As
Filed with the Securities and Exchange Commission on April 28,
2010
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Registration
No. 333-
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
CHINA
WIND SYSTEMS, INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
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74-2235008
(I.R.S. Employer
Identification
Number)
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No.
9 Yanyu Middle Road
Qianzhou
Village, Huishan District, Wuxi City
Jiangsu
Province, People’s Republic of China
(86)
51083397559
(Address,
including zip code and telephone number, including area code, of registrant’s
principal executive offices)
Jianhua
Wu, Chief Executive Officer
No.
9 Yanyu Middle Road
Qianzhou
Village, Huishan District, Wuxi City
Jiangsu
Province, People’s Republic of China
(86)
51083397559
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to
Asher
S. Levitsky PC
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32
nd
Floor
New
York, NY 10006
Phone:
(212) 981-6767
Fax:
(212) 930 – 9725
E-mail:
alevitsky@srff.com
Approximate date of commencement of
proposed sale to the public:
From time to time after the effective date
of this Registration Statement.
If the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box.
o
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.
þ
If
this form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box.
o
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
o
|
Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting company
þ
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(do
not check if a smaller reporting
company)
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CALCULATION OF REGISTRATION FEE
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Title of each class of
securities to be registered
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Amount
to be
registered(1)
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Proposed
maximum
offering price
per unit
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Proposed
maximum
aggregate
offering
price (2)
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Amount of
registration
fee(3)
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Common stock,
par value $0.001 per share
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—
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—
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—
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—
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Preferred
stock, par value $0.001 per share
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—
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—
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—
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—
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Warrants
(4)
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—
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—
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—
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—
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Debt
securities (5)
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—
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—
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—
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—
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Total
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$
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30,000,000
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$
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2,139
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(1)
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There
are being registered hereunder such indeterminate number of shares of
common stock, preferred stock, warrants to purchase common stock or
preferred stock, and debt securities as shall have an aggregate initial
offering price not to exceed $30,000,000. Any securities registered
hereunder may be sold separately or as units with other securities
registered hereunder. The securities registered also include such
indeterminate amounts and numbers of common stock and preferred stock as
may be issued upon conversion of or exchange for preferred stock and debt
securities that provide for conversion or exchange, upon exercise of
warrants, or pursuant to the antidilution provisions of any such
securities.
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(2)
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The
proposed maximum per unit and aggregate offering prices per class of
security will be determined from time to time by the registrant in
connection with the issuance by the registrant of the securities
registered under this registration statement, but in no event will the
aggregate offering price of all securities issued from time to time
pursuant to this registration statement exceed
$30,000,000. Pursuant to General Instruction II.D of Form S-3
such information is not required to be included in the
table
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(3)
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Calculated
pursuant to Rule 457(o) under the Securities
Act.
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(4)
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Includes
warrants to purchase common stock and warrants to purchase preferred
stock.
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(5)
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If
any debt securities are issued with an original issue discount, the
offering price of such debt securities shall be such greater amount as
shall result in an aggregate maximum offering price not to exceed
$30,000,000, less the dollar amount of any securities previously issued
hereunder.
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The
registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement relating to these
securities that has been filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
(Subject
to Completion, Dated April 28, 2010)
PRELIMINARY
PROSPECTUS
$30,000,000
China
Wind Systems, Inc.
Common
Stock
Preferred
Stock
Warrants
Convertible
Debt Securities
NASDAQ
Common Stock Trading Symbol: CWS
We may
from time to time, in one or more offerings at prices and on terms that we will
determine at the time of each offering, sell common stock, preferred stock,
warrants, debt securities, or a combination of these securities, or units, for
an aggregate initial offering price of up to $30,000,000. This prospectus
describes the general manner in which our securities may be offered using this
prospectus. Each time we offer and sell securities, we will provide you with a
prospectus supplement that will contain specific information about the terms of
that offering. Any prospectus supplement may also add, update, or
change information contained in this prospectus. You should carefully read this
prospectus and the applicable prospectus supplement as well as the documents
incorporated or deemed to be incorporated by reference in this prospectus before
you purchase any of the securities offered hereby.
This
prospectus may not be used to offer and sell securities unless accompanied by a
prospectus supplement.
Our
common stock is currently traded on the NASDAQ Global Market under the symbol
“CWS.” On April 26, 2010, the last reported sales price for our common stock was
$4.80 per share. The prospectus supplement will contain information, where
applicable, as to any other listing of the securities on any other securities
market or exchange covered by the prospectus supplement.
Investing
in our securities involves a high degree of risk. You should purchase our
securities only if you can afford to lose your entire investment. See
“Risk Factors,” which begins on page 7.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We may
offer the securities directly or through agents or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of the
securities their names, and any applicable purchase price, fee, commission or
discount arrangement will be set forth, or will be calculable from the
information set forth, in an accompanying prospectus supplement. We can sell the
securities through agents, underwriters or dealers only with delivery of a
prospectus supplement describing the method and terms of the offering of such
securities. See “Plan of Distribution.”
The date
of this prospectus is [ ], 2010
Table
of Contents
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Page
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About
this Prospectus
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3
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Cautionary Statement Regarding
Forwarding Looking Statements
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3
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Summary
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4
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Risk
Factors
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7
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Use
of Proceeds
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16
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Plan
of Distribution
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16
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Description
of Capital Stock
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19
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Legal
Matters
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27
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Experts
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27
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Where
You Can Find More Information
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27
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Incorporation
of Certain Information By Reference
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28
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You
should rely only on the information contained or incorporated by reference in
this prospectus or any prospectus supplement. We have not authorized
anyone to provide you with information different from that contained or
incorporated by reference into this prospectus. If any person does
provide you with information that differs from what is contained or incorporated
by reference in this prospectus, you should not rely on it. No dealer,
salesperson or other person is authorized to give any information or to
represent anything not contained in this prospectus. You should assume that the
information contained in this prospectus or any prospectus supplement is
accurate only as of the date on the front of the document and that any
information contained in any document we have incorporated by reference is
accurate only as of the date of the document incorporated by reference,
regardless of the time of delivery of this prospectus or any prospectus
supplement or any sale of a security. These documents are not an
offer to sell or a solicitation of an offer to buy these securities in any
circumstances under which the offer or solicitation is
unlawful.
