in
enforcement. Accordingly, intellectual property rights and confidentiality
protections in China may not be as effective as in the United States or other
countries.
We
have limited business insurance coverage.
The
insurance industry in China is still at an early stage of development. Insurance
companies in China offer limited business insurance products. We do not have any
business liability or disruption insurance coverage for our operations in China.
Any business disruption, litigation or natural disaster may result in our
incurring substantial costs and the diversion of our resources.
Corporate
insiders or their affiliates may be able to exercise significant control matters
requiring a vote of our stockholders and their interests may differ from the
interests of our other stockholders.
Pursuant
to the Call Option Agreement and Voting Trust Agreement entered into by and
between BVI and certain of our officers and directors on September 30, 2009,
such officers and directors have the opportunity to acquire, as well as to vote,
all of the shares of GC China Turbine issued to BVI as part of the Exchange
Transaction, which shares comprise of 54% of our issued and outstanding common
stock. As a result, these officers and directors may be able to exercise
significant control over matters requiring approval by our stockholders. Matters
that require the approval of our stockholders include the election of directors
and the approval of mergers or other business combination transactions. Certain
transactions are effectively not possible without the approval of these officers
and directors by virtue of their control over the shares held by BVI, including,
proxy contests, tender offers, open market purchase programs or other
transactions that can give our stockholders the opportunity to realize a premium
over the then-prevailing market prices for their shares of our common
stock.
26
We
will be required to evaluate our internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act.
Failure
to timely comply with the requirements of Section 404 of the Sarbanes-Oxley Act
of 2002 (“Section
404”) or any adverse results from such evaluation could result in a loss
of investor confidence in our financial reports and have an adverse effect on
the trading price of our debt and equity securities.
We
currently are not an “accelerated filer” as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended. Section 404 requires us to include
an internal control report with our Annual Report on Form 10-K. That report must
include management’s assessment of the effectiveness of our internal control
over financial reporting as of the end of the fiscal year. This report must also
include disclosure of any material weaknesses in internal control over financial
reporting that we have identified. As of December 31, 2008, the management of
the Company assessed the effectiveness of the Company’s internal control over
financial reporting based on the criteria for effective internal control over
financial reporting established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC
guidance on conducting such assessments. Management concluded, during
the year ended December 31, 2008, that its internal controls and procedures were
not effective to detect the inappropriate application of U.S. GAAP
rules. Management realized there were deficiencies in the design or
operation of the Company’s internal control that adversely affected the
Company’s internal controls which management considers to be material
weaknesses.
Nevertheless,
our management has determined that all matters to be disclosed in this report
have been fully and accurately reported. We are in the process of improving our
processes and procedures to ensure full, accurate and timely disclosure in the
current fiscal year, with the expectation of establishing effective disclosure
controls and procedures and internal control over financial reporting as soon as
reasonably practicable. For the fiscal year ending December 31, 2010, our
independent registered public accounting firm will be required to issue a report
on management’s assessment of our internal control over financial reporting and
their evaluation of the operating effectiveness of our internal control over
financial reporting. Our assessment requires us to make subjective judgments and
our independent registered public accounting firm may not agree with our
assessment.
Achieving
continued compliance with Section 404 may require us to incur significant costs
and expend significant time and management resources. We cannot assure you that
we will be able to fully comply with Section 404 or that, we and our
independent registered public accounting firm would be able to conclude that our
internal control over financial reporting is effective at fiscal year end. As a
result, investors could lose confidence in our reported financial information,
which could have an adverse effect on the trading price of our securities, as
well as subject us to civil or criminal investigations and penalties. In
addition, our independent registered public accounting firm may not agree with
our management’s assessment or conclude that our internal control over financial
reporting is operating effectively. We will continue to consistently improve our
internal control over the financial reporting with our best efforts and we plan
to engage assistance from outside experts in doing so.
We
do not have sufficient GAAP knowledge or SEC reporting experience.
We
currently do not have a clear process, schedule, segregation of duties or review
with respect to the SEC reporting process or have an accounting and financial
reporting team with sufficient knowledge of U.S. GAAP. In additional, we do not
have sufficient knowledge of the Sarbanes-Oxley Act. The Company is
committed to remedying the deficiency and weakness and has planned to implement
certain remedial measures, including the hiring of a comptroller or other
finance personnel with U.S. GAAP and SEC reporting experience, provision of
additional training to our accounting personnel on the requirements of U.S. GAAP
and SEC reporting requirements to increase their familiarity with those
standards and the reassessment of our existing finance and accounting policies
and procedures.
27
Risks
Related to Our Corporate Structure
Our
acquisition of GC Nordic New Energy Co., Ltd could constitute a Round-trip
Investment under the 2006 M&A Rules.
Prior to obtaining the approval from
the Commerce Bureau of Wuhan City on August 5, 2009 and the business license
from the Wuhan Administration for Industry and Commerce on August 10, 2009,
pending the full payment of the purchase price, and prior to Luckcharm Holdings
Limited purchasing 100% capital stock of GC Nordic (the “GC Nordic
Acquisition”), GC Nordic was a PRC business whose shareholders were
nine PRC individuals, of which Hou Tie Xin was the controlling
shareholder holding 58.46% of its shares. When Luckcharm was incorporated on
June 15, 2009 and when the GC Nordic Acquisition was approved, none of the
shareholders of Luckcharm was a PRC citizen. After the GC Nordic Acquisition,
Luckcharm Holdings Limited became the sole shareholder of GC Nordic. On
September 30, 2009, Luckcharm, the Company, BVI and a certain stockholders of
the Company executed the Exchange Agreement and immediately after the
consummation of the Exchange Transaction between Luckcharm and the Company, BVI,
which held 100% of the equity interests of Luckcharm, became our controlling
shareholder. Mr. Hou Tie Xin, Ms. Qi Na, Ms. Zhao Ying and Mr. Xu Jia Rong, who
are PRC nationals and who have become officers and directors of the Company in
connection with the Exchange Transaction, are parties to a Call Option Agreement
with BVI, pursuant to which these individuals have the opportunity to acquire
the shares of the Company’s common stock issued to BVI as part of the Exchange
Transaction (the “Shares”). These
individuals are additionally parties to a Voting Trust Agreement with BVI,
pursuant to which they have the right to vote the Shares on behalf of BVI. The
Call Option Agreement and Voting Trust Agreement were executed in conjunction
with the GC Nordic Acquisition.
The PRC
regulatory authorities may take the view that the GC Nordic Acquisition,
Exchange Transaction, the Call Option Agreement and Voting Trust Agreement are
part of an overall series of arrangements which constitute a round-trip
investment under PRC 2006 M&A Rules because the PRC individuals could
collectively become the effective controlling party of a foreign entity
(Luckcharm Holdings Limited) that acquired ownership of a PRC entity (GC
Nordic). As such, the PRC regulatory authorities may require registration with
and/or approval by the PRC Ministry of Commerce (“MOFCOM”) and/or the
State Administration for Industry and Commerce (“SAIC”). If such
registration or approval is required, we cannot assure you that we may be able
to complete such registration or obtain such approval.
If the
PRC regulatory authorities take the view that the GC Nordic Acquisition
constitutes a round-trip investment without approval, they may invalidate
our acquisition and ownership of GC Nordic. Additionally, the PRC regulatory
authorities may take the view that the GC Nordic Acquisition constitutes a
transaction which requires the prior approval of the China Securities Regulatory
Commission (“CSRC”) before MOFCOM
approval is obtained. We believe that if this takes place, we may be able to
find a way to re-establish control of GC Nordic’s business operations through a
series of contractual arrangements rather than an outright purchase of GC
Nordic. But we cannot assure you that such contractual arrangements will be
protected by PRC law or that we can receive as complete or effective economic
benefit and overall control of GC Nordic’s business than if the Company had
direct ownership of GC Nordic. In addition, we cannot assure you that such
contractual arrangements can be successfully effected under PRC law. If we
cannot obtain MOFCOM or CSRC approval as may be required by the PRC regulatory
authorities to do so, and if we cannot put in place or enforce relevant
contractual arrangements as an alternative and equivalent means of control of GC
Nordic, our business and financial performance will be materially adversely
affected.
Risks
Related to Doing Business in China
Because
our assets are located overseas, shareholders may not receive distributions that
they would otherwise be entitled to if we were declared bankrupt or
insolvent.
All of
our assets are located in the PRC. Because our assets are located overseas, our
assets may be outside of the jurisdiction of U.S. courts to administer if we are
the subject of an insolvency or bankruptcy proceeding. As a result, if we
declared bankruptcy or insolvency, our shareholders may not receive the
distributions on liquidation that they would
otherwise be entitled to if our assets were to be located within the
U.S., under U.S. Bankruptcy law.
Adverse
changes in economic and political policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
adversely affect our business.
All of
our business operations are currently conducted in the PRC, under the
jurisdiction of the PRC government. Accordingly, our results of operations,
financial condition and prospects are subject to a significant degree to
economic, political and legal developments in China. China’s economy differs
from the economies of most developed countries in many respects, including with
respect to the amount of government involvement, level of development, growth
rate, and control of foreign exchange and allocation of resources. While the PRC
economy has experienced significant growth in the past 20 years, growth has been
uneven across different regions and among various economic sectors of China. The
PRC government has implemented various measures to encourage economic
development and guide the allocation of resources. Some of these measures
benefit the overall PRC economy, but may also have a negative effect on us. For
example, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax
regulations that are applicable to us. Since early 2004, the PRC government has
implemented certain measures to control the pace of economic growth. Such
measures may cause a decrease in the level of economic activity in China, which
in turn could adversely affect our results of operations and financial
condition.
28
Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
us.
We
conduct substantially all of our business through subsidiaries and affiliated
entities in China. These entities are generally subject to laws and regulations
applicable to foreign investment in China. China's legal system is based on
written statutes. Prior court decisions may be cited for reference but have
limited precedential value. Since 1979, Chinese legislation and regulations have
significantly enhanced the protections afforded to various forms of foreign
investments in China. However, since these laws and regulations are relatively
new and China's legal system continues to rapidly evolve, the interpretations of
many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involve uncertainties, which may limit legal
protections available to us. In addition, any litigation in China may be
protracted and result in substantial costs and diversion of resources and
management attention.
New
labor laws in the PRC may adversely affect our results of
operations.
On
January 1, 2008, the PRC government promulgated the Labor Contract Law of
the PRC, or the New Labor Contract Law. The New Labor Contract Law imposes
greater liabilities on employers and significantly impacts the cost of an
employer’s decision to reduce its workforce. Further, it requires certain
terminations to be based upon seniority and not merit. In the event we decide to
significantly change or decrease our workforce, the New Labor Contract Law could
adversely affect our ability to enact such changes in a manner that is most
advantageous to our business or in a timely and cost effective manner, thus
materially and adversely affecting our financial condition and results of
operations.
Unprecedented
rapid economic growth in China may increase our costs of doing business, and may
negatively impact our profit margins and/or profitability.
Our
business depends in part upon the availability of relatively low-cost labor and
materials. Rising wages in China may increase our overall costs of production.
In addition, rising raw material costs, due to strong demand and greater
scarcity, may increase our overall costs of production. If we are not able to
pass these costs on to our customers in the form of higher prices, our profit
margins and/or profitability could decline.
Governmental
control of currency conversion may affect the value of your
investment.
The
Chinese government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of China. We
receive substantially all of our revenues in RMB. Under our current structure,
our income is primarily derived from payments from GC Nordic. Shortages in the
availability of foreign currency may restrict the ability of our Chinese
subsidiaries and our affiliated entity to remit sufficient foreign currency to
pay dividends or other payments to us, or otherwise satisfy their foreign
currency denominated obligations. Under existing Chinese foreign exchange
regulations, payments of current account items, including profit distributions,
interest payments and expenditures from trade-related transactions, can be made
in foreign currencies without prior approval from China State Administration of
Foreign Exchange by complying with certain procedural requirements. However,
approval from appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay capital
expenses such as the repayment of bank loans denominated in foreign currencies.
The Chinese government may also at its discretion restrict access in the future
to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy
our currency demands, we may not be able to pay dividends in foreign currencies
to our stockholders.
Fluctuation
in the value of RMB may have a material adverse effect on your
investment.
The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Our revenues and costs are mostly denominated in RMB, while a significant
portion of our financial assets are denominated in U.S. dollar. We rely entirely
on fees paid to us by our affiliated entity in China. Any significant
fluctuation in the value of RMB may materially and adversely affect our cash
flows, revenues, earnings and financial position, and the value of, and any
dividends payable on, our stock in U.S. dollar. For example, an appreciation of
RMB against the U.S. dollar would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollar into RMB for such purposes.
29
We
face risks related to health epidemics and other outbreaks.
Our
business could be adversely affected by the effects of an epidemic outbreak,
such as the SARS epidemic in April 2004. Any prolonged recurrence of such
adverse public health developments in China may have a material adverse effect
on our business operations. For instance, health or other government regulations
adopted in response may require temporary closure of our stores or offices. Such
closures would severely disrupt our business operations and adversely affect our
results of operations. We have not adopted any written preventive measures or
contingency plans to combat any future outbreak of SARS or any other
epidemic.
Risks
Related to an Investment in Our Securities
Our
stock is categorized as a penny stock. Trading of our stock may be restricted by
the SEC’s penny stock regulations which may limit a shareholder’s ability to buy
and sell our stock.
Our stock
is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally
defines “penny stock” to be any equity security that has a market price (as
defined) less than US$ 5.00 per share or an exercise price of less than US$ 5.00
per share, subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
FINRA sales
practice requirements may also limit a shareholder’s ability to buy and sell our
stock.
In
addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
We
expect to experience volatility in our stock price, which could negatively
affect shareholders’ investments.
The
market price for shares of our common stock may be volatile and may fluctuate
based upon a number of factors, including, without limitation, business
performance, news announcements or changes in general market
conditions.
