Micronetworks are local energy generation systems that create cost-effective and continuous electricity and heat supply at or near the site where they are installed. In China, these micro grids usually involve "co-generation," using waste steam from a factory boiler to generate electricity and provide space heating. In addition to meeting the electrical and heating needs of the factory, any excess supply can be sold locally or, in the case of electricity, can be sold for distribution over China's national power grid.
Gaoke has designed and installed, or is in the process of installing, distributed power systems ranging in size from a few megawatts to 300 megawatts for customers in the chemical, steel, ethanol, cement, construction materials and food processing businesses. The Company also designs and develops, under contract, stand-alone power and heat generating facilities.
On an un-audited Chinese GAAP basis, Gaoke had after-tax earnings of 55.6 million RMB for the year ending December 31, 2006.
According to China's National Development and Reform Commission, the annual expenditure on China's power development will be 500 to 600 billion RMB per year through 2010 and Gaoke management estimates that distributed power has the potential to capture 10% of this total expenditure. The total expenditure on micro power networks in China was estimated to be less than 1 billion RMB in 2006.
Mr. Kerry Propper, CSCA's CEO, commented, "We believe that energy infrastructure will continue to experience rapid growth as China attempts to meet its surging energy needs, and that distributed power generation will play an increasingly important role in meeting this demand. Gaoke, as a leading micronetwork developer in China, presents us with an ideal opportunity to participate in China's developing energy infrastructure."
"Since being founded in 2003, Gaoke has focused on building its engineering prowess, continuously improving on the functionality of its systems and on supporting the development of new green technologies that it may employ in the future."
"The company has grown impressively since its inception, and due to recent contract wins and a newly placed emphasis on distributed networks by the Chinese central government in their latest 5-Year Plan, Gaoke is anticipating further acceleration of its growth."
"Gaoke is not only well-positioned to take advantage of the opportunity in China but also throughout Southeast Asia. The company has recently been awarded contracts in India, and it has received invitations to bid on additional projects in India, as well as on projects in Indonesia."
Mr. Propper continued, "In addition to its expertise in micro power networks, Gaoke, through its academic technology development partnerships, is actively pursuing wind, solar, biomass and heat pump solutions for distributed power. These exclusive academic relationships are with Tsinghua University, the most distinguished scientific research university in China, and with the China Science Academy in Guangzhou, one of the leading research institutes in Asia for developing new energy technologies. We are very excited about the alternative energy technology pipeline that Gaoke has amassed, and are confident that it will be able to add a number of these to its armamentarium of green alternative energy solutions in the coming years."
Head Dragon is currently undergoing a U.S. GAAP audit, and an S-4 registration statement will be submitted to the SEC promptly after completion of that audit. In the meantime, the parties will be drafting the definitive agreement governing the transaction.
To accomplish the acquisition, CSCA will form its own wholly-owned subsidiary under the laws of in the British Virgin Islands under the name China Energy Technology Limited ("CETL"). At closing, CSCA will merge with and into CETL.