ABOUT
THIS PROSPECTUS
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including “Risk Factors” and our
consolidated financial statements, including the notes to the financial
statements appearing elsewhere in this prospectus. As used throughout this
prospectus, the terms “we,” “us,” and “our” and words of like import refer to
China Wind Systems, Inc., its wholly-owned subsidiaries, and Wuxi Huayang Dye
Machine Co., Ltd. (“Huayang Dye”) and Wuxi Huayang Electrical Power Equipment
Co., Ltd. (“Huayang Electrical”), both of which are variable interest entities
under contractual arrangements with us whose financial statements are
consolidated with ours, unless the context specifically states or implies
otherwise. Huayang Dye and Huayang Electric are collectively referred
to as the Huayang Companies.
Additionally,
unless we indicate otherwise, references in this prospectus to:
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●
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“China”
and the “PRC” are to the People’s Republic of China, excluding, for the
purposes of this prospectus only, Taiwan and the special administrative
regions of Hong Kong and Macau;
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●
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“RMB”
and “Renminbi” are to the legal currency of China;
and
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●
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“$”and
“U.S. dollars” are to the legal currency of the United
States.
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Our
business is conducted in China, using RMB, the currency of China, and our
financial statements are presented in United States dollars. In this
prospectus, we refer to assets, obligations, commitments and liabilities in our
financial statements in United States dollars. These dollar
references are based on the exchange rate of RMB to United States dollars,
determined as of a specific date. Changes in the exchange rate will
affect the amount of our obligations and the value of our assets in terms
of United States dollars which may result in an increase or decrease in the
amount of our obligations (expressed in dollars) and the value of our assets,
including accounts receivable (expressed in dollars).
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The
information contained in this prospectus and the documents and information
incorporated by reference in this prospectus include some statements that are
not purely historical and that are “forward-looking statements.” Such
forward-looking statements include, but are not limited to, statements regarding
our expectations, hopes, beliefs, intentions or strategies regarding the future,
including our financial condition, and results of operations. In addition, any
statements that refer to projections, forecasts or other characterizations of
future events or circumstances, including any underlying assumptions, are
forward-looking statements. The words “anticipates,” “believes,” “continue,”
“could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,”
“potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and
similar expressions, or the negatives of such terms, may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking.
The
forward-looking statements contained in this prospectus are based on current
expectations and beliefs concerning future developments and their potential
effects on us. There can be no assurance that future developments actually
affecting us will be those anticipated. These forward-looking statements involve
a number of risks, uncertainties (some of which are beyond our control) or other
assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements,
including the following:
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Changes
in the laws of the PRC that affect the Company’s
operations;
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The
Company’s ability to obtain and maintain all necessary government
certifications and/or licenses to conduct the Company’s
business;
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The
cost of complying with current and future governmental regulations and the
impact of any changes in the regulations on the Company’s
operations;
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Changes
in the political and economic policies of the government in China, where
all of the Company’s assets are located and all from where its revenues
are derived;
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Our
ability to comply with any environmental regulations which may affect our
manufacturing operations;
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Adverse
capital and credit market conditions, and the Company’s ability to meet
liquidity needs;
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Fluctuation
of the foreign currency exchange rate between U.S. Dollars and
Renminbi;
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Our
ability to obtain additional funding for our continuing operations and to
fund our expansion;
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Our
ability to meet our financial projections for any financial
year;
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Our
ability to retain our key executives and to hire additional senior
management;
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Continued
growth of the Chinese economy and demand for our
service;
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Continued
development of the wind power industry in China;
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●
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Our
ability to anticipate trends and provide programs that are relevant and
useful to our students, and
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Other
factors, including those described in this prospectus under the heading
“Risk Factors,” as well as factors set forth in other filings we make with
the Securities and Exchange Commission, including those contained in “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in our annual report on Form 10-K and
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in our 10-Q quarterly
reports.
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If one or
more of these risks or uncertainties materializes, or if any of our assumptions
prove incorrect, actual results may vary in material respects from those
projected in these forward-looking statements. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable securities laws.
SUMMARY
The
following is only a summary, and does not contain all of the information that
you need to consider in making your investment decision. We urge you to read
this entire prospectus, including the more detailed consolidated financial
statements, notes to the consolidated financial statements and other
information incorporated by reference into this prospectus under “Where You Can
Find More Information” and “Incorporation of Certain Information by Reference”
from our other filings with the SEC, as well as any prospectus supplement
applicable to an offering of the securities registered pursuant to the
registration statement of which this prospectus forms a part. Investing in our
securities involves risks. Therefore, please carefully consider the information
provided under the heading “Risk Factors” beginning on page 7.
ABOUT
CHINA WIND SYSTEMS, INC.
We are engaged in two business segments
– the forged rolled rings and related products segment, in which we manufacture
and sell high precision forged rolled rings and other forged components for the
wind power and other industries, and the dyeing and finishing equipment segment,
in which we manufacture and sell textile dyeing and finishing
machines.
Through our forged rolled rings and
related products division, we supply precision forged rolled rings and other
forged components to the wind industry. These components are used in
wind turbines, which are used to generate wind power. The government
of the PRC has announced its desire to expand significantly its goal for
installed wind energy capacity. We began to manufacture shafts and
forged rolled rings for gear rims, flanges and other applications in our new
108,000 square foot manufacturing facility which became operational in March
2009.