Other
factors, in addition to the those risks included in this section, that may have
a significant impact on the market price of our common stock include, but are
not limited to:
|
|
·
|
receipt
of substantial orders or order cancellations of
products;
|
|
|
·
|
quality
deficiencies in services or
products;
|
|
|
·
|
international
developments, such as technology mandates, political developments or
changes in economic
policies;
|
|
·
|
changes
in recommendations of securities
analysts;
|
30
|
|
·
|
shortfalls
in our backlog, revenues or earnings in any given period relative to the
levels expected by securities analysts or projected by
us;
|
|
|
·
|
government
regulations, including stock option accounting and tax
regulations;
|
|
|
·
|
energy
blackouts;
|
|
|
·
|
acts
of terrorism and war;
|
|
|
·
|
widespread
illness;
|
|
|
·
|
proprietary
rights or product or patent
litigation;
|
|
|
·
|
strategic
transactions, such as acquisitions and
divestitures;
|
|
|
·
|
rumors
or allegations regarding our financial disclosures or practices;
or
|
|
|
·
|
earthquakes
or other natural disasters concentrated in Hubei, China where a
significant portion of our operations are
based.
|
In the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its
securities. Due to changes in the volatility of our common stock
price, we may be the target of securities litigation in the
future. Securities litigation could result in substantial costs and
divert management’s attention and resources.
To
date, we have not paid any cash dividends and no cash dividends will be paid in
the foreseeable future.
We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and we may not have sufficient funds legally available to pay
dividends. Even if the funds are legally available for distribution,
we may nevertheless decide not to pay any dividends. We presently
intend to retain all earnings for our operations.
Our
common shares are not currently traded at high volume, and you may be unable to
sell at or near ask prices or at all if you need to sell or liquidate a
substantial number of shares at one time.
We cannot
predict the extent to which an active public market for its common stock will
develop or be sustained. However, we do not rule out the possibility
of applying for listing on the NYSE Amex (formerly known as American Stock
Exchange) or NASDAQ Capital Market or other markets.
Our
common shares are currently traded, but currently with low volume, based on
quotations on the “Over-the-Counter Bulletin Board”, meaning that the number of
persons interested in purchasing our common shares at or near bid prices at any
given time may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are a small
company which is still relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a
consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price. We cannot
give you any assurance that a broader or more active public trading market for
our common stock will develop or be sustained, or that trading levels will be
sustained.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
“penny stocks” has suffered in recent years from patterns of fraud and
abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. Our management is aware of the
abuses that have occurred historically in the penny stock
market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
The occurrence of these patterns or practices could increase the future
volatility of our share price.
31
Our
corporate actions are substantially controlled by our principal shareholders and
affiliated entities.
Through
the Call Option Agreement and Voting Trust Agreement entered into by and between
BVI and certain of our officers and directors on September 30, 2009, our
principal shareholders, which includes our officers and directors, and their
affiliated entities, own approximately 54% of our outstanding shares of common
stock. These shareholders, acting individually or as a group, could exert
substantial influence over matters such as electing directors and approving
mergers or other business combination transactions. In addition,
because of the percentage of ownership and voting concentration in these
principal shareholders and their affiliated entities, elections of our board of
directors will generally be within the control of these shareholders and their
affiliated entities. While all of our shareholders are entitled to vote on
matters submitted to our shareholders for approval, the concentration of shares
and voting control presently lies with these principal shareholders and their
affiliated entities. As such, it would be difficult for shareholders to propose
and have approved proposals not supported by management. There can be no
assurances that matters voted upon by our officers and directors in their
capacity as shareholders will be viewed favorably by all of our
shareholders.
The
elimination of monetary liability against our directors, officers and employees
under Nevada law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by our company and
may discourage lawsuits against our directors, officers and
employees.
Our
Articles of Incorporation contain a provision permitting us to eliminate the
personal liability of our directors to our company and shareholders for damages
for breach of fiduciary duty as a director or officer to the extent provided by
Nevada law. We may also have contractual indemnification obligations under our
employment agreements with our officers. The foregoing indemnification
obligations could result in the Company incurring substantial expenditures to
cover the cost of settlement or damage awards against directors and officers,
which we may be unable to recoup. These provisions and resultant
costs may also discourage our company from bringing a lawsuit against directors
and officers for breaches of their fiduciary duties, and may similarly
discourage the filing of derivative litigation by our shareholders against our
directors and officers even though such actions, if successful, might otherwise
benefit our company and shareholders.
SUMMARY
CONSOLIDATED FINANCIAL DATA
The
following tables summarize consolidated financial data regarding the business of
the Company and should be read together with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the consolidated
pro forma financial statements of the Company and the related notes included
with those financial statements. The summary consolidated financial
information as of June 30, 2009 (unaudited) and 2008 (unaudited) and for the
fiscal years ended December 31, 2008 and 2007 have been derived from our
consolidated financial statements for GC Nordic. All monetary amounts
are expressed in U.S. dollar unless otherwise indicated.
(in US$
except loss per share data)
|
Six months ended June
30,
|
Twelve months ended December 31,
|
|||||||||||||||
|
2009
|
2008
|
2008
|
2007
|
|||||||||||||
|
Income statement data:
|
||||||||||||||||
|
Sales
|
$ | - | $ | - | $ | 3,065,007 | $ | - | ||||||||
|
Cost
of sales
|
- | - | 2,970,613 | - | ||||||||||||
|
Gross
profit
|
- | - | 94,394 | - | ||||||||||||
|
Total
operating expenses
|
379,459 | 192,738 | 546,007 | 344,220 | ||||||||||||
|
Interest
expense
|
82,634 | - | 106,231 | - | ||||||||||||
|
Interest
income
|
- | - | 1,405 | 2,156 | ||||||||||||
|
Other,
net
|
5,364 | (62,370 | ) | (62,109 | ) | (32,852 | ) | |||||||||
|
Loss
before income tax
|
(467,457 | ) | (130,368 | ) | (494,330 | ) | (309,212 | ) | ||||||||
|
Income
tax benefit
|
116,864 | 29,985 | 115,742 | 72,601 | ||||||||||||
|
Net
loss
|
$ | (350,593 | ) | $ | (100,383 | ) | $ | (378,588 | ) | $ | (236,611 | ) | ||||
|
Loss
per shares-basic and diluted
|
$ | (350,593 | ) | $ | (100,383 | ) | $ | (378,588 | ) | $ | (236,611 | ) | ||||
|
Shares
used in calculating basic and diluted per share
|
1 | 1 | 1 | 1 | ||||||||||||
32
Balance
Sheet Data
(in US$
except loss per share data)
|
As at December 31,
|
||||||||||||
|
As of June 30,
2009
|
2008
|
2007
|
||||||||||
|
Consolidated
balance sheet data:
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 452,067 | $ | 10,661 | $ | 681,165 | ||||||
|
Working
capital (deficit)
|
832,351 | (400,355 | ) | (1,146,830 | ) | |||||||
|
Total
assets
|
13,680,527 | 10,958,034 | 7,122,852 | |||||||||
|
Total
liabilities
|
10,406,019 | 8,797,440 | 6,103,869 | |||||||||
|
Total
shareholders’ equity
|
3,274,508 | 2,160,594 | 1,018,983 | |||||||||
Cash
Flow Data
(in
US$ except loss per share data)
|
Six months ended June
30,
|
Twelve months ended December 31,
|
|||||||||||||||
|
2009
|
2008
|
2008
|
2007
|
|||||||||||||
|
Net
cash provided by (used in ) operating activities
|
$ | (855,323 | ) | $ | (968,750 | ) | $ | (2,369,299 | ) | $ | 90,669 | |||||
|
Net
cash used in investing activities
|
(27,225 | ) | (138,501 | ) | (189,643 | ) | (1,368,190 | ) | ||||||||
|
Net
cash provided by financing activities
|
1,323,861 | 1,125,814 | 1,865,443 | 1,730,753 | ||||||||||||
|
Effect
of foreign currency translation on cash and cash
equivalents
|
93 | 44,846 | 22,995 | 29,341 | ||||||||||||
|
Net
cash flow
|
$ | 441,406 | $ | 63,409 | $ | (670,504 | ) | $ | 482,573 | |||||||
33
MANAGEMENT’S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
The following discussion and
analysis of the results of operations and financial condition of GC China
Turbine for the fiscal
years ended December 31, 2008 and 2007, and for the six months
ended June 30, 2009 and 2008 should be read in conjunction with the
Selected Consolidated Financial Data, the Luckcharm financial statements,
and the notes to those financial statements that are included elsewhere in this
Form 8-K. Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and
Business sections in this Form 8-K. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” “may,” “will,” “should,” “could,” and similar expressions to identify
forward-looking statements.
OVERVIEW
The
Company was incorporated under the laws of the State of Nevada on August 25,
2006. On October 30, 2009 the Company closed a voluntary share
exchange transaction with a wind turbines manufacturer based in China pursuant
to the Exchange Agreement by and among the Company, Luckcharm, its shareholder
BVI and its subsidiary GC Nordic. Prior to the Exchange Transaction,
we were a pre-exploration company engaged in the mining business and a public
reporting “shell company,” as defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended. As a result of the Exchange Transaction, the
BVI became our controlling shareholder and Luckcharm became our wholly-owned
subsidiary, and we acquired the business and operations of GC China Turbine
Group.
The
Company is a leading manufacturer of 2-bladed wind turbines located in Wuhan
City of Hubei Province, China. The Company sought to license and develop a
groundbreaking technology in the wind energy space that would have a high
likelihood of meeting rigorous requirements for low-cost and high reliability.
We identified a 2-bladed wind turbine technology that was developed through a 10
year research project costing over US$ 75 million. The 2-blade technology
has the benefits of lower manufacturing cost, lower installation cost and lower
operational costs. Our launch product is a 1.0MW utility scale turbine and we
are producing the 1.0MW 2-blade wind turbines with a focus on our chosen Chinese
markets. The Company plans to penetrate the broader reaches of the Chinese
market with the launch of our larger 2.3 and 3.0 MW 2-blade wind turbines. We
have already successfully won three wind farm contracts and begun delivering
turbines to fulfill some of these contracts. We are developing a
track record and brand-awareness through the execution of our first three
contracts.
Our
management’s discussion and analysis of our financial condition and results of
operations are only based on our current wind turbines business. Our
previous shell company’s result of operation is immaterial and will not be
included in the discussion below. Key factors affecting our results
of operations include revenues, cost of revenues, operating expenses and income
and taxation. There has been a legal proceeding brought against GC
China Turbine in connection with trademark infringement, trademark dilution,
unfair competition and trade dress infringement, which may have an adverse
effect on our results of operations, see “Legal
Proceedings.” Although management is not aware of any additional
significant issues associated with our intellectual property, there can be no
assurance that additional issues will not be identified in the future and this
may have an adverse effect on our results of operations, see “Risk
Factors.”
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
management’s discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our
estimates and assumptions. We base our estimates on historical experience and on
various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
While our
significant accounting policies are more fully described in Note 3 to our
consolidated financial statements appearing at Exhibits 99.2 and 99.3, we
believe that the following accounting policies are the most critical to aid you
in fully understanding and evaluating this management discussion and
analysis:
34
Revenue
Recognition
We
recognize revenues in accordance with Staff Accountant Board ("SAB") No. 104,
"Revenue Recognition",
when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the price is
fixed or determinable and collectability is reasonably assured. For an
arrangement with multiple deliverables,
we recognize product revenues in accordance with Emerging Issues Task Force ("EITF") No. 00-21,
"Revenue Arrangements with
Multiple Deliverables". We are not
contractually obligated to accept returns. The sales of goods and services
involve inconsequential or
perfunctory performance obligations. These obligations can include non-essential
installation or
training, provision of product manuals and materials, and limited, pre-scheduled
technical maintenance support. When the only remaining
undelivered performance obligation under an arrangement is inconsequential
or perfunctory, we
recognize revenue on the delivery of turbines, the predominant deliverable in
the total contract
and provides for the cost of the unperformed obligations. Cash advances received
from customers before the revenue is earned
are classified as deferred revenue.
Warranty
We
provide for the estimated cost of product warranties at the time revenue is
recognized. However, we bear the risk of warranty claims for approximately two
years after we have sold our products and recognized revenues. Because we are a
relatively new company, we have a limited warranty claim period. We also engage
in product quality assurance programs and processes, including monitoring and
evaluating the quality of suppliers, in an effort to ensure the quality of our
products and reduce our warranty exposure. As we have not experienced
significant warranty claims to date, we accrue the estimated costs of such
warranties based on our assessment of competitors’ accrual history while
incorporating some estimates of failure rates through our quality review staff.
Actual warranty costs are accumulated and charged against accrued warranty
liability. Our warranty obligation will be affected not only by our product
failure rates, but also by costs incurred to repair or replace failed products
as well as any service delivery costs incurred in correcting a product failure.
If our actual product failure rates, material usage or service delivery costs
differ from our estimates, we will need to prospectively revise our estimated
warranty liability accrual rate.
Allowance
for doubtful accounts
We
conduct credit reviews for customers to whom we extend credit terms. We estimate
the amount of accounts receivable that may not be collected based on the aging
of our accounts receivable and specific evidence relating to the financial
condition of our customers that may affect their ability to pay their
balances.
Impairment
of long-lived assets
We
evaluate our long-lived assets and finite-lived intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset group may not be recoverable. When these events occur, we measure
impairment by comparing the carrying amount of the asset group to future
undiscounted net cash flows expected to result from the use of the assets and
their eventual disposition. If the sum of the expected undiscounted cash flows
is less than the carrying amount of the assets, we would recognize an impairment
loss equal to the excess of the carrying amount over the fair value of the
assets. For the periods presented, we recorded no impairment of our long-lived
assets.