We produce precision forgings using
axial close-die forging technology, which is a new technology for producing
rotary precision forgings, using forging equipment which we manufactured for our
own use. The axial close-die forging technology reduces the use of raw materials
by as much as 35%, provides a high precision and surface flatness, reduces the
cutting output, has excellent mechanical strength and high flexibility, and is a
fully automatic operation. We believe that our forging capabilities will
continue to increase as we implement our expansion plans.
In October 2009, we ordered the initial
machinery to expand our completed state-of-the-art forged product facility with
a new production line, enabling us to manufacture electro-slag re-melted forged
products for the high performance components market of the wind power
industry. We believe that electro-slag re-melted forged products will
be important components in the next generation of larger wind turbines, which
will require stronger steel alloy precision forged components than the smaller
turbines. Electro-slag re-melted technology is used to increase the
durability and quality of steel and to blend specific alloys that are required
to meet the anticipated strength requirements of the next generation of wind
turbines. We expect to begin to test manufacture products at this
plant in the second quarter of 2010.
In addition to the wind industry, we
sell our forged rolled rings and other products in other industries, including
railway, heavy machinery manufacturing, petrochemical, metallurgical, sea port
machinery, defense and radar manufacturing industries, which use our forged
rolled rings railway as components in the manufacture of equipment.
The forged rolled rings segment has
become a more significant percentage of total revenues, as we have expanded our
manufacturing facilities to enable us to manufacture forged rolled rings with a
larger diameter in order to meet the perceived needs of the wind power industry.
Our rolled rings are essentially hollow cylindrical sections forged from a
stainless steel stock piece with varying thickness and height; the rings are
created from the forging process. Forging is a manufacturing process where metal
is pressed, pounded or squeezed under great pressure into high strength parts.
Rolled ring forging turns a hollow round piece of metal under extreme pressure
against a rotating roller, thereby squeezing out a single-piece ring without any
welding required. We believe that there is a market for our rolled rings in the
wind power industry. Through this division, which was formerly known as the
forged rolled ring and electric power equipment division, until the end of 2009,
we designed, manufactured and sold both standard and custom auxiliary equipment
used to improve and promote efficient coal use at both coking and power plants.
In the fourth quarter of 2009, we sold our remaining units of auxiliary
electrical equipment and we no longer produce these products.
Prior to 2009, the manufacturing of
textile dyeing and finishing machines was our principal source of revenue. We
have changed our focus to the manufacture of forged rolled rings, gear rims and
yaw bearings in order to meet the growing demands of China’s wind energy
industry. We believe that there is a shortage of wind components in
China’s wind energy supply chain. The shortage is caused by the lack of forged
products including rolled rings and gear rims which are used in the gearbox, and
rolled rings used in yaw bearings. We expect revenue from the dyeing
and finishing equipment segment of our business to continue to decline, both in
terms of revenue and as a percentage of total revenue.
The following table sets forth
information as to revenue of our dyeing and finishing equipment, forged rolled
rings and electrical power equipment in dollars and as a percent of revenue
(dollars in thousands):
|
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Years
Ended December 31,
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2009
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2008
|
|
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Dollars
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%
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Dollars
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%
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Forged
rolled rings - wind power industry
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$
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20,073
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37.6
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%
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$
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6,724
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15.9
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%
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Forged
rolled rings – other industries
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15,654
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29.3
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%
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10,769
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|
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25.5
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%
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Dyeing
and finishing equipment
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17,213
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32.2
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%
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22,465
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|
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53.1
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%
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Electrical
power equipment
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|
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517
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1.0
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%
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2,327
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5.5
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%
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Total
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$
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53,457
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100
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%
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$
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42,285
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|
|
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100
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%
|
In 2007, we purchased property from an
affiliated company for a net price of approximately $10,950,000. The property
consists of an approximately 100,000 square foot factory, land use rights,
employee housing facilities and other leasehold improvements. We are
using this new facility to manufacture forged rolled rings and other components
for use in the wind power and other industries. With our expanded
facilities designed to accommodate the manufacture of rolled rings with larger
diameters, we plan to develop products designed to meet the needs of the wind
power industry. Wind power accounts for an insignificant percentage of the power
generated in the PRC, and our ability to market to this segment is dependent
upon both the growth of the acceptance of wind power as an energy source in the
PRC and the acceptance of our products.
Our products are sold for use by
manufacturers of industrial equipment. Because of the recent decline
in oil prices and the general international economic trends, the demand for
products used in manufacturing in general including wind power industries, is
uncertain. Although we believe that over the long term, the wind
power segment will expand, and the government of the PRC has announced its
desire to increase the use of wind power as an energy source, in the short term
these factors may affect the requirements by our customers and potential
customers for our products. To the extent that the demand for our
forged rolled rings declines, our revenue and net income will be
affected.
A major element of our cost of sales is
raw materials, principally steel and other metals. These metals are subject to
price fluctuations, and recently these fluctuations have been
significant. In times of increasing prices, we need to try to fix the
price at which we purchase raw materials in order to avoid increases in costs
which we cannot recoup through increases in sales prices. Similarly,
in times of decreasing prices, we may have purchased metals at prices which are
high in terms of the price at which we can sell our products, which also can
impair our margins.
Our
Organization
We were incorporated in Delaware on
June 24, 1987 under the name Malex, Inc. We changed our corporate name to China
Wind Systems, Inc. on December 18, 2007. At the time of the reverse acquisition,
described below, we were not engaged in any business activities, and we were
considered to be a blank-check shell company.
We are the sole stockholder of Fulland
Limited, a Cayman Islands limited liability company. Fulland owns 100% of the
capital stock of Green Power Environment Technology (Shanghai) Co., Ltd., and
Wuxi Fulland Wind Energy Equipment Co., Ltd., which are wholly foreign-owned
enterprises organized under the laws of the PRC. Green Power is a party to a
series of contractual arrangements dated October 12, 2007 with the Huayang
Companies and their stockholders. Our corporate organizational structure,
including the contractual arrangements with the Huayang Companies, is designed
to comply with certain laws and regulations of the PRC which restrict the manner
in which Chinese companies, particularly companies owned by Chinese residents,
may raise funds from non-Chinese sources. The Huayang Companies are
considered variable interest entities, and we are the primary
beneficiary. Our relationships with the Huayang Companies and their
shareholders are governed by the contractual agreements. As variable
interest entities, the Huayang Companies’ sales are included in our total sales,
their income from operations is consolidated with ours, and our net income
includes all of the Huayang Companies’ net income.
On November 13, 2007, we, then known as
Malex, Inc., acquired Fulland in a transaction in which we issued 12,192,568
shares of common stock to the former stockholders of Fulland and purchased
2,668,830 shares of common stock from our then-principal stockholder and
cancelled such shares. The exchange was treated as a recapitalization that gave
effect to the share exchange agreement. Under generally accepted accounting
principles, our acquisition of Fulland is considered to be capital transactions
in substance, rather than a business combination. That is, the acquisition is
equivalent to the acquisition by Fulland of us, with the issuance of stock by
Fulland for the net monetary assets of Malex. This transaction is accompanied by
a recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the acquisition is identical to that resulting
from a reverse acquisition. Under reverse takeover accounting, our historical
financial statements are those of the Fulland, which is treated as the acquiring
party for accounting purposes. Since Fulland and Green Power were not engaged in
any business activities, our financial statements for periods prior to the
closing of the reverse acquisition reflect only business of the Huayang
Companies. The financial statements reflect the recapitalization of the
stockholders’ equity as if the transactions occurred as of the beginning of the
first period presented.
Our executive offices are located No. 9
Yanyu Middle Road, Qianzhou Village, Huishan District, Wuxi City, Jiangsu
Province, China 214181, telephone (86) 51083397559. Our website
is
www.chinawindsystems.com
. Information
contained on, or that can be accessed through, our website or any other website
is not part of this prospectus. For additional information about us
and our business, see “Where You Can Find More Information.”
Reverse
Stock Split
On October 13, 2009, we effected a
one-for-three reverse split of our common stock. All share and per share
information in this prospectus retroactively reflects this reverse
split.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. Before making an
investment decision, you should carefully consider the risks described under
“Risk Factors” together with all of the other information appearing in this
prospectus or incorporated by reference into this prospectus and any applicable
prospectus supplement. Our business, financial condition or results of
operations could be materially adversely affected by any of these
risks.
Risks
Related to Our Business
We
are incurring significant obligations in developing the manufacture of forged
rolled rings for use in the wind power industry and other industries with no
assurance that we can or will be successful in this business.
We
acquired buildings, land use rights and leasehold improvements from a related
party for approximately $10,950,000 to manufacture components in our forged
rolled ring operations, and we spent approximately $26,000,000 to purchase
capital equipment to manufacture forging products and electro-slag re-melted
forged products. Wind power accounts for a small percentage of the
power generated in the PRC, and our ability to market to this segment is
dependent upon both an increased acceptance of wind power as an energy source in
the PRC and the acceptance of our products. We are making the financial and
manpower commitment in our belief that both there will be an increased demand
for wind power in China and elsewhere, that the companies that manufacture wind
power generation equipment will purchase our products. We cannot assure you that
we will be able to successfully 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.
We
will require additional funds to expand our operations.
In
connection with our expansion project for 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 complete our second expansion project for our business. If we are
unable to obtain necessary capital to pay our purchase commitments and we cannot
find alternative financing we may be unable to complete the next phase of our
expansion or finance the growth of our existing business, which may impair our
ability to operate profitably. During 2009 and the first two months
of 2010 we raised approximately $5.4 million from the private sale of our debt
and equity securities, including the exercise of outstanding warrants, in a
number of transactions. A significant portion of the funds were
raised on terms which we did not consider favorable. Because of our
stock price and 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.
You
may suffer significant dilution if we raise additional capital.
If we
need to raise additional capital to expand or continue operations, it may be
necessary for us to issue additional equity or convertible debt securities,
including any securities we may issue pursuant to this prospectus. If we issue
equity or convertible debt securities, our net tangible book value per share may
decrease, and the percentage ownership of our current stockholders would be
diluted, and any equity securities we may issue may have rights, preferences or
privileges senior or more advantageous to our common stockholders.
Because
we sell capital equipment, our business is subject to our customers’ capital
budget and we may suffer delays or cancellations of orders.
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
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. As a result of the worldwide economic downturn, the market
for capital equipment in the textile industry has significantly declined, and
sales of our dying products declined significantly. In 2009, we discontinued our
electric power equipment segment because of the lack of business, and, if we are
not able to generate sufficient business in our dying segment, we may
discontinue this phase of our operations as well and limit our business to
forged rolled rings and related products. 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 forged
rolled rings business will not be significantly impaired as a result of the
worldwide economic downturn.
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.
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. In particular, the next generation of wind turbines requires
components that are stronger than the present generation. Although we
are seeking to address these requirements with our electro-slag re-melted forged
products, our failure to introduce and develop a market for these and any other
new or enhanced products on a timely and cost-competitive basis, as well as the
development of processes that make our existing technologies or products
obsolete could harm our business and results of operations.
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 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.
Our
products are subject to PRC regulations, which may materially adversely affect
our business.
Government
regulations influence the design, components or operation of our products. New
regulations and changes to current regulations are always possible and, in some
jurisdictions, regulations may be introduced with little or no time to bring
non-compliant products into compliance with these regulations. Our failure to
comply with these regulations may restrict our ability to sell our products in
the PRC. In addition, these regulations may increase our cost of supplying the
products by forcing us to redesign existing products or to use more expensive
designs or components. In these cases, we may experience unexpected disruptions
in our ability to supply customers with products, or we may incur unexpected
costs or operational complexities to bring products into compliance. This could
have an adverse effect on our revenues, gross profit margins and results of
operations and increase the volatility of our financial results.