Inventories
Our
inventories are stated at the lower of cost or net realizable value determined
by the weighted average method. The valuation of inventory involves our
management’s determination of the value of excess and slow moving inventory,
which is based upon assumptions of future demands and market conditions. If
actual market conditions are less favorable than those projected by management,
inventory write-downs may be required. We routinely evaluate quantities and
value of our inventories in light of current market conditions and market
trends, and record write-downs against the cost of inventories for a decline in
net realizable value. Inventory write-down charges establish a new cost basis
for inventory. In estimating obsolescence, we utilize our backlog information
and project future demand. Market conditions are subject to change and actual
consumption of inventories could differ from forecasted demand. Furthermore, the
price of steel, a key raw material component in our turbines is subject to
fluctuations based on global supply and demand. If actual market conditions are
less favorable or other factors arise that are significantly different than
those anticipated by our management, additional inventory write-downs or
increases in obsolescence reserves may be required. Our management continually
monitors the spot price of steel to ensure that inventory is recorded at the
lower of cost or net realizable value.
35
Income
Taxes
As
required by Statement of Financial Accounting Standards (“SFAS”) No. 109,
“Accounting for Income Taxes,” we periodically evaluate the likelihood of the
realization of deferred tax assets, and reduce the carrying amount of these
deferred tax assets by a valuation allowance to the extent we believe a portion
will not be realized. We consider many factors when assessing the likelihood of
future realization of our deferred tax assets, including our recent cumulative
earnings experience by taxing jurisdiction, expectations of future taxable
income, the carry-forward periods available to us for tax reporting purposes,
and other relevant factors. Deferred income taxes are recognized for (1)
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements, or (2) net operating loss carry
forwards and credits by applying enacted statutory tax rates applicable to
future years. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Current income taxes are
provided for in accordance with the laws of the relevant taxing authorities. The
components of the deferred tax assets and liabilities are individually
classified as current and non-current based on the characteristics of the
underlying assets and liabilities, or the expected timing of their use when they
do not relate to a specific asset or liability.
RESULTS
OF OPERATIONS
Six
months ended June 30, 2009 and 2008.
Results of
Operations
|
Six months ended June
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
(in
US$)
|
||||||||
|
Sales
|
$ | - | $ | - | ||||
|
Gross
Profit
|
- | - | ||||||
|
Operating
Expenses:
|
||||||||
|
Selling
and Marketing Expenses
|
27,787 | 11,527 | ||||||
|
Research
and Development Expenses
|
40,775 | 47,069 | ||||||
|
General
and Administrative Expenses
|
310,897 | 134,142 | ||||||
|
Loss
From Operations
|
(379,459 | ) | (192,738 | ) | ||||
|
Interest
Expense
|
82,634 | - | ||||||
|
Other,
Net
|
5,364 | (62,370 | ) | |||||
|
Income
Tax Benefit
|
116,864 | 29,985 | ||||||
|
Net
Loss
|
$ | (350,593 | ) | $ | (100,383 | ) | ||
Sales
Sales for
the six months ended June 30, 2009 and 2008 were US$ 0 and US$ 0. There were no
sales for both the six month periods because we were only manufacturing the wind
turbines during these periods. We did not realize any sales until the
second half of the year for both periods when we delivered wind
turbines. Beginning from the second half of 2009, we started mass
production based on orders from our customers, and therefore, we anticipate
sales for every quarter starting in fiscal 2010.
Operating
Expenses
Selling
expenses for the second quarter ended June 30, 2009 increased by 141.1% from US$
11,527 for the same period in 2008 to US$ 27,787 in 2009. The increase was
mainly due to an increase in salaries and traveling expenses for the six months
ended June 30, 2009. We had to increase our sales personnel and
certain expenses in order to effectively develop our markets and capture market
share.
Research
and development expenses for the six month period ended June 30, 2009 was US$
40,775 compared to US$ 47,069 for the comparable period in 2008, a decrease of
US$ 6,294 or 13.4%. The decrease was mainly attributable to a
government grant of research funds we received during the six months ended June
30, 2009, which decreased our own research and development expenses for such
period.
36
General
and administrative expenses increased by 131.8% from US$ 134,142 for the second
quarter in 2008 to US$ 310,897 for the same period in 2009. Since our
business expanded during the six months ended June 30, 2009, we hired additional
employees, associated with administrative activities, which led to an increase
in salary and benefits. Due to the financing activities during the
six months ended June 30, 2009, our legal and auditing fees also increased
accordingly.
Interest
Expenses
Interest
expenses were US$ 82,643 for the six months ended June 30, 2009 compared to US$
0 for the same period in 2008. We received a one-year bank loan during July 2008
and paid out the loan’s interest in the amount of US$ 82,643 during the six
month period ended June 30, 2009.
Other,
Net
Other net
primarily represents the foreign exchange gain of imported
components. Total other net was US$ 5,364 for the period ended June
30, 2009 compared to total other net of US$ 62,370 for the six month period
ended June 30, 2008, a decrease of US$ 57,006 or 241.1%.
Income
Tax Benefit
Income
tax benefit for the six months ended June 30, 2008 and 2009 amounted to US$
29,985 and US$ 116,864, respectively, and the effective tax rates were 23% and
25% respectively. The increase in income tax benefit was attributable to an
increase of accumulated net operating loss and effective tax rates.
Net
Loss
Net loss
for the six months ended June 30, 2009 was US$ 350,593, an increase of US$
250,210 from US$ 100,383 for the same period in 2008. This increase
in net loss was mainly attributable to an increase in selling, administration
and finance expenses for the period ended June 30, 2009.
Comparison
of Years Ended December 31, 2008 and December 31, 2007
The
following table sets forth the results of our operations for the periods
indicated as a percentage of net sales:
Results of
Operations
|
Year ended December 31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
(in
US$, except for percentages)
|
||||||||||||||||
|
Sales
|
$ | 3,065,007 | 100.00 | % | $ | - | - | % | ||||||||
|
Cost
of sales
|
2,970,613 | 96.92 | % | - | - | % | ||||||||||
|
Gross
profit
|
94,394 | 3.08 | % | - | - | % | ||||||||||
|
Operating
expense
|
546,007 | 17.81 | % | 344,220 | - | % | ||||||||||
|
Loss
from operations
|
(451,613 | ) | (14.73 | ) % | (344,220 | ) | - | % | ||||||||
|
Other,
Net
|
42,717 | 1.39 | % | (35,008 | ) | - | % | |||||||||
|
Operating
expense
|
115,742 | 3.78 | % | 72,601 | - | % | ||||||||||
|
Loss
from operations
|
$ | (378,588 | ) | (12.35 | ) % | $ | (236,611 | ) | - | % | ||||||
Sales
Sales for
the year ended December 31, 2008 were US$ 3,065,007 compared to US$ 0 for the
year ended December 31, 2007. We executed our first contract with our
first and sole customer during fiscal 2007 but we did not realize the sales
until we delivered our wind turbines in fiscal 2008. The increase was
due to sales to our first and sole customer during fiscal 2008.
37
Cost
of Sales and Gross Profit Margin
The
following table sets forth the components of our cost of sales and gross profit
both in absolute amount and as a percentage of total net sales for the periods
indicated.
|
Year ended December 31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
(in
US$, except for percentages)
|
||||||||||||||||
|
Total
Net Sales
|
$ | 3,065,007 | 100.00 | % | $ | - | - | % | ||||||||
|
Raw
materials
|
2,235,843 | 72.95 | % | - | - | % | ||||||||||
|
Labor
|
9,095 | 2.97 | % | - | - | % | ||||||||||
|
Other
and Overhead
|
725,675 | 23.68 | % | - | - | % | ||||||||||
|
Total
Cost of Sales
|
2,970,613 | 96.92 | % | - | - | % | ||||||||||
|
Gross
Profit
|
$ | 94,394 | 3.08 | % | $ | - | - | % | ||||||||
Total
cost of sales for the year ended December 31, 2008 was US$ 2,970,613, an
increase from US$ 0 in 2007. Gross profit for fiscal year ended 2008 was US$
94,394 or 3.08% compared to US$ 0 for fiscal year 2007. Since we did
not start manufacturing until the second half of 2008, we allotted the
manufacturing expenses of fiscal 2008 to four wind turbines that we sold to
customers. Thus, this resulted in a higher cost basis and a lower
gross profit, which does not sufficiently reflect the Company’s earning
capacity. We started mass production starting from the second half of
2009, and therefore, we expect an increase in our gross profit.
The
above-mentioned increases were due to sales to our first and sole customer
during fiscal year 2008 compared to fiscal year 2007.
Selling,
General and Administrative Expenses
|
For the year ended December
31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
$
|
% of Total
Net Sales
|
$
|
% of Total
Net Sales
|
|||||||||||||
|
(in
US$, except for percentages)
|
||||||||||||||||
|
Gross
profit
|
$ | 94,394 | 30.80 | % | $ | - | - | % | ||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Selling
expenses
|
57,925 | 1.89 | % | 8,895 | - | % | ||||||||||
|
Research
and development expenses
|
94,300 | 3.08 | % | - | - | % | ||||||||||
|
General
and administrative expenses
|
393,782 | 12.85 | % | 335,325 | - | % | ||||||||||
|
Total
|
546,007 | 17..81 | % | 344,220 | - | % | ||||||||||
|
Loss
from operations
|
(451,613 | ) | (14.73 | )% | (344,220 | ) | - | % | ||||||||
|
Interest
Expense
|
106,231 | 3.47 | % | - | - | % | ||||||||||
|
Interest
Income
|
(1,405 | ) | 0.05 | % | (2,156 | ) | - | % | ||||||||
|
Other,
Net
|
(62,109 | ) | 2.03 | % | (32,852 | ) | - | % | ||||||||
|
Income
Tax Benefit
|
115,742 | 3.78 | % | 72,601 | - | % | ||||||||||
|
Net
Loss
|
$ | (378,588 | ) | 12.35 | % | $ | (236,611 | ) | - | % | ||||||
38
Operating
Expenses
Selling
expenses in 2008 increased by US$ 49,030 from US$ 8,895 in 2007 to US$ 57,925 in
2008. In order to develop our markets and capture market share, we
increased our sales force and certain selling expenses for the year ended 2008
including salaries, traveling, marketing and other expenses.
Research
and development expenses were US$ 94,300 for the fiscal year ended December 31,
2008 compared to US$ 0 for the fiscal year ended December 31,
2007. The increase in research and development expenses was primarily
attributable to the patent amortization of the 1.5MW wind turbine, which
occurred in fiscal 2008 in the amount of US$ 94,300.
General
and administrative expenses increased by US$ 58,457 from US$ 335,325 in 2007 to
US$ 393,782 in 2008. The increase was mainly due to the expansion of
our business, hiring of more employees associated with administrative
activities, and an increase in legal and audit expenses incurred from our
financing activities.
Interest
Expenses
Interest
expenses were US$ 106,231 in 2008 compared to US$ 0 in 2007. The increase in
interest expenses was due to an interest payment we made in fiscal 2008 for a
bank loan we borrowed in fiscal 2008.
Interest Income
Interest
income were US$ (1,405) for the year ended 2008 compared to US$ (2,156) for the
year ended 2007.
Other,
Net
Other,
net for 2007 and 2008 amounted to US$ 32,858 and US$ 62,109, respectively. The
increase of other, net in 2008 was mainly due to an increase in foreign exchange
gain of imported components compared to 2007.
Income
Tax Benefit
Income tax benefit for 2008 was US$
115,742 compared to US$ 72,601 for 2007, an increase of 59.4%. The
increase in income tax benefit for 2008 was attributable to an increase of
accumulated net operating loss.
Net
Loss
Net loss
in 2008 was US$ 378,588, an increase of US$ 141,977 from US$ 236,611 in 2007.
This increase was mainly attributable to the increase of our operational
expenses in 2008. Even though our gross profit for 2008 increased by US$ 94,394
compared to 2007, we still suffered a greater net loss due to the operational
expenses we incurred in 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Six
Months Ended June 30, 2009
As of
June 30, 2009, we had cash and cash equivalents of US$ 452,067, other current
assets of US$ 10,786,303 and current liabilities of US$
10,406,019. In the beginning stage, we financed our operations mainly
from Guoce Science and Technology, a related party and bank loans since the cash
flow from our operations provided limited funds. We presently finance
our operations through the private placement of equity and debt securities. We
anticipate that these sources will continue to be our primary source of funds to
finance our short-term cash needs. If we require additional capital
to expand or enhance our existing facilities, we will consider other public or
private debt or equity offerings or institutional borrowing as potential means
of financing.
Net cash
used in operating activities for the six months ended June 30, 2009 was US$
855,323 compared with net cash used in operating activities of US$ 968,750 for
the same period in 2008. Net cash used in operating activities for the six
months ended June 30, 2009 was mainly due to net loss of US$ 350,593, non-cash
items not affecting cash flows of US$ 147,091 and a US$ 651,821 increase in
working capital. In order to prepare for mass production in the second half of
2009, we purchased substantial raw materials which caused a US$ 375,854 increase
in inventories. Due to the tight supply of raw material in the wind
turbines industry, we normally pay in advance for most of our raw
material. With the increased purchases, the advance to suppliers
increased US$ 457,067. During the six months ended June 30, 2009, we
received a prepayment from our customer which increased deferred revenue
approximately US$ 848,791. The amount due from related party
increased US$ 352,169 due to the prepayment to a related party who imports raw
material from overseas suppliers on behalf of the Company.
39
Net cash
used in operating activities for the same period in 2008 was mainly due to a net
loss of US$ 100,383 and non-cash items not affecting cash flows of US$
117,348. The changes in operating assets and liabilities for the six
months ended June 30, 2008 was primarily related to a US$ 3,246,595 increase in
inventory mainly due to raw material purchased for preparation for the four
turbines that we delivered in the second half of 2008, a US$ 1,373,929 decrease
in advance to suppliers as most of the raw material we purchased were
in late 2007 and had been delivered in that period, and a US$ 698,123 increase
in deferred revenue due to the prepayment from our customer.
Net cash
used in investing activities was approximately US$ 27,225 for the six months
ended June 30, 2009, compared with US$ 138,501 used in investing activities for
the same period in 2008. Cash invested to purchase property, equipment and
intangible assets was US$27,225 and US$ 0 for the six months ended June 30, 2009
respectively. Cash invested to purchase property, equipment and intangible
assets was US$ 66,830 and US$ 71,671 for the same period in 2008,
respectively.