The success of
our businesses will depend on our ability to effectively develop and implement
strategic business initiatives.
In
connection with the development and implementation of growth plans, we will
incur additional expenses and capital expenditures. The development and
implementation of these plans 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 our
plans for any new initiative prove to be unsuccessful. Moreover, if we are
unable to implement any of our plans in a timely manner, or if those plans turn
out to be ineffective or are executed improperly, our business and operating
results would be adversely affected.
Our profitability
may decline as a result of increasing pressure on
margins.
The
textile and apparel industries have historically been subject to substantial
cyclical variations and are particularly affected by adverse trends in the
general economy, and are presently subject to the effects of the worldwide
economic downturn and trade policies of other countries which have severely
impacted these industries in China. The reduction in demand for
textile products has resulted in a reduction in the demand for capital equipment
used in these industries. This reduction in demand affects both our
sales and our gross margin, which could have a material adverse effect on our
results of operations, liquidity and financial condition. Any
increased competition in the forged rolled rings segment could place pressure on
our selling prices which could impair our margins for those
products.
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, we are
relying on our ability to reduce our production costs in order to remain
competitive. If we are not able to implement cost reduction measures, 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.
A decrease in
supply or increase in cost of the materials used in our products could harm our
profitability.
Any
restrictions on the supply or the increase in the cost of the materials used by
us in manufacturing our products, especially steel, could significantly reduce
our profit margins. Efforts to mitigate restrictions on the supply or price
increases of materials by entering into long-term purchase agreements, by
implementing productivity improvements or by passing cost increases on to our
customers may not be successful. Our profitability depends largely on the price
and continuity of supply of the materials used in the manufacture of our
products, which in many instances are supplied by a limited number of
sources.
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
flows.
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.
Our
officers and directors own a substantial portion of our outstanding common
stock, which will enable them to influence many significant corporate actions
and in certain circumstances may prevent a change in control that would
otherwise be beneficial to our shareholders.
As of
April 15, 2010, our officers and directors and members of their families
beneficially owned approximately
9,647,299
common shares out of
17,730,537
common shares, or
54.4
%
of our outstanding shares of stock entitled to vote on all corporate actions.
These stockholders, acting together, could have a substantial impact on matters
requiring the vote of the shareholders, including the election of our directors
and most of our corporate actions. This control could delay, defer or prevent
others from initiating a potential merger, takeover or other change in our
control, even if these actions would benefit our shareholders and us. This
control could adversely affect the voting and other rights of our other
shareholders and could depress the market price of our common
stock.
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. Jianhua Wu, our chief executive officer and the
chairman of our board of directors. We do not maintain key man life insurance on
any of our executive officers. 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.
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.
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 in
non-disclosure
agreements with our employees
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.
Risks
Related to Conducting Business in the PRC
PRC
laws and regulations governing our businesses and the validity of certain of our
contractual arrangements are uncertain. If we are found to be in violation, we
could be subject to sanctions. In addition, changes in such PRC laws and
regulations may materially and adversely affect our business.
There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing our business, or the enforcement and performance of our contractual
arrangements with our affiliated Chinese entities, the Huayang Companies, and
its shareholders. We are considered a foreign person or foreign invested
enterprise under PRC law. As a result, we are subject to PRC law limitations on
foreign ownership of Chinese companies. These laws and regulations are
relatively new and may be subject to change, and their official interpretation
and enforcement may involve substantial uncertainty. The effectiveness of newly
enacted laws, regulations or amendments may be delayed, resulting in detrimental
reliance by foreign investors. New laws and regulations that affect existing and
proposed future businesses may also be applied retroactively.
The PRC
government has broad discretion in dealing with violations of laws and
regulations, including levying fines, revoking business and other licenses and
requiring actions necessary for compliance. In particular, licenses and permits
issued or granted to us by relevant governmental bodies may be revoked at a
later time by higher regulatory bodies. We cannot predict the effect of the
interpretation of existing or new PRC laws or regulations on our
businesses. We cannot assure you that our current ownership and operating
structure would not be found in violation of any current or future PRC laws or
regulations. As a result, we may be subject to sanctions, including fines, and
could be required to restructure our operations or cease to provide certain
services. Any of these or similar actions could significantly disrupt our
business operations or restrict us from conducting a substantial portion of our
business operations, which could materially and adversely affect our business,
financial condition and results of operations.
The PRC
government restricts foreign investment in businesses in China, where we
operate. Although we believe we comply with current PRC regulations, we
cannot assure you that the PRC government would agree that these operating
arrangements comply with PRC licensing, registration or other regulatory
requirements, with existing policies or with requirements or policies that may
be adopted in the future. If the PRC government determines that we do not comply
with applicable law, it could revoke our business and operating licenses,
require us to discontinue or restrict our operations, restrict our right to
collect revenues, require us to restructure our operations, impose additional
conditions or requirements with which we may not be able to comply, impose
restrictions on our business operations or on our customers, or take other
regulatory or enforcement actions against us that could be harmful to our
business.
Our
contractual arrangements with the Huayang Companies and its stockholders may not
be as effective in providing control over these entities as direct
ownership.
We
operate a significant portion of our business through the Huayang
Companies. The equity in these companies is owned by our chief
executive officer and his wife, and we have no equity ownership interest in the
Huayang Companies. We rely on contractual arrangements to control and
operate such businesses. These contractual arrangements may not
be effective in providing control over the Huayang Companies as direct
ownership. For example, the Huayang Companies could fail to take actions
required for our businesses despite its contractual obligation to do so. If the
Huayang Companies fail to perform under their agreements with us, we may have to
incur substantial costs and resources to enforce such arrangements and may have
to rely on legal remedies under the law of the PRC, which may not be
effective. In addition, we cannot assure you that the Huayang Companies’
shareholders would always act in our best interests.
Adverse
changes in political and economic policies of the Chinese government could have
a material adverse effect on the overall economic growth of China, which could
reduce the demand for our products and materially and adversely affect our
competitive position.
All of
our business operations are conducted and all of our revenues are made in China.
Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The Chinese economy differs from the economies of most
developed countries in many respects, including:
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the
amount of government involvement;
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the
level of development;
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the
growth rate;
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the
control of foreign exchange; and
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the
allocation of resources.
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While the
Chinese economy has grown significantly in the past 20 years, the growth
has been uneven, both geographically and among various sectors of the economy,
and the worldwide economic downturn has affected China. As a
result, Chinese exports, including textiles, have decreased substantially and a
number of companies have closed their businesses, which affects the demand for
capital goods. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall Chinese 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.
The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy. Although in recent years the Chinese government
has implemented measures emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China is still owned by the
Chinese government. The continued control of these assets and other aspects of
the national economy by the Chinese government could materially and
adversely affect our business. The Chinese government also exercises
significant control over Chinese economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies. Efforts by the Chinese government to slow the pace
of growth of the Chinese economy could result in decreased capital expenditure
by solar energy users, which in turn could reduce demand for our
products. Furthermore, in response to the worldwide economic
downturn, the Chinese government may seek to increase its control over
businesses which could affect our business.
Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level of
renewable energy investments and expenditures in China, which in turn could lead
to a reduction in demand for our products and consequently have a material
adverse effect on our businesses.
Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
us.
We
conduct substantially all of our business through our Chinese subsidiaries and
affiliates, which are generally subject to laws and regulations applicable to
foreign investment in China and, in particular, laws applicable to wholly
foreign-owned enterprises. 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.
We
rely on dividends paid by our subsidiaries for our cash needs
We
conduct substantially all of our operations through our subsidiaries and
variable interest entities. We rely on dividends from our subsidiaries for our
cash needs, including the funds necessary to pay any dividends which we may
declare and other cash distributions to our shareholders, to service any debt we
may incur and to pay our operating expenses. The payment of dividends by
entities organized in China is subject to limitations. Regulations in China
currently permit payment of dividends only out of accumulated profits as
determined in accordance with accounting standards and regulations in China. We
are also required to set aside at least 10.0% of our after-tax profit based on
China’s accounting standards each year to our general reserves until the
accumulative amount of such reserves reach 50% of our registered capital. These
reserves are not distributable as cash dividends. Our subsidiaries are also
required to allocate a portion of their after-tax profits to their staff welfare
and bonus funds, which may not be distributed to equity owners except in the
event of liquidation. In addition, if our subsidiaries incur debt, the
instruments governing the debt may restrict their ability to pay dividends or
make other distributions to us.
Fluctuation
in the value of the RM B may have a material adverse effect on your
investment.
The
change in 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. On July 21, 2005, the Chinese government changed its decade-old
policy of pegging the value of the RMB to the U.S. dollar. Under the new
policy, the RMB is permitted to fluctuate within a narrow and managed band
against a basket of certain foreign currencies. This change in policy has
resulted in appreciation of RMB against U.S. dollar. There remains
significant international pressure on the Chinese government to adopt a more
flexible currency policy, which could result in a further and more significant
appreciation of the RMB against the U.S. dollar. As our costs and expenses
are generally denominated in RMB, potential future revaluation has and could
further increase our costs. Any significant revaluation of the RMB may have a
material adverse effect on our revenues and financial condition, and the value
of, and any of our dividends payable on our ordinary shares in foreign currency
terms.
Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.
Under
China’s existing foreign exchange regulations, our Chinese subsidiaries are able
to pay dividends in foreign currencies, without prior approval from the State
Administration of Foreign Exchange, or SAFE, by complying with certain
procedural requirements. However, we cannot assure you that that the Chinese
government will not take further measures in the future to restrict access to
foreign currencies for current account transactions. Foreign exchange
transactions by our Chinese subsidiaries under the capital account continue to
be subject to significant foreign exchange controls and require the approval of
China’s governmental authorities, including SAFE. In particular, if a subsidiary
borrows foreign currency loans from us or other foreign lenders, these loans
must be registered with SAFE, and if we finance the subsidiary by means of
additional capital contributions, these capital contributions must be approved
by certain government authorities including the Ministry of Commerce or its
local counterparts. These limitations could affect the ability of our
subsidiaries to obtain foreign exchange through debt or equity
financing.
Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident stockholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.
In
October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange
Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, generally referred to as Circular 75, which required
PRC residents to register with the competent local SAFE branch before
establishing or acquiring control over an offshore special purpose
company for the purpose of engaging in an equity financing outside of China
on the strength of domestic PRC assets originally held by those residents.
Internal implementing guidelines issued by SAFE, which became public in June
2007 (known as Notice 106), expanded the reach of Circular 75 by (i)
purporting to cover the establishment or acquisition of control by PRC residents
of offshore entities which merely acquire “control” over domestic companies or
assets, even in the absence of legal ownership; (ii) adding requirements
relating to the source of the PRC resident’s funds used to establish or acquire
the offshore entity; (iii) covering the use of existing offshore entities for
offshore financings; (iv) purporting to cover situations in which an offshore
special purpose vehicle establishes a new subsidiary in China or acquires an
unrelated company or unrelated assets in China; and (v) making the domestic
affiliate of the special purpose vehicle responsible for the accuracy of
certain documents which must be filed in connection with any such registration,
notably, the business plan which describes the overseas financing and the use of
proceeds. Amendments to registrations made under Circular 75 are required in
connection with any increase or decrease of capital, transfer of shares, mergers
and acquisitions, equity investment or creation of any security interest in any
assets located in China to guarantee offshore obligations, and Notice 106 makes
the offshore special purpose vehicle jointly responsible for these filings.