Net cash
provided by financing activities was US$ 1,323,861 for the six months ended June
30, 2009, compared with US$ 1,125,814 net cash provided by financing activities
for the same period in 2008. Cash provided by financing activities
during the six months ended June 30, 2009 resulted from the repayment of a
related party loan of US$ 433,835, cash provided by a related party loan of US$
294,595 and cash proceeds from shareholders’ contribution of US$ 1,463,101. Cash
provided by financing activities during the same period in 2008 was attributable
to the repayment of a related party loan of US$ 635,660 and cash provided by a
related party loan of US$ 1,761,474.
Year
Ended December 31, 2008
As of
December 31, 2008, we had cash and cash equivalents of US$ 10,661, other current
assets of US$ 8,386,424 and current liabilities of US$ 8,797,440. We presently
finance our operations through the private placement of equity and debt
securities, and we anticipate that this will continue to be our primary source
of funds to finance our short-term cash needs. If we require additional capital
to expand or enhance our existing facilities, we will consider debt or equity
offerings or institutional borrowing as potential means of
financing.
Net cash
used in operating activities for 2008 was US$ 2,369,299 compared with net cash
provided by operating activities of US$ 90,669 for 2007. Net cash used in
operating activities for 2008 was mainly due to net loss of US$ 378,588,
non-cash items not affecting cash flows of US$ 150,112 and a US$ 2,140,823
increase in working capital. With the delivery of four sets of wind turbines in
2008, the account receivable increased US$ 3,090,202. As the entity
commenced operation in 2008, the purchase of the raw material and WIP led to a
US $3,138,120 increase in inventory. The advance to suppliers
decreased US$ 2,724,470 due to the arrival of raw materials purchased in late
2007. Other current liabilities mainly include VAT payable, warranty
accrual and other royalty accrual which increased US$ 820,711. Net cash used in
operating activities for 2007 was mainly due to a net loss of US$ 236,611 and
non-cash items not affecting cash flows of US$ 58,847. The changes in working
capital for 2007 were primarily related to a US$ 3,302,055 increase in advance
to suppliers due to the prepayment for raw material as we targeted to commence
operation in early 2008, and a US$ 3,961,544 increase in deferred revenue
because of the prepayment received from our customer.
Net cash
used in investing activities was approximately US$189,643 for 2008, compared
with US$ 1,368,190 used in investing activities for 2007. Cash invested to
purchase property, equipment and intangible assets was US$ 118,869 and US$
70,774 for 2008, respectively. Cash invested to purchase property, equipment and
intangible assets was US$ 135,060 and US$ 775,599 for 2007,
respectively. The increase in intangible assets was primarily due to
the purchase of 1.5MW wind turbine technology, which we planned to use for
research and development activities.
Net cash
provided by financing activities was US$ 1,865,443 in 2008, compared with US$
1,730,753 net cash provided by financing activities in 2007. Cash
provided by financing activities during 2008 resulted from the repayment of
a related party loan of US$ 4,177,327, cash provided by a new bank
loan of US$ 2,194,298, cash provided by a related party loan of US$ 2,389,193
and cash proceeds from shareholders’ contribution of US$ 1,459,279. Cash
provided by financing activities during 2007 was attributable to the repayment
of a related party loan of US$ 5,595,546 and cash provided by a related party
loan of US$ 7,326,299.
40
CONTRACTUAL
OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Contractual
Obligations
We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash
flows.
The
following tables summarize our contractual obligations as of June 30, 2009, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.
|
Payments Due by
Period
|
||||||||||||||||||||
|
Total
|
Less than 1
year
|
1-3
Years
|
3-5
Years
|
5 Years
+
|
||||||||||||||||
|
Contractual obligations :
|
||||||||||||||||||||
|
Capital
obligations
|
$ | 997,197 | $ | 997,197 | $ | - | $ | - | $ | - | ||||||||||
|
Purchase
obligations
|
24,712,911 | $ | 14,827,747 | 9,885,164 | - | - | ||||||||||||||
|
Short-term
debt obligations
|
3,195,582 | 3,195,582 | - | - | - | |||||||||||||||
|
Total
contractual obligations:
|
$ | 28,905,690 | $ | 19,020,526 | $ | 9,885,164 | $ | - | $ | - | ||||||||||
Capital
obligations include the items that have not been carried out under current
contracts with our suppliers.
Purchase
obligations consist of expenses on purchasing components, such as gear box,
power generator, and blades, etc.
Short-term
obligations consist of: (1) US$ 2,195,582 term loans borrowed from a local
commercial bank with an interest rate of 6.37% as at June 30, 2009. The
interest rate is subject to adjustment in accordance with the basic interest
rate released by the People’s Bank of China, and (2) a promissory note issued to
GC China Turbine in the principle amount of US$ 1,000,000 with an interest rate
of 6% per annum.
Off-Balance
Sheet Arrangements
We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.
Recently
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141, “Business Combinations (Revised
2007)” (“SFAS
No. 141R”). SFAS No. 141R is relevant to all transactions or events in
which one entity obtains control over one or more other businesses. SFAS No.
141R requires an acquirer to recognize any assets and non-controlling interest
acquired and liabilities assumed to be measured at fair value as of the
acquisition date. Liabilities related to contingent consideration are recognized
and measured at fair value on the date of acquisition rather than at a later
date when the amount of the consideration may be resolved beyond a reasonable
doubt. This revised approach replaces SFAS No.141’s cost allocation process in
which the cost of an acquisition was allocated to the individual assets acquired
and liabilities assumed based on their respective fair value. SFAS No. 141R
requires any acquisition-related costs and restructuring costs to be expensed as
incurred as opposed to allocating such costs to the assets acquired and
liabilities assumed as previously required by SFAS No. 141. Under SFAS No. 141R,
an acquirer recognizes liabilities for a restructuring plan in purchase
accounting only if the requirements of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities,” are met. SFAS No. 141R allows for the
recognition of pre-acquisition contingencies at fair value only if these
contingencies are likely to materialize. If this criterion is not met at the
acquisition date, then the acquirer accounts for the non-contractual contingency
in accordance with recognition criteria set forth under SFAS No. 5, “Accounting
for Contingencies”, in which case no amount should be recognized in purchase
accounting. SFAS No. 141R is effective as of the beginning of an entity’s first
fiscal year that begins after December 15, 2008. The adoption of SFAS No. 141R
changed the Group’s accounting treatment for business combination on a
prospective basis beginning on January 1, 2009.
41
In April
2009 the FASB issued Staff Position No. 141R-1 “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies” (“FSP FAS 141(R)-1”).
FSP FAS 141(R)-1 amends the provisions in SFAS No. 141R for the initial
recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations. The FSP FAS 141(R)-1 eliminates the distinction between
contractual and non-contractual contingencies, including the initial recognition
and measurement criteria in Statement 141R and instead carries forward most of
the provisions in SFAS No. 141 for acquired contingencies. FSP FAS 141(R)-1is
effective for contingent assets and contingent liabilities acquired in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of FSP FAS 141(R)-1 changed the Group’s accounting treatment for
business combination on a prospective basis beginning on January 1,
2009.
In April
2008, the FASB issued Staff Position No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). This
position amends the factors an entity should consider when developing renewal or
extension assumptions used in determining the useful life over which to amortize
the cost of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” FSP FAS 142-3 requires an entity to consider its own historical
experience in renewing or extending similar arrangements in determining the
amortizable useful life. Additionally, this position requires expanded
disclosures related to the determination of intangible asset useful lives. FSP
FAS 142-3 is effective for fiscal years beginning after December 15, 2008, and
may impact any intangible assets the Group acquires in future transactions. The
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The disclosure requirements, though, shall be applied prospectively to all
intangible assets recognized as of the effective date. Early adoption is
prohibited. The Group adopted FSP FAS 142-3 as of January 1, 2009 and the
adoption did not have material impact on the Group's financial position, results
of the operations and cash flows.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (“SFAS 162”). SFAS 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements. SFAS 162 is
effective 60 days following SEC approval.
In
November 2008, the EITF reached a consensus-for exposure on EITF Issue No. 08-1,
"Revenue Arrangements with
Multiple Deliverables", or EITF 08-1, which was subsequently ratified by
the FASB and confirmed at its September 2009 meeting. The Task Force
discussed a model that would amend EITF 00-21 to require an entity to estimate
the selling price for all units of accounting, including delivered items, when
vendor-specific objective evidence or acceptable third-party evidence of the
selling price does not exist for them, and eliminate the residual allocation
method and require an entity to apply the relative selling price allocation
method in all circumstances. EITF 08-1 will be effective for fiscal
years beginning on or after June 15, 2010. Entities can elect to
apply this Issue (1) prospectively to new or materially modified arrangements
after the Issuer’s effective date or (2) retrospectively for all periods
presented. Early application is permitted. The Group is
now evaluating the possible impact on the consolidated financial
statements.
At the
November 24, 2008 meeting, the FASB ratified the reached in EITF Issue
No. 08-7, “Accounting for
Defensive Intangible Assets” (“EITF 08-7”).
EITF 08-7 requires entities that will acquire a defensive intangible asset
after the effective date of Statement 141(R), to account for the acquired
intangible asset as a separate unit of accounting and amortize the acquired
intangible asset over the period during which the asset would diminish in value.
EITF 08-7 is effective for defensive intangible assets acquired in fiscal
years beginning on or after December 15, 2008. The adoption of EITF 08-7
did not have a material impact on the Group’s consolidated financial
statements.
On April
9, 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB
28-1”), to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. This FSP also amends APB Opinion No. 28, Interim Financial
Reporting, to require those disclosures in summarized financial information at
interim reporting periods. The adoption of FSP FAS 107-1 and APB 28-1 did not
have a material impact on the Group’s consolidated financial
statements.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" (“SFAS
No.165”). SFAS No. 165 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued.
Specifically, SFAS No. 165 provides (i) the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. We
incorporated the requirements on June 30, 2009.
42
In June
2009, the FASB approved the "FASB Accounting Standards Codification" ("Codification") as the
single source of authoritative nongovernmental U.S. GAAP to be launched on July
1, 2009. The Codification does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the Codification will be considered
nonauthoritative. The Codification is effective for interim and annual periods
ending after September 15, 2009. The Codification is effective for the Group
during the annual period ending December 31, 2009 and will not have an impact on
the financial condition or results of operations.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
GC China
Turbine Group does not use derivative financial instruments in its investment
portfolio and has no foreign exchange contracts. Our financial instruments
consist of cash, accounts receivable, amount due from related parties, accounts
payable, accrued expenses, debt and long-term obligations. The objective of our
policies is to mitigate potential income statement, cash flow and fair value
exposures resulting from possible future adverse fluctuations in rates. We
evaluate our exposure to market risk by assessing the anticipated near-term and
long-term fluctuations in interest rates and foreign exchange rates. This
evaluation includes the review of leading market indicators, discussions with
financial analysts and investment bankers regarding current and future economic
conditions and the review of market projections as to expected future
rates.
Interest Rates. We did not
experience any material changes in interest rate exposures during 2007, 2008 and
six-month period ended June 30, 2009. Hence, the effect of the
fluctuations of the interest rates is considered minimal to our business
operations. Based upon economic conditions and leading market indicators at June
30, 2009, we do not foresee a significant adverse change in interest rates in
the near future and do not use interest rate derivatives to manage exposure to
interest rate changes.
Foreign Exchange Rates. The
value of the RMB against the U.S. dollar and other currencies is affected by,
among other things, changes in China’s political and economic conditions. Since
July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the
People’s Bank of China (“PBOC”) regularly
intervenes in the foreign exchange market to prevent significant short-term
fluctuations in the exchange rate, the RMB may appreciate or depreciate
significantly in value against the U.S. dollar in the medium to long term.
Moreover, it is possible that in the future, PRC authorities may lift
restrictions on fluctuations in the RMB exchange rate and lessen intervention in
the foreign exchange market.
Because
substantially all of our earnings, cash and assets are denominated in RMB,
appreciation or depreciation in the value of the RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations. As a
result, we face exposure to adverse movements in currency exchange rates as the
financial results of our Chinese operations are translated from local currency
into U.S. dollar upon consolidation. If the U.S. dollar weakens against the RMB,
the translation of our foreign-currency-denominated balances will result in
increased net assets, net revenues, operating expenses, and net income or loss.
Similarly, our net assets, net revenues, operating expenses, and net income or
loss will decrease if the U.S. dollar strengthens against the RMB. Additionally,
foreign exchange rate fluctuations on transactions denominated in RMB other than
the functional currency result in gains and losses that are reflected in our
Consolidated Statement of Income. Our operations are subject to risks typical of
international business, including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility.
Considering
the RMB balance of our cash as of June 30, 2009, which amounted to US$ 452,067,
a 1.0% change in the exchange rates between the RMB and the U.S. dollar would
result in an increase or decrease of approximately US$ 4,521 of the
balance.
Our
financial statements are expressed in U.S. dollar but the functional currency of
our operating subsidiary is RMB. The value of your investment in our stock will
be affected by the foreign exchange rate between U.S. dollar and RMB. To the
extent we hold assets denominated in U.S. dollar, any appreciation of the RMB
against the U.S. dollar could result in a change to our statement of operations
and a reduction in the value of our U.S. dollar denominated assets. On the other
hand, a decline in the value of RMB against the U.S. dollar could reduce the
U.S. dollar equivalent amounts of our financial results, the value of your
investment in our company and the dividends we may pay in the future, if any,
all of which may have a material adverse effect on the price of our
stock.
43
DESCRIPTION
OF PROPERTY
Wuhan
offices and facilities
Our
principal executive offices and our facilities are located in Wuhan City,
China. The table below provides a general description of our
facilities:
|
Location
|
Principal
Activities
|
Area
(sq. meters)
|
Lease
Expiration Date
|
|||
|
No.86,
Nanhu Avenue, East Lake Development Zone, Wuhan, Hubei Province, PRC
430223
|
Principal
Executive Office and Factory
|
36,000
square meters
|
N/A
(provided by Wuhan Donghu New Technology Development Co., Ltd. at no
charge)
|
|||
|
18
Huaguang Blvd. Gaoke Tower, 12th
Floor, Guandong Technology Area, Donghu Development District, Wuhan City,
Hubei Province PRC 430040
|
Office
|
100
square meters
|
N/A
(provided by Wuhan Donghu New Technology Development Co., Ltd. at no
charge)
|
Our
manufacturing facility and principal executive office is 36,000 square meters
situated in the Donghu Development District, Wuhan, China. Only the state may
own land in China, therefore we lease the land under our facility. There is no
expiration date for the lease, which is provided free of charge by the
Administrative Committee of Donghu Development District.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
Security
Ownership Prior To Change Of Control
The
following table sets forth information regarding the beneficial ownership of our
common stock as of October 2, 2009, for each of the following persons, prior to
the transactions contemplated by the Exchange Agreement:
|
|
·
|
each
of our directors and named officers prior to the Closing of the Exchange
Agreement;
|
|
|
·
|
all
of the directors and executive officers as a group prior to the Closing of
the Exchange Agreement; and
|
|
|
·
|
each
person who is known by us to own beneficially five percent or more of our
common stock prior to the change of control
transaction.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated in the table, the
persons and entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite the shareholder’s
name. Unless otherwise indicated, the address of each beneficial
owner listed below is 1694 Falmouth Road, Suite 147 Centerville, Massachusetts
02632-2933. The percentage of class beneficially owned set forth below is based
on 7,686,207 shares of common stock outstanding on October 2, 2009.
|
Amount
and
|
||||||||
|
Nature
of
|
||||||||
|
Beneficial
|
Percentage
of
|
|||||||
|
Name
and Address of Beneficial Owner (1)
|
Ownership
|
Common
Stock(2)
|
||||||
|
John
J. Lennon (3)
|
0
|
0
|
%
|
|||||
|
Marcus
Laun (4)
|
0
|
0
|
%
|
|||||
|
Jimmy
Soo (5)
|
1,701,207
|
22.13
|
%
|
|||||
|
All
directors and executive officers as a group (2 persons)
|
2
|
0
|
%
|
|||||
|
|
(1)
|
Unless
otherwise indicated in the footnotes to the table, each shareholder shown
on the table has sole voting and investment power with respect to the
shares beneficially owned by him or
it.
|
44
|
|
(2)
|
Based
on 7,686,207 shares of Common Stock
outstanding.
|
|
|
(3)
|
Prior
to the Exchange Transaction, Mr. John J. Lennon was the President, Chief
Executive Officer, Chief Financial Officer, Secretary, Treasurer and
director of the Company.
|
|
|
(4)
|
Mr.
Marcus Laun is a director of the
Company.
|
|
|
(5)
|
Mr.
Jimmy Soo’s address is 36 Ecology Executive Townhomes, 1776 V. Cruz
Extension, Makati City, Manila,
Philippines.
|
Security
Ownership After Change Of Control
The
following table sets forth information regarding the beneficial ownership of our
common stock as of October 30, 2009, for each of the following persons, after
giving effect to the transaction under the Exchange Agreement and the Financing
Transactions:
|
|
·
|
each
of our directors and each of the named executive officers in the
“Management—Executive Compensation” section of this
report;
|
|
|
·
|
all
directors and named executive officers as a group;
and
|
|
|
·
|
each
person who is known by us to own beneficially five percent or more of our
common stock after the change of control
transaction.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Unless otherwise indicated in the table, the
persons and entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite the shareholder’s
name. Unless otherwise indicated, the address of each beneficial
owner listed below is No.86, Nanhu Avenue, East Lake Development Zone, Wuhan,
Hubei Province, China. The percentage of class beneficially owned set forth
below is based on 58,970,015 shares of common stock outstanding on October
30, 2009.
|
Common Stock Beneficially Owned
|
||||||||
|
Incoming
executive officers and directors:
|
Number
of
Shares
beneficially
owned
(1)
|
Percentage of
class beneficially
owned after the
Transaction
(2)
|
||||||
|
Hou
Tie Xin
|
17,765,757 | (3)(10) | 29.62 | % | ||||
|
Qi
Na
|
2,590,705 | (4)(10) | 4.32 | % | ||||
|
Xu
Jia Rong
|
2,130,855 | (5)(10) | 3.55 | % | ||||
|
Zhao
Ying
|
1,554,423 | (6)(10) | 2.59 | % | ||||
|
Marcus
Laun
|
0 | (7) | - | % | ||||
|
Tomas
Lyrner
|
0 | - | % | |||||
|
Chris
Walker Wadsworth
|
0 | (8) | - | % | ||||
|
All
directors and executive officers as a group (7 persons)
|
24, 041,740 | 40.08 | % | |||||
|
5%
Shareholders:
|
||||||||
|
Bu
Zheng Liang
|
3,231,904 | (9)(10) | 5.39 | % | ||||
|
Golden
Wind Holdings Limited
|
32,383,808 | (10) | 54.0 | % | ||||
|
Ceyuan
Ventures II, LP
|
6,018,125 | (11) | 10.04 | % | ||||
|
New Margin
Growth Fund L.P.
|
6,250,000 | (12) | 10.42 | % | ||||
45
|
(1)
|
Unless
otherwise indicated in the footnotes to the table, each shareholder shown
on the table has sole voting and investment power with respect to the
shares beneficially owned by him or it. Unless otherwise indicated,
the address for each of the named beneficial owners is: No.86, Nanhu
Avenue, East Lake Development Zone, Wuhan, Hubei Province,
China.
|
|
(2)
|
Based
on 58,970,015 shares of Common Stock outstanding as of October 30, 2009,
immediately after the closing of the Share Exchange
Agreement.
|
|
(3)
|
Consists
of 17,765,757 shares owned of record by BVI. BVI and Mr. Hou have entered
into a Call Option Agreement pursuant to which Mr. Hou has the right to
acquire all of such shares. BVI and Mr. Hou have also entered a Voting
Trust Agreement, under which Mr. Hou has been appointed as voting trustee
under a voting trust created with respect to all of such shares.
Therefore, Mr. Hou may be deemed to be the sole beneficial owner of such
shares.
|
|
(4)
|
Consists
of 2,590,705 shares owned of record by BVI. BVI and Ms. Qi have entered
into a Call Option Agreement pursuant to which Ms. Qi has the right to
acquire all of such shares. BVI and Ms. Qi have also entered a Voting
Trust Agreement, under which Ms. Qi has been appointed as voting trustee
under a voting trust created with respect to all of such shares.
Therefore, Ms. Qi may be deemed to be the sole beneficial owner of such
shares.
|
|
(5)
|
Consists
of 2,130,855 shares owned of record by BVI. BVI and Mr. Xu have entered
into a Call Option Agreement pursuant to which Mr. Xu has the right to
acquire all of such shares. BVI and Mr. Xu have also entered a Voting
Trust Agreement, under which Mr. Xu has been appointed as voting trustee
under a voting trust created with respect to all of such shares.
Therefore, Mr. Xu may be deemed to be the sole beneficial owner of such
shares.
|
|
(6)
|
Consists
of 1,554,423 shares owned of record by BVI. BVI and Ms. Zhao have entered
into a Call Option Agreement pursuant to which Ms. Zhao has the right to
acquire all of such shares. BVI and Ms. Zhao have also entered a Voting
Trust Agreement, under which Ms. Zhao has been appointed as voting trustee
under a voting trust created with respect to all of such shares.
Therefore, Ms. Zhao may be deemed to be the sole beneficial owner of such
shares.
|
|
(7)
|
The
address of Mr. Laun is c/o Wynston Hill Capital, 488 Madison
Avenue 24th
Floor, New York, NY 10022.
|
|
(8)
|
The
address of Mr. Wadsworth is c/o Ceyuan Ventures, No. 25 Qinlao Hutong,
Dongcheng District, Beijing 100009
PRC.
|
|
(9)
|
Consists
of 3,231,904 shares owned of record by BVI. BVI and Mr. Bu have entered
into a Call Option Agreement pursuant to which Mr. Bu has the right to
acquire all of such shares. BVI and Mr. Bu have also entered into a Voting
Trust Agreement, under which Mr. Bu has been appointed as voting trustee
under a voting trust created with respect to all of such shares.
Therefore, Mr. Bu may be deemed to be the sole beneficial owner of such
shares.
|
|
(10)
|
The
address of BVI is P.O. Box 957, Offshore Incorporations Centre, Road Town,
Tortola, British Virgin Islands. The sole owner of BVI is Xu Hong
Bing. Through Call Option Agreements and Voting Trust
Agreements, the beneficial owners of BVI are deemed to be Hou Tie Xin
(29.62%), Bu Zheng Liang (5.39%), Qi Na (4.32%), Xu Jia Rong (3.55%), Wu
Wei (3.50%), Zhao Ying (2.59%), Zuo Gang (1.88%), Zhang Wei Jun (1.78%)
and He Zuo Zhi (1.36%). As such, they are deemed to have or share
investment control over BVI’s portfolio. The numbers of shares of GC China
Turbine Corp’s common stock reported herein as beneficially owned by Mr.
Hou, Mr. Bu, Ms. Qi, Mr. Xu, Mr. Wu, Ms. Zhao, Mr. Zuo, Mr. Zhang and Mr.
He are held by BVI, which they in turn own indirectly through their
respective ownership of BVI.
|
|
(11)
|
The
address of Ceyuan Ventures II, LP is No. 25 Qinlao Hutong, Dongcheng
District, Beijing 100009 PRC.
|
|
(12)
|
The
address of New Margin Growth Fund L.P. is Villa #3, Radisson Xingguo
Hotel, 78 Xingguo Road, Shanghai 200052
PRC.
|
46
DIRECTORS
AND EXECUTIVE OFFICERS
Appointment
of New Directors and Officers
In
connection with the Exchange Transaction, we agreed to appoint Hou Tie Xin, Qi
Na and Xu Jia Rong to our board of directors effective September 4, 2009 and to
appoint Chris Walker Wadsworth as an additional director at the Closing of the
Exchange Transaction. Marcus Laun remains as a member of the board of
directors. On August 25, 2009, we filed with the Securities and
Exchange Commission and transmitted to holders of record of our securities the
information required by Rule 14f-1 of the Securities Exchange Act of
1934.
Furthermore,
concurrent with the Closing of the Exchange Transaction, John J. Lennon resigned
as our Chief Executive Officer, Chief Financial Officer, President, Secretary,
Treasurer and director. Immediately following the resignation of Mr.
Lennon, we appointed 3 new executive officers. Descriptions of our newly
appointed directors and officers can be found below in the section titled
“Current Management.”
Current
Management
The
following table sets forth certain information for each officer and director of
the Company after the Closing Date.
|
Name
|
Age
|
Position
|
Since
|
|||
|
Hou
Tie Xin
|
52
|
Chairman
of the Board
|
2009
|
|||
|
Qi
Na
|
53
|
Chief
Executive Officer, Director
|
2009
|
|||
|
Zhao
Ying
|
31
|
Chief
Financial Officer
|
2009
|
|||
|
Tomas
Lyrner
|
52
|
Chief
Technology Officer
|
2009
|
|||
|
Xu
Jia Rong
|
46
|
Director
|
2009
|
|||
|
Marcus
Laun
|
40
|
Director
|
2009
|
|||
|
Chris
Walker Wadsworth
|
40
|
Director
|
2009
|
Mr. Hou Tie Xin is the
founder, Chairman of the Board and General Manager of Wuhan Guoce Electric Power
New Technology Co., Ltd., which was established in 1995. Since
inception of Wuhan Guoce, Mr. Hou has overseen the acquisition of over ten
subsidiaries and has been awarded the title of “Outstanding Entrepreneur” by the
municipal government. Mr. Hou is a nationally renowned power expert
and is a professor of engineering. Mr. Hou has obtained more than 20
patents for his inventions in connection with his research and development of
energy technology. Mr. Hou is a member of the China Standardization
Committee and is an author of China’s Power Quality Standards. Mr.
Hou is also a member of the International Electrotechnical Commission (“IEC”) and attended
the 2007 IEC Assembly in Tokyo as the leader of the Chinese
delegation. Mr. Hou obtained his Bachelor of Engineering degree
in Power System and Automation from Wuhan University in 1982 and a Masters
degree in Power Automation from Huazhong University of Science & Technology
in 1990.
Ms. Qi Na has been General
Manager of Wuhan Guoce Nordic New Energy Corp. since 2006. From 2004,
Ms. Qi was General Manager of Wuhan Guoce Power Investment Corp. as well as Vice
General Manager of Wuhan Guoce Science & Tech Corp. In 1999, Ms.
Qi founded and was General Manager of Hubei TaiKang Engineering Tech
Corp. From 1993 to 1999, she worked at Hubei International Financial
Technology Consultation Corp., Hubei ChangJiang HePingShiYe Corp., and Wuhan
Machine Bidding Corp. From 1972 to 1992, Ms. Qi worked at
YiChang 403 factory and 461 factory in various departments, including, youth
union, cadre, repair, drive workshop, quality control and energy. Ms.
Qi obtained a Bachelor of Engineering degree specializing in Marine Power Plant
from Shanghai Jiaotong University in 1978.
Ms. Zhao Ying has been Chief
Financial Officer of Wuhan Guoce Nordic New Energy Corp. since
2006. Ms. Zhao is responsible for financing and investment and she is
also responsible for all communications with the government. Ms. Zhao
has been with Wuhan Guoce since 1999 in various positions, such as Assistant of
Marketing, Vice Manager of the sales division, Vice Manager of the engineering
division, General Manager of the office and Secretary of the
board. In 1999, Ms. Zhao obtained a Bachelors degree in management
and law from Wuhan Hydro Power University and University. In 2006,
Ms. Zhao obtained a Masters degree in Finance from Wuhan
University.