In the case of a special purpose vehicle which was established, and which
acquired a related domestic company or assets, before the implementation date of
Circular 75, a retroactive SAFE registration was required to have been completed
before March 31, 2006; this date was subsequently extended indefinitely by
Notice 106, which also required that the registrant establish that all foreign
exchange transactions undertaken by the special purpose vehicle and its
affiliates were in compliance with applicable laws and regulations. Failure to
comply with the requirements of Circular 75, as applied by SAFE in accordance
with Notice 106, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the special purpose vehicle’s affiliates being impeded or
prevented from distributing their profits and the proceeds from any reduction in
capital, share transfer or liquidation to the special purpose vehicle, or from
engaging in other transfers of funds into or out of China. We cannot provide any
assurances that their existing registrations have fully complied with, and they
have made all necessary amendments to their registration to fully comply with,
all applicable registrations or approvals required by Circular 75. Moreover,
because of uncertainty over how Circular 75 will be interpreted and implemented,
and how or whether SAFE will apply it to us, we cannot predict how it will
affect our business operations or future strategies.
Risks
Related to our Common Stock
Our stock price
may be volatile.
The
trading price of our common stock has been and may continue to be volatile as
well as subject to wide fluctuations in price in response to various factors,
some of which are beyond our control. These factors include:
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Quarterly
variations in our results of
operations.
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Announcements
by us or our competitors of acquisitions, new products, significant
contracts, commercial relationships or capital
commitments.
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Our
ability to develop and market new and enhanced products on a timely
basis.
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Changes
in governmental regulations or in the status of our regulatory
approvals.
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Changes
in earnings estimates or recommendations by securities
analysts.
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General
economic conditions and slow or negative growth of related
markets.
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These
broad market and industry factors may seriously harm the market price of our
Common Stock, regardless of our actual operating performance.
If
we fail to maintain the adequacy of our internal controls, our ability to
provide accurate financial statements and comply with the requirements of the
Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
to decrease substantially.
Prior to
November 2007, the Huayang Companies operated as private companies without
public reporting obligations, and they allocated limited personnel and resources
to the development of the external reporting and compliance obligations that
would be required of a public company. We are continuing to institute changes to
satisfy our obligations in under the Sarbanes-Oxley Act. We will need to
continue to improve our financial and managerial controls, reporting systems and
procedures, and documentation thereof. If our financial and managerial controls,
reporting systems or procedures fail, we may not be able to provide accurate
financial statements on a timely basis or comply with the Sarbanes-Oxley Act.
Any failure of our internal controls or our ability to provide accurate
financial statements could cause the trading price of our common stock to
decrease substantially.
We
do not anticipate paying any cash dividends.
We
presently do not anticipate that we will pay any dividends on any of our capital
stock in the foreseeable future. The securities purchase agreement relating to
our November 2007 private placement prohibits the payment of dividends on our
common stock or the purchase of common stock while the series A preferred stock
is outstanding. Subject to this restriction, the payment of any
dividends is within the discretion of our board of directors. We presently
intend to retain all earnings, if any, to implement our business plan; and we do
not anticipate the declaration of any dividends in the foreseeable
future.
USE
OF PROCEEDS
Unless
otherwise indicated in a prospectus supplement, we intend to use the net
proceeds from the sale of the securities under this prospectus for general
corporate purposes, including expanding our products, and for general working
capital purposes. We may also use a portion of the net proceeds to acquire or
invest in businesses and products that are complementary to our own, although we
have no current plans, commitments or agreements with respect to any
acquisitions as of the date of this prospectus.
PLAN
OF DISTRIBUTION
We
may sell the securities offered through this prospectus (i) to or through
underwriters or dealers, (ii) directly to purchasers, including our
affiliates, (iii) through agents, or (iv) through a combination of any
these methods. The securities may be distributed at a fixed price or prices,
which may be changed, market prices prevailing at the time of sale, prices
related to the prevailing market prices, or negotiated prices. The prospectus
supplement will include the following information:
·
|
The
terms of the offering;
|
·
|
The
names of any underwriters or
agents;
|
·
|
The
name or names of any managing underwriter or
underwriters;
|
·
|
The
purchase price of the securities;
|
·
|
Any
over-allotment options under which underwriters may purchase additional
securities from us;
|
·
|
The
net proceeds from the sale of the
securities
|
·
|
Any
delayed delivery arrangements
|
·
|
Any
underwriting discounts, commissions and other items constituting
underwriters’ compensation;
|
·
|
Any
initial public offering price;
|
·
|
Any
discounts or concessions allowed or reallowed or paid to
dealers;
|
·
|
Any
commissions paid to agents; and
|
·
|
Any
securities exchange or market on which the securities may be
listed.
|
Sale
Through Underwriters or Dealers
Only
underwriters named in the prospectus supplement are underwriters of the
securities offered by the prospectus supplement.
If
underwriters are used in the sale, the underwriters will acquire the securities
for their own account, including through underwriting, purchase, security
lending or repurchase agreements with us. The underwriters may resell the
securities from time to time in one or more transactions, including negotiated
transactions. Underwriters may sell the securities in order to facilitate
transactions in any of our other securities (described in this prospectus or
otherwise), including other public or private transactions and short sales.
Underwriters may offer securities to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. Unless otherwise indicated in the
prospectus supplement, the obligations of the underwriters to purchase the
securities will be subject to certain conditions, and the underwriters will be
obligated to purchase all the offered securities if they purchase any of them.
The underwriters may change from time to time any initial public offering price
and any discounts or concessions allowed or reallowed or paid to
dealers.
If
dealers are used in the sale of securities offered through this prospectus, we
will sell the securities to them as principals. They may then resell those
securities to the public at varying prices determined by the dealers at the time
of resale. The prospectus supplement will include the names of the dealers and
the terms of the transaction.
Direct
Sales and Sales Through Agents
We may
sell the securities offered through this prospectus directly. In this case, no
underwriters or agents would be involved. Such securities may also be sold
through agents designated from time to time. The prospectus supplement will name
any agent involved in the offer or sale of the offered securities and will
describe any commissions payable to the agent. Unless otherwise indicated in the
prospectus supplement, any agent will agree to use its reasonable best efforts
to solicit purchases for the period of its appointment.