47
Mr. Tomas Lyrner has been
serving as the Chief Technology Officer of Wuhan Guoce Nordic New Energy Co.,
Ltd. since 2006. Mr. Lyrner began his professional career at a Danish wind
turbine manufacturer named NEG Micon (later merged into Vestas) in 1985. His
main responsibilities were research and development, design and
calculations. He was closely involved with the development of a
Danish 3-bladed 200 kilowatt wind turbine of which 50-60 machines was
produced. From the beginning of 1990 to 1999, Mr. Lyrner worked
at the consultant company AF-Industriteknik where he was highly involved in the
design and development of the 2 Nordic Windpower prototype wind turbines with
the generator power of 400 and 1000 kilowatts. Mr. Lyrner designed
and calculated wind turbine offshore foundations for the company Vindkompaniet
of which 5 wind turbines were installed and still operating 4 kilometers outside
of Nasudden, Gotland, Sweden. From 1999-2004, he was Chief Technology
Officer of Nordic Windpower USA, Inc. working with modification and adoption to
serial production of the Nordic 1000, 1MW wind turbine prototype. He
was also responsible for design approval against the Det Norske
Veritas. Since 2004, Mr. Lyrner has had his own consultant firm named
Wind Engineering Consultant (“WEC”). WEC
has acted as assistant and advisor for EON Sweden (a European power company)
regarding a large wind power offshore project. WEC has also designed
docking system for offshore wind turbines and conducted conceptual studies
leading to the final layout of 6MW offshore wind turbines through dynamic
simulations by means of VIDYN software. Mr. Lyrner received his
Masters in Mechanical Engineering from the Royal Institute of Technology of
Stockholm Sweden in 1984.
Mr. Xu Jia Rong currently
serves as Executive Deputy General Manager of Wuhan Guoce Science & Tech
Corp. responsible for daily management of the company and has served as Chief
Engineer at Wuhan Guoce since 1996. From 1992 through 1996, Mr. Xu served as
project leader in Wuhan Hongshan Electrician Technical research institute
monitoring the labor project group, the primary cognizance automobile electron
ignition project research and development group and the supervisory system
research and development group. From 1982 through 1992, Mr. Xu taught
at Wuhan Water Conservation Electric Power Institute. Mr. Xu has extensive
management experience, and is a power expert in research and development of
substation automation and computer-based relay protection. In 1998, his “35kV
Substation Integrated Automation System of GCSIA Type” project was awarded the
second prize of Scientific and Technological Progress Prize by Shaanxi Power
Company. In 1999, his "35kV Substation Integrated Automation System of GCSIA
Type" project was awarded the second prize of Scientific and Technological
Progress Prize by Wuhan municipal government. In 1999 his "GCVQC Volt\Var
Control Devices” project was awarded the third prize of Scientific and
Technological Progress Prize by Wuhan municipal government. He took part in all
these projects and worked as the main director. Mr. Xu obtained a Bachelor of
Engineering degree from Wuhan University in Hydraulic and Electric Engineering
in 1982 and a specialized Masters degree in Power System Automation from Wuhan
Water Conservation Electric Power University in 1987.
Mr. Marcus Laun currently is
a senior banker at Wynston Hill Capital, LLC where he is responsible for all
aspects of capital raising and advisory engagements for micro- and small-cap
ventures. From 2004 through 2008, Mr. Laun held various positions at
Knight Capital Group including serving as managing director and
director. From 2000-2004, Mr. Laun was founder and Chief Executive
Officer of Hype (USA) Inc. which controlled the exclusive rights to HYPE Energy
Drink in North America. Prior to this, Mr. Laun was a Vice President
of corporate finance at Brean Murray & Co., Inc. and a research analyst at
Greenwich High Yield LLC and Mendham Capital Group LLC. Mr. Laun
received a Masters in Business Administration degree from Columbia Business
School and received a Bachelor of Science degree from Cornell
University.
Mr. Chris Walker Wadsworth is
one of the founding partners of Ceyuan Ventures. He was a co-founder and
managing director at Manitou Ventures from 2001 to 2004. Before that, he worked
as the vice president of corporate development and product manager for Atom
Shockwave from 1999. Mr. Wadsworth accumulated rich experience in finance and
investment industry through working for Fleet Bank, Montgomery Securities
and Macro-media from 1992 to 1998. Mr. Wadsworth received a Bachelor’s
degree from Williams College a Masters in Business Administration degree from
University of Chicago.
Family
Relationships
There are
no family relationships between or among any of our directors, executive
officers and incoming directors or executive officers.
Involvement
in Certain Legal Proceedings
There has
been a legal proceeding threatened against GC China Turbine in connection with
trademark infringement, trademark dilution, unfair competition and trade
dress infringement, see “Legal Proceedings.”
Board of
Directors
Prior to
the Exchange Transaction, our board of directors was composed of two members,
John J. Lennon and Marcus Laun. All members of our board of directors
serve in this capacity until their terms expire or until their successors are
duly elected and qualified. Our bylaws provide that the authorized
number of directors will be not less than one.
48
In
connection with the Exchange Transaction, we have agreed to elect Hou Tie Xin,
Qi Na and Xu Jia Rong as directors and such directors were appointed on
September 4, 2009. Hou Tie Xin was elected as the Chairman of
our board of directors. In this capacity Mr. Hou will be responsible
for meeting with our Chief Financial Officer to review financial and operating
results, reviewing agendas and minutes of board and committee meetings, and
presiding at the meetings of the board of directors. At the Closing
of the Exchange Transaction, Chris Walker Wadsworth was appointed as a
director. On August 25, 2009, we filed with the Securities and
Exchange Commission and transmitted to holders of record of our securities the
information required by Rule 14(f)-1 of the Securities Exchange Act of
1934.
Board
Committees; Director Independence
As of
this date, our board of directors has not appointed an audit committee or
compensation committee; however, we are not currently required to have such
committees. The functions ordinarily handled by these committees are
currently handled by our entire board of directors. Our board of
directors intends, however, to review our governance structure and institute
board committees as necessary and advisable in the future, to facilitate the
management of our business.
As of
this date, we appointed 2 independent directors and 3 non-independent
directors to our board of directors.
Code
of Ethics
We have
adopted a code of ethics that applies to our officers, directors and employees,
including our chief executive officer, senior executive officers, principal
accounting officer, and other senior financial officers. A copy of our code of
ethics will be provided to any person without charge, upon written request sent
to us at our offices located at No.86, Nanhu Avenue, East Lake Development Zone,
Wuhan, Hubei Province, China.
Compensation
Committee Interlocks and Insider Participation
No
interlocking relationship exists between our board of directors and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
EXECUTIVE
COMPENSATION
Director
Compensation
Currently,
we do not pay any compensation to members of our board of directors for their
service on the board. However, we intend to review and consider
future proposals regarding board compensation.
Executive
Compensation
Former
Executive Officers
The
following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 2008 by the former
Chief Executive Officer, Chief Financial Officer and each of our other two
highest paid executives of our predecessor, if any, of GC China Turbine whose
total compensation exceeded $100,000 during the fiscal year ended December 31,
2008.
SUMMARY
COMPENSATION TABLE
|
Name
and principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Nonquali-
fied
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
|||||||||||||||
|
John
J. Lennon, outgoing CEO, CFO, President, Secretary, Treasurer and director
(1)
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
0
|
||||||||||||||
49
|
(1)
|
Mr.
John J. Lennon became the Company’s President, Chief Executive Officer,
Secretary Chief Financial Officer, Treasurer and director on April
30, 2009, and he will resign from all of these positions effective as of
the Closing of the Exchange
Transaction.
|
Incoming
Executive Officers
The
following summary compensation table indicates the cash and non-cash
compensation earned from GC Nordic during the fiscal year ended December 31,
2008 by the incoming Chief Executive Officer, Chief Financial Officer and each
of the other two highest paid executives, if any, whose total compensation
exceeded $100,000 during the fiscal year ended December 31, 2008.
SUMMARY
COMPENSATION TABLE
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensa-
tion
($)
|
Nonqualified
Deferred
Compensa-
Tion
Earnings
($)
|
All Other
Compensa-
tion ($)
|
Total
($)
|
|||||||||||||||
|
Qi
Na, incoming CEO (1)
|
2008
|
9,587
|
0
|
0
|
0
|
0
|
0
|
0
|
9,587
|
|||||||||||||||
|
Zhao
Ying, incoming CFO (2)
|
2008
|
8,027
|
0
|
0
|
0
|
0
|
0
|
0
|
8,027
|
|||||||||||||||
|
(1)
|
Ms.
Qi Na is our incoming Chief Executive Officer and will take her office
concurrently with Mr. Lennon's resignation. Salary and other
annual compensation paid to Ms. Qi are from GC Nordic an d are expressed
in U.S. dollars based o the interbank exchange rate of RMB 6.8346 for each
US$ 1.00, on December 31, 2008.
|
|
|
|
|
(2)
|
Ms.
Zhao Ying is our incoming Chief Financial Officer and will take her office
concurrently with Mr. Lennon's resignation. Salary and other
annual compensation paid to Ms. Zhao are from GC Nordic an d are expressed
in U.S. dollars based o the interbank exchange rate of RMB 6.8346 for each
US$ 1.00, on December 31, 2008.
|
None of
our executive officers received, nor do we have any arrangements to pay out, any
bonus, stock awards, option awards, non-equity incentive plan compensation, or
non-qualified deferred compensation.
Potential
Payments Upon Termination or Change-in-Control
SEC
regulations state that we must disclose information regarding agreements, plans
or arrangements that provide for payments or benefits to our executive officers
in connection with any termination of employment or change in control of the
company. We currently have no employment agreements with any of our executive
officers, nor any compensatory plans or arrangements resulting from the
resignation, retirement or any other termination of any of our executive
officers, from a change-in-control, or from a change in any executive officer's
responsibilities following a change-in-control. As a result, we have omitted
this table.
Employment
Agreements
GC Nordic
entered into employment agreements with Mr. Hou Tie Xin, Ms. Qi Na, Ms. Zhao
Ying and Mr. Xu Jia Rong on September 30, 2009 (each an “Employment
Agreement,” and together the “Employment
Agreements”). The following are summaries of the Employment
Agreements with the above-mentioned officers and directors.
50
GC Nordic
entered into an Employment Agreement with Mr. Hou Tie Xin on September 30,
2009. Effective September 30, 2009, Mr. Hou was appointed Chairman of
GC Nordic, and his basic annual salary is RMB 300,000 or approximately US$
43,924 per year (the “Base Salary”). GC
Nordic’s salary shall be payable by GC Nordic in regular installments in
accordance with GC Nordic’s general payroll practices. GC Nordic shall also
purchase social insurances and provide welfare and benefits to Mr. Hou according
to the applicable labor laws and regulations. In addition, the Board
may award Mr. Hou a bonus of up to 25% of his Base Salary during his employment
period according to degree of GC Nordic’s accomplishment of certain financial
targets established annually by GC Nordic.
GC Nordic
entered into an Employment Agreement with Ms. Qi Na on September 30, 2009.
Effective September 30, 2009, Ms. Qi Na was appointed the General Manager of GC
Nordic and her total annual salary is RMB 200,000 or approximately US$ 29,283
per year. Ms. Qi’s salary shall be payable by GC Nordic in regular installments
in accordance with GC Nordic’s general payroll practices. GC Nordic shall also
purchase social insurances and provide welfare and benefits to Ms. Qi according
to the applicable labor laws and regulations. In addition, the Board may award
Ms. Qi a bonus of up to 25% of her Base Salary during her employment period
according to the degree of GC Nordic’s accomplishment of certain financial
targets established annually by GC Nordic.
GC Nordic
entered into an Employment Agreement with Ms. Zhao Ying on September 30, 2009.
Effective September 30, 2009, Mr. Zhao Ying was appointed the Chief Financial
Officer of GC Nordic and her total annual salary is RMB 150,000 or approximately
US$ 21,962 per year. Ms. Zhao’s salary shall be payable by GC Nordic in regular
installments in accordance with GC Nordic’s general payroll practices. GC Nordic
shall also purchase social insurances and provide welfare and benefits to Ms.
Zhao according to the applicable labor laws and regulations. In addition, the
Board may award Ms. Zhao a bonus of up to 25% of her Base Salary during her
employment period according to the degree of GC Nordic’s accomplishment of
certain financial targets established annually by GC Nordic.
GC Nordic
entered into an Employment Agreement with Mr. Xu Jia Rong on September 30, 2009.
Effective September 30, 2009, Mr. Xu Jia Rong was appointed the Deputy General
Manager of GC Nordic and his total annual salary is RMB 15,000 or approximately
US$ 2,196 per year. GC Nordic’s salaries shall be payable by GC Nordic in
regular installments in accordance with the GC Nordic’s general payroll
practices. GC Nordic shall also purchase social insurances and provide welfare
and benefits to Mr. Xu according to the applicable labor laws and regulations.
In addition, the Board may award Mr. Xu a bonus of up to 25% of his Base Salary
during his employment period according to degree of GC Nordic’s accomplishment
of certain financial targets established annually by GC Nordic.
All of
the above-described Employment Agreements will be effective from September 30,
2009 to the fifth anniversary date (the “Initial Employment
Period”), and all of them shall automatically be renewed on their
respective original terms and conditions as modified from time to time by the
officers and directors and GC Nordic for additional one-year periods as soon as
the expiration of the Initial Employment Period. GC Nordic may terminate the
employment of the officers and directors before his or her employment
periods expires if such officers and directors materially violates GC
Nordic’s rules or policies, negligently causes substantial damage or adverse
effect to GC Nordic’s interests, or is charged or convicted with criminal
liabilities. The officers and directors agree that during their employment
periods and anytime thereafter that they shall not to disclose any confidential
information, including those received from third parties, to unauthorized person
or use for his or her own account without prior written consent(s) from the
appropriate authorities, unless the confidential information becomes generally
known to and available for use by the public or is required to be disclosed by
law or court order. In addition, the officers and directors agree to
make prompt and full disclosure to GC Nordic or its affiliates of his or her
obtaining ownership of intellectual properties during his or her employment
period and one year thereafter in connection with the business of GC Nordic or
its affiliates.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
AND
DIRECTOR INDEPENDENCE
Related
Party Transactions
During
the fiscal year ended December 31, 2007, we received US$ 26,993 pursuant to
advances from Jimmy Soo, our former director, President and Chief Executive
Officer, and US$ 38,500 in capital contributions in the form of expenses for the
Company. The advances are unsecured, bear no interest and do not have any
specific terms of repayment.
During
the quarter ended March 31, 2009, we received further advances from Mr. Soo
amounting to US$ 12,310. On April 30, 2009, the amounts due, totaling US$
39,303, were assigned to a third party for no consideration.
51
Guoce
Science and Technology, Luckcharm and GC Nordic are subject to common control as
the sole majority shareholder is the Chairman of the board of directors for both
companies. Luckcharm and GC Nordic had US$ 444,786 and US$ 92,511 due from Guoce
Science and Technology as of June 30, 2009 and December 31, 2008, respectively.
The amount due from Guoce Science and Technology does not bear interest as it is
short term in nature.
On May
22, 2009, GC Nordic entered into a promissory note in favor of Nordic Turbines,
in the principal amount of US$1 million. On the same day, Nordic Turbines wired
the US$ 1 million to BVI, a company controlled 100% by the Chairman of GC Nordic
due to the fact that BVI and Luckcharm were not yet incorporated. This was
recorded as an amount due from a related party as of June 30,
2009. Subsequently, on July 28, 2009, Luckcharm received the proceeds
from the related party.
LEGAL
PROCEEDINGS
Nordic
Windpower USA, Inc. ("Nordic Windpower")
has threatened to commence a lawsuit against us by filing a complaint against
Nordic Turbines, Inc. in the U.S. District Court for the Northern District
of California on August 11, 2009, alleging trademark infringement, trademark
dilution, unfair competition and trade dress infringement. To date, we have
not been served with this complaint. The complaint states that Nordic Windpower
seeks to enjoin us from using the mark "Nordic Turbines" and to take any
corrective action related to our use, recover damages sustained from our use of
the mark "Nordic Turbines" and to obtain a judgment against us because we
allegedly competed unfairly under the California Business and Professions
Code. We have substantially complied with all of Nordic Windpower's
requests related it its claims, including changing our name to "GC China Turbine
Corp." on September 14, 2009. We have had and will continue to have
meaningful discussions with Nordic Windpower to resolve any remaining claims it
may assert. However, we believe that any such remaining claims
will be resolved amicably and in the near future.
MARKET
PRICE OF AND DIVIDENDS ON COMMON EQUITY
AND
RELATED SHAREHOLDER MATTERS
Market
Information
Our
common stock is not listed on any stock exchange. Our common stock is
traded over-the-counter on the Over-the-Counter Bulletin Board (“OTCBB”) under the
symbol “GCHT”. Our common stock has been trading on the OTCBB since
May 15, 2009 and the following table sets forth the high and low bid information
for our common stock for the quarters ended June 30, 2009 and September 30,
2009, as reported by the OTCBB. The bid prices reflect inter-dealer
quotations, do not include retail markups, markdowns or commissions and do not
necessarily reflect actual transactions.
|
Low
|
High
|
|||||||
|
2009
|
||||||||
|
Quarter
ended June 30, 2009
|
$ | 0.00 | $ | 1.11 | ||||
|
Quarter
ended September 30, 2009
|
$ | 0.93 | $ | 1.50 | ||||
As of
October 28, 2009, the closing sales price for shares of our common stock was
$2.65 per share on the OTCBB.
Holders
As of
October 29, 2009, there were approximately 32 shareholders of record of our
common stock based upon the shareholders’ listing provided by our transfer
agent. Our transfer agent is Holladay Stock Transfer
Inc. The transfer agent’s address is 2939 N 67th Place Suite C,
Scottsdale, AZ 85251and its phone number is (480) 481-3970.
Dividends
We have
never paid cash dividends on our common stock. We intend to keep
future earnings, if any, to finance the expansion of our business, and we do not
anticipate that any cash dividends will be paid in the foreseeable
future. Our future payment of dividends will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors that our board of directors may deem relevant. Our retained
earnings deficit currently limits our ability to pay dividends.
52
RECENT
SALES OF UNREGISTERED SECURITIES
Reference
is made to Item 3.02 of this Form 8-K for a description of recent sales of
unregistered securities, which is hereby incorporated by reference.
DESCRIPTION
OF SECURITIES
The
following information describes our capital stock and provisions of our articles
of incorporation and our bylaws, all as in effect upon the Closing of the
Exchange Transaction. This description is only a
summary. You should also refer to our articles of incorporation,
bylaws and articles of amendment which have been incorporated by reference or
filed with the Securities and Exchange Commission as exhibits to this Form
8-K.
General
Our
authorized capital stock consists of 100,000,000 shares of common stock at a par
value of $0.001 per share. We do not have any preferred
stock.
Common
Stock
Holders
of common stock are entitled to one vote for each share on all matters submitted
to a shareholder vote. Holders of common stock do not have cumulative
voting rights. Subject to preferences that may be applicable to any
then-outstanding preferred stock, holders of common stock are entitled to share
in all dividends that the board of directors, in its discretion, declares from
legally available funds. In the event of our liquidation, dissolution
or winding up, subject to preferences that may be applicable to any
then-outstanding preferred stock, each outstanding share entitles its holder to
participate in all assets that remain after payment of liabilities and after
providing for each class of stock, if any, having preference over the common
stock.
Holders
of common stock have no conversion, preemptive or other subscription rights, and
there are no redemption or sinking fund provisions applicable to the common
stock. The rights of the holders of common stock are subject to any
rights that may be fixed for holders of preferred stock, when and if any
preferred stock is authorized and issued. All outstanding shares of
common stock are duly authorized, validly issued, fully paid and
non-assessable.
Warrants
In
connection with the Equity Financing, the Company will issue warrants to
Investors, Clarus and certain other placement agents, with each warrant having
an exercise price of US$1.00 per share and being exercisable at any time within
3 years from the date of issuance. The warrant has a cashless exercise
provision that allows the holder, in its sole discretion, to exercise the
warrant in whole or in part in lieu of making the cash payment. The
warrant also has a provision which limits the warrant holder’s right to exercise
the warrant if such exercise would result in the holder beneficially owning in
excess of 5% of the then current issued and outstanding shares of the Company’s
common stock.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Nevada
Law
Section
78.7502 of the Nevada Revised Statutes permits a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the right
of the corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys’ fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding if he:
|
|
(a)
|
is
not liable pursuant to Nevada Revised Statute 78.138,
or
|
|
|
(b)
|
acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
|
53
In
addition, Section 78.7502 permits a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys’ fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he:
|
|
(a)
|
is
not liable pursuant to Nevada Revised Statute 78.138;
or
|
|
|
(b)
|
acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the
corporation.
|
To the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above, or in defense of any claim, issue or matter, the
corporation is required to indemnify him against expenses, including attorneys’
fees, actually and reasonably incurred by him in connection with the
defense.
Section
78.752 of the Nevada Revised Statutes allows a corporation to purchase and
maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses.
Other
financial arrangements made by the corporation pursuant to Section 78.752 may
include the following:
|
|
(a)
|
the
creation of a trust fund;
|
|
|
|
|
|
|
(b)
|
the
establishment of a program of
self-insurance;
|
|
|
|
|
|
|
(c)
|
the
securing of its obligation of indemnification by granting a security
interest or other lien on any assets of the corporation;
and
|
|
|
|
|
|
|
(d)
|
the
establishment of a letter of credit, guaranty or
surety
|
No
financial arrangement made pursuant to Section 78.752 may provide protection for
a person adjudged by a court of competent jurisdiction, after exhaustion of all
appeals, to be liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or indemnification
ordered by a court.
Any
discretionary indemnification pursuant to NRS 78.7502, unless ordered by a court
or advanced pursuant to an undertaking to repay the amount if it is determined
by a court that the indemnified party is not entitled to be indemnified by the
corporation, may be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The determination must be
made:
|
|
(a)
|
by
the stockholders;
|
|
|
|
|
|
|
(b)
|
by
the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or
proceeding;
|
|
|
|
|
|
|
(c)
|
if
a majority vote of a quorum consisting of directors who were not parties
to the action, suit or proceeding so orders, by independent legal counsel
in a written opinion, or
|
|
|
|
|
|
(d)
|
if
a quorum consisting of directors who were not parties to the action, suit
or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
|
Charter
Provisions and Other Arrangements of the Registrant
Pursuant
to the provisions of Nevada Revised Statutes, GC China Turbine has adopted the
following indemnification provisions in its Bylaws for its directors and
officers:
54
Every
person who was or is a party or is a threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest legally permissible under the
General Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorney's fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith. The expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. Such right of indemnification shall be a contract right which may
be enforced in any manner desired by such person. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
The board
of directors may cause the corporation to purchase and maintain insurance on
behalf of any person who is or was a director or officer of the corporation, or
is or was serving at the request of the corporation as a director or officer of
another corporation, or as its representative in a partnership, joint venture.
trust or other enterprise against any liability asserted against such person and
incurred in any such capacity or arising out of such status, whether or not the
corporation would have the power to indemnify such person.
The Board
of Directors may from time to time adopt further Bylaws with respect to
indemnification and amend these and such Bylaws to provide at all times the
fullest indemnification permitted by the General Corporation Law of the State of
Nevada.
In
addition to the above, each of our directors has entered into an indemnification
agreement with us. The indemnification agreement provides that we
shall indemnify the director against expenses and liabilities in connection with
any proceeding associated with the director being our director to the fullest
extent permitted by applicable law, our Articles of Incorporation and our
Bylaws.
|
Item
3.02
|
Unregistered Sales of Equity
Securities
|
As more
fully described in Items 1.01 and 2.01 above, in connection with the Exchange
Agreement, on the Closing Date, we issued 32,383,808 shares of our common
stock to the BVI in exchange for 100% of the capital stock of Luckcharm.
Reference is made to the disclosures set forth under Items 1.01 and 2.01 of this
Form 8-K, which disclosures are incorporated herein by reference. The
issuance of the common stock to the BVI pursuant to the Exchange Agreement was
exempt from registration under the Securities Act pursuant to Section 4(2) and
Regulation D thereof. We made this determination based on the
representations of the sole shareholder of BVI which included, in pertinent
part, that such shareholder was an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act, and that such
shareholder was acquiring our common stock, for investment purposes for its own
account and not as nominee or agent, and not with a view to the resale or
distribution thereof, and that such shareholder understood that the shares of
our common stock may not be sold or otherwise disposed of without registration
under the Securities Act or an applicable exemption therefrom.
Between
October 5, 2009 and October 30, 2009, the Company entered into Securities
Purchase Agreements with the Investors, pursuant to which the Investors
purchased up to 6,400,000 shares of restricted common stock of the Company,
at a purchase price of $1.25 per share for an aggregate offering price of up to
US$ 8,000,000. Additionally, the Company issued warrants to
each Investor in an amount equal to 10% of the number of shares that
an Investor purchased and an aggregate of 560,000 warrants to advisors and
placement agents, with each warrant having an exercise price of $1.00 per share
and being exercisable at any time within 3 years from the date of
issuance. On October 30, 2009, the Company entered into a Note
Purchase Agreement with Clarus whereby Clarus agreed to loan US $1,000,000 to
the Company upon the effective date of delivery of 20 wind turbine systems by GC
Nordic to its customers. The loan will be in the form of a convertible
promissory note which shall bear interest at a rate of 1% per month (the "Note"), and have a
maturity date of 2 years from the date of issuance of the
Note. Additionally, the principal and accrued interest underlying the
Note (the "Debt") may be
converted by Clarus at $2.00 per share into shares of common stock of the
Company at any time prior to the maturity date. If the Debt is not repaid by the
Company 6 months from the date of issuance of the Note, the Company may at its
option, convert the Debt at $2.00 per share into shares of its common stock
anytime after such 6-month period. The issuance of these securities was
exempt from registration under Section 4(2) of the Securities Act. The
Company made this determination based on the representations of Investors, which
included, in pertinent part, that such shareholders were either (a) "accredited
investors" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act, or (b) not a "U.S. person" as that term is defined in Rule
902(k) of Regulation S under the Act, and that such Investor was acquiring our
common stock, for investment purposes for their own respective accounts and not
as nominees or agents, and not with a view to the resale or distribution
thereof, and that each Investor understood that the shares of our common stock
may not be sold or otherwise disposed of without registration under the
Securities Act or an applicable exemption therefrom.
55
On June
8, 2009, we issued convertible promissory notes to certain foreign accredited
investors for aggregate proceeds of US$ 1,015,000. The amount is
unsecured and is due on demand. The principal amount bears interest
at 1% per month calculated monthly and payable on demand. At
any time that the principal and interest shall remain outstanding, the lender
has the right to convert such principal and interest to shares of our common
stock at US$ 1.00 per share or at such price and on such terms as being offered
to investors at the time of conversion. We offered and sold the
convertible notes in reliance on Section 506 of Regulation D and/or Regulation S
of the Securities Act, and comparable exemptions for sales to "accredited"
investors under state securities laws.
On June 9
2009, we issued a convertible promissory note to a foreign accredited investor
for proceeds of US$ 11,750. The amount is unsecured and is due on
demand. The principal amount bears interest at 6% per annum
calculated and payable on demand. At any time that the
principal and interest shall remain outstanding, the lender has the right to
convert such principal and interest to shares of our common stock at such price
and on such terms as being offered to investors at the time of
conversion. We offered and sold the convertible note in reliance on
Section 506 of Regulation D and/or Regulation S of the Securities Act, and
comparable exemptions for sales to "accredited" investors under state securities
laws.
On July
9, 2009, we issued a convertible promissory note to a foreign accredited
investor for proceeds of US$ 5,000. The amount is unsecured and is
due on demand. The principal amount bears interest at 6% per annum
calculated and payable annually. At any time that the principal
and interest shall remain outstanding, the lender has the right to convert such
principal and interest to shares of our common stock at such price and on such
terms as being offered to investors at the time of conversion. We
offered and sold the convertible note in reliance on Section 506 of Regulation D
and/or Regulation S of the Securities Act, and comparable exemptions for sales
to "accredited" investors under state securities laws.
On July
31, 2009, we issued convertible promissory notes to certain foreign accredited
investor for proceeds of US$ 10,000,000. The notes bear interest at
6% per annum calculated annually. Upon closing of certain agreements, the
principal and accrued interest will automatically be converted into shares of
common stock of the Company, at a rate of US$ 0.80 per share. We
offered and sold the convertible notes in reliance on Section 506 of Regulation
D and/or Regulation S of the Securities Act, and comparable exemptions for sales
to "accredited" investors under state securities laws.
|
Item
5.01
|
Changes in Control of
Registrant.
|
As more
fully described in Items 1.01 and 2.01 above, on October 30, 2009, in a
voluntary share exchange transaction, we acquired a business engaged in the
manufacturing of 2-bladed wind turbines in China, by executing the Exchange
Agreement by and among the Company, BVI, Luckcharm and GC Nordic. GC China
Turbine owns 100% of the equity in Luckcharm. In turn, Luckcharm owns
100% of the equity in GC Nordic.
Under the
Exchange Agreement, on the Closing Date, we acquired all of the issued and
outstanding shares of Luckcharm through the issuance of 32,383,808 shares of our
common stock to the BVI and US$ 10,000,000 in previously issued convertible
promissory notes converted into 12,500,000 shares of the Company’s common
stock. Immediately prior to the Exchange Transaction, we had
7,686,207 shares of common stock issued and outstanding. Immediately
after the issuance of the shares to the BVI Shareholders, we had 52,570,015
shares of common stock issued and outstanding. As a result of this
Exchange Transaction, Luckcharm became our wholly owned subsidiary.
Following
the Exchange Transaction, we had a total of 58,970,015 shares of common stock
issued and outstanding.
In
connection with this change in control, and as explained more fully in Item 5.02
below, effective October 30, 2009, John J. Lennon resigned as our Chief
Executive Officer, Chief Financial Officer President, Secretary, Treasurer and
director, and we appointed new officers and directors. The appointments of the
new officers and directors shall be effective concurrently with the Closing of
the Exchange Transaction. On August 25, 2009, we filed with the
Securities and Exchange Commission and transmitted to holders of record of our
securities the information required by Rule 14(f)-1 of the Securities Exchange
Act of 1934.
56
|
Item
5.02
|
Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
|
As more
fully described in Items 1.01, 2.01 and 5.01 above, On October 30, 2009 in a
voluntary share exchange transaction, we acquired a business specializing in the
manufacturing of 2-bladed wind turbines in China, by executing the Exchange
Agreement by and among the Company, BVI, Luckcharm and GC Nordic. The
Closing of this transaction occurred on October 30, 2009. Reference
is made to the disclosures set forth under Items 1.01, 2.01 and 5.01 of this
Form 8-K, which disclosures are incorporated herein by reference.
Resignation
of Officers and Directors
Effective
October 30, 2009, John J. Lennon resigned as our Chief Executive Officer, Chief
Financial Officer, President, Secretary, Treasurer and director.
Appointment
of Officers
Effective
on the Closing Date, the following persons were appointed as our newly appointed
executive officers (individually, a “New Officer” and
collectively, the “New
Officers”):
|
Name
|
Age
|
Position
|
||
|
Qi
Na
|
53
|
Chief
Executive Officer
|
||
|
Zhao
Ying
|
31
|
Chief
Financial Officer
|
||
|
Tomas
Lyrner
|
52
|
Chief
Technology Officer
|
There are
no family relationships among any of our officers or directors. None
of the New Officers currently has an employment agreement with the
Company. Other than the Exchange Transaction, there are no
transactions, since the beginning of our last fiscal year, or any currently
proposed transaction, in which the Company was or is to be a participant and the
amount involved exceeds the lesser of US$ 120,000 or one percent of the average
of the Company’s total assets at year-end for the last three completed fiscal
years, and in which any of the New Officers had or will have a direct or
indirect material interest. Other than the Exchange Transaction,
there is no material plan, contract or arrangement (whether or not written) to
which any of the New Officers is a party or in which any New Officer
participates that is entered into or material amendment in connection with our
appointment of the New Officers, or any grant or award to any New Officer or
modification thereto, under any such plan, contract or arrangement in connection
with our appointment of the New Officers.
Descriptions
of our newly appointed directors and officers can be found in Item 2.01
above, in the section titled “Directors and Executive Officers - Current
Management.”
Appointment of
Directors
Marcus
Laun shall remain as a director of the Company after the Closing of the Exchange
Transaction. In connection with the Exchange Transaction, we agreed
to appoint Hou Tie Xin, Qi Na and Xu Jia Rong as directors on September 4, 2009
and to appoint Chris Walker Wadsworth as a member of our board of directors at
the Closing of the Exchange Transaction (individually, a “New Director” and
collectively, the “New
Directors”):
|
Name
|
Age
|
Position
|
||
|
Hou
Tie Xin
|
52
|
Chairman
of the Board
|
||
|
Qi
Na
|
53
|
Director
|
||
|
Xu
Jia Rong
|
46
|
Director
|
||
|
Chris
Walker Wadsworth
|
40
|
Director
|
The
appointments of the Hou Tie Xin, Qi Na and Xu Jia Rong were effective on
September 4, 2009 and the appointment of Chris Walker Wadsworth shall be
effective concurrently with the Closing of the Exchange
Transaction. We file with the Securities and Exchange Commission and
transmitted to holders of record of our securities the information required by
Rule 14(f)-1 of the Securities Exchange Act of 1934 on August 25,
2009.
57
There are
no family relationships among any of our officers or directors. None
of the New Directors has been named or, at the time of this Form 8-K, is
expected to be named to any committee of the board of
directors. Other than the Exchange Transaction, there are no
transactions, since the beginning of our last fiscal year, or any currently
proposed transaction, in which the Company was or is to be a participant and the
amount involved exceeds the lesser of $120,000 or one percent of the average of
the Company’s total assets at year-end for the last three completed fiscal
years, and in which any of the New Directors had or will have a direct or
indirect material interest. Other than the Exchange Transaction,
there is no material plan, contract or arrangement (whether or not written) to
which any of the New Directors is a party or in which any New Director
participates that is entered into or material amendment in connection with our
appointment of the New Directors, or any grant or award to any New Director or
modification thereto, under any such plan, contract or arrangement in connection
with our appointment of the New Directors.
Descriptions
of our newly appointed directors and officers can be found in Item 2.01
above, in the section titled “Directors and Executive Officers - Current
Management.”
|
Item
5.06
|
Change in Shell Company
Status.
|
Reference
is made to the voluntary share exchange transaction under the Exchange
Agreement, as described in Item 1.01, which is incorporated herein by
reference. From and after the Closing of the transactions under these
agreements, our primary operations consist of the business and operations of GC
China Turbine Group, which are conducted by GC Nordic in
China. Accordingly, we are disclosing information about GC China
Turbine Group’s business, financial condition, and management in this Form
8-K.
|
Item
9.01
|
Financial Statement and
Exhibits.
|
Reference
is made to the voluntary share exchange transaction under the Exchange
Agreement, as described in Item 1.01, which is incorporated herein by
reference. As a result of the closing of the voluntary share exchange
transaction, our primary operations consist of the business and operations of
the GC China Turbine Group, which are conducted by GC Nordic in
China. In the voluntary share exchange transaction, GC China Turbine
is the accounting acquiree and Luckcharm is the accounting
acquirer. Accordingly, we are presenting the financial statements of
Luckcharm and its consolidated entities.
(a) Financial
Statements of the Business Acquired
The
audited consolidated financial statements of Luckcharm for the year ended
December 31, 2008 and the unaudited consolidated financial statements for the
six months ended June 30, 2009, including the notes to such financial
statements, are incorporated herein by reference to Exhibit 99.2 of this Form
8-K.
(b) Pro
Forma Financial Information
Incorporated
by reference to Exhibit 99.3 attached hereto.
(c) Shell
Company Transactions
Reference is made to Items 9.01(a) and
9.01(b) above and the exhibits referred to therein, which are incorporated
herein by reference.
58
(d)
Exhibits
INDEX TO
EXHIBITS
|
Exhibit
Number
|
Description
|
|
|
2.1
|
Share
Exchange Agreement dated September 30, 2009 (incorporated by reference
from the Registrant’s Current Report on Form 8-K filed on October 6,
2009)
|
|
|
3.1
|
Corporate
Charter dated August 25, 2006(incorporated by reference from Registrant’s
Registration Statement on Form SB-2 filed on March 29,
2007)
|
|
|
3.2
|
Articles
of Incorporation dated August 25, 2006 (incorporated by
reference from Registrant’s Registration Statement on Form SB-2 filed on
March 29, 2007)
|
|
|
3.3
|
Certificate
of Correction dated August 31, 2006 (incorporated by reference from
Registrant’s Registration Statement on Form SB-2 filed on March 29,
2007)
|
|
|
3.4
|
By-laws
dated September 6, 2006 (incorporated by reference from Registrant’s
Registration Statement on Form SB-2 filed on March 29,
2007)
|
|
|
3.5
|
Certificate
of Change dated May 18, 2009 (incorporated by reference from Registrant’s
Current Report on Form 8-K filed on May 20, 2009)
|
|
|
3.6
|
Amendment
to the Articles of Incorporation on June 11, 2009 (incorporated by
reference from the Registrant’s Current Report on Form 8-K filed on June
15, 2009)
|
|
|
3.7
|
Amendment
to the Articles of Incorporation on September 8, 2009 (incorporated by
reference from the Registrant’s Current Report on Form 8-K filed on
September 14, 2009)
|
|
|
4.1
|
Form
of Stock Specimen (incorporated by reference from Registrant’s
Registration Statement on Form SB-2 filed on March 29,
2007)
|
|
|
10.1
|
Transfer
Agent and Registrar Agreement dated October 20, 2006 (incorporated by
reference from Registrant’s Registration Statement on Form SB-2 filed on
March 29, 2007)
|
|
|
10.2
|
Loan
Agreement between Registrant and Jimmy Soo dated March 26, 2007
(incorporated by reference from Registrant’s Registration Statement on
Form SB-2 filed on March 29, 2007)
|
|
|
10.3
|
Deed
between EGM Resources Inc. and Registrant dated March 4, 2007
(incorporated by reference from Registrant’s Registration Statement on
Form SB-2 filed on March 29, 2007)
|
|
|
10.4
|
Binding
Letter of Intent dated July 31, 2009 (incorporated by reference from
Registrant’s Current Report on Form 8-K filed August 3,
2009)
|
|
|
10.5
|
Amended
and Restated Convertible Promissory Note in favor of New Margin Growth
Fund L.P. dated July 31, 2009 (incorporated by reference from Registrant’s
Current Report on Form 8-K filed August 3, 2009)
|
|
|
10.6
|
Convertible
Promissory Note in favor of New Margin Growth Fund L.P. dated July 31,
2009 (incorporated by reference from Registrant’s Current Report on Form
8-K filed August 3, 2009)
|
|
|
10.7
|
Convertible
Promissory Note in favor of Ceyuan Ventures II, L.P. dated July 31, 2009
(incorporated by reference from Registrant’s Current Report on Form 8-K
filed August 3, 2009)
|
|
|
10.8
|
Convertible
Promissory Note in favor of Ceyuan Ventures Advisors Fund II, LLC dated
July 31, 2009 (incorporated by reference from Registrant’s Current Report
on Form 8-K filed August 3, 2009)
|
|
|
10.9
|
Promissory
Note in favor of GC China Turbine Corp. by Luckcharm Holding Limited dated
July 31, 2009 (incorporated by reference from Registrant’s Current Report
on Form 8-K filed August 3, 2009)
|
|
|
10.10
|
Amended
and Restated Agreement dated July 31, 2009 (incorporated by reference from
Registrant’s Quarterly Report on Form 10-Q filed August 14,
2009)
|
|
|
10.11
|
Form
of Securities Purchase Agreement (incorporated herein)
|
|
|
10.12
|
Form
of Investors Right Agreement (incorporated herein)
|
|
|
10.13
|
Form
of Registration Rights Agreement (incorporated herein)
|
|
|
10.14
|
Form
of Make Good Escrow Agreement (incorporated herein)
|
|
|
10.15
|
Form
of Convertible Promissory Note (incorporated herein)
|
|
|
10.16
|
Form
of Note Purchase Agreement (incorporated herein)
|
|
|
10.17
|
Form
of Lockup Agreement (incorporated herein)
|
|
|
10.18
|
Form
of Indemnification Agreements (incorporated herein)
|
|
|
10.19
|
Form
of Warrant (incorporated herein)
|
|
|
14.1
|
Amended
and Restated Code of Ethics (incorporated by reference from Registrant’s
Current Report on Form 8-K filed on September 8, 2009)
|
|
|
99.1
|
Audit
Committee Charter (incorporated by reference from Registrant’s
Registration Statement on Form SB-2 filed on March 29,
2007)
|
|
|
99.2
|
Luckcharm
Audited and Unaudited Financial Statements (incorporated
herein)
|
|
|
99.3
|
Pro
Forma Financial Statements (incorporated herein)
|
|
|
99.4
|
Form
of Employment Agreement (incorporated
herein)
|
59
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
|
GC
China Turbine Corp.
|
||
|
Dated:
November 5, 2009
|
By:
|
/s/
Qi Na
|
|
Qi
Na
|
||
|
Chief
Executive
Officer
|
||
60