We may
sell the securities directly to institutional investors or others who may be
deemed to be underwriters within the meaning of the Securities Act with respect
to any sale of those securities. The terms of any such sales will be described
in the prospectus supplement.
Delayed
Delivery Contracts
If the
prospectus supplement indicates, we may authorize agents, underwriters or
dealers to solicit offers from certain types of institutions to purchase
securities at the public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified date in the
future. The contracts would be subject only to those conditions described in the
prospectus supplement. The applicable prospectus supplement will describe the
commission payable for solicitation of those contracts.
Continuous
Offering Program
Without limiting the generality of the
foregoing, we may enter into a continuous offering program equity distribution
agreement with a broker-dealer, under which we may offer and sell shares of our
common stock from time to time through a broker-dealer as our sales agent. If we
enter into such a program, sales of the shares of common stock, if any, will be
made by means of ordinary brokers’ transactions on such securities market or
exchange on which our common stock is then traded, at market prices, block
transactions and such other transactions as agreed upon by us and the
broker-dealer. Under the terms of such a program, we also may sell shares of
common stock to the broker-dealer, as principal for its own account at a price
agreed upon at the time of sale. If we sell shares of common stock to such
broker-dealer as principal, we will enter into a separate terms agreement with
such broker-dealer, and we will describe this agreement in a separate prospectus
supplement or pricing supplement.
Market
Making, Stabilization and Other Transactions
Unless
the applicable prospectus supplement states otherwise, other than our common
stock all securities we offer under this prospectus will be a new issue and will
have no established trading market. We may elect to list offered securities on
an exchange or in the over-the-counter market. Any underwriters that we use in
the sale of offered securities may make a market in such securities, but may
discontinue such market making at any time without notice. Therefore, we cannot
assure you that the securities will have a liquid trading market.
Any
underwriter may also engage in stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Rule 104 under the Securities
Exchange Act. Stabilizing transactions involve bids to purchase the underlying
security in the open market for the purpose of pegging, fixing or maintaining
the price of the securities. Syndicate covering transactions involve purchases
of the securities in the open market after the distribution has been completed
in order to cover syndicate short positions.
Penalty
bids permit the underwriters to reclaim a selling concession from a syndicate
member when the securities originally sold by the syndicate member are purchased
in a syndicate covering transaction to cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the securities to be higher than it would be in the absence
of the transactions. The underwriters may, if they commence these transactions,
discontinue them at any time.
General
Information
Agents,
underwriters, and dealers may be entitled, under agreements entered into with
us, to indemnification by us against certain liabilities, including liabilities
under the Securities Act. Our agents, underwriters, and dealers, or their
affiliates, may be customers of, engage in transactions with or perform services
for us, in the ordinary course of business.
DESCRIPTION
OF CAPITAL STOCK
Common Stock
Our
authorized capital stock consists of 150,000,000 shares of common stock, par
value $0.001 per share, and 60,000,000 shares of preferred stock, par value
$0.001 per share. Holders of our common stock are entitled to equal voting
rights, consisting of one vote per share on all matters submitted to a
stockholder vote. Holders of common stock do not have cumulative voting rights.
Therefore, holders of a majority of the shares of common stock voting for the
election of directors can elect all of the directors. The presence, in person or
by proxy, of the holders of a majority of the outstanding shares of stock
entitled to vote are necessary to constitute a quorum at any meeting of our
stockholders. A vote by the holders of a majority of our outstanding shares is
required to effectuate certain fundamental corporate changes such as
liquidation, merger or an amendment to our articles of incorporation. In the
event of liquidation, dissolution or winding up of our company, either
voluntarily or involuntarily, each outstanding share of the common stock is
entitled to share equally in our assets.
Holders
of our common stock have no pre-emptive rights, no conversion rights and there
are no redemption provisions applicable to our common stock. They are entitled
to receive dividends when and as declared by our board, out of funds legally
available therefore. We have not paid cash dividends in the past and do not
expect to pay any within the foreseeable future since any earnings are expected
to be reinvested. Further, pursuant to the securities purchase agreement
relating to our November 2007 private placement, we cannot pay dividends while
the series A preferred stock is outstanding.
Preferred
Stock
Our certificate of incorporation gives
our board of directors the power to issue shares of preferred stock in one or
more series without stockholder approval. Our board of directors has the
discretion to determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each series of preferred stock. The
purpose of authorizing our board of directors to issue preferred stock and
determine its rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage a third party from acquiring, a
majority of our outstanding voting stock. Except for the series A preferred
stock, we have no present plans to issue any shares of preferred stock. Our
certificate of incorporation includes a provision which states that any rights,
options and warrants may provide that any or all of such terms and conditions
may not be waived or amended or may be waived or amended only with the consent
of the holders of a designated percentage of a designated class or classes of
our capital stock (or a designated group or groups of holders within such class
or classes, including but not limited to disinterested holders), and the
applicable terms and conditions of any such rights, options or warrants so
conditioned may not be waived or amended or may not be waived or amended absent
such consent. This relates to the terms of the warrants that provide that the
4.9% limitation on the number of shares of common stock that a warrant holder
may beneficially own may not be amended.
Series
A Preferred Stock
We presently have one series of
preferred stock outstanding, the series A convertible preferred stock, which
covers 60,000,000 shares. As of April 15, 2010, there were
15,134,264
shares
of series A preferred stock outstanding. Each share of series A
preferred stock is convertible into one-third of a share of common stock,
subject to adjustment. The certificate of designation relating to the series A
preferred stock provides that, if we issue common stock at a price, or options,
warrants or other convertible securities with a conversion or exercise price
less than the conversion price (presently $1.122 per share), with certain
specified exceptions, the number of shares issuable upon conversion of one share
of series A preferred stock is adjusted to reflect a conversion price equal to
the lower price. All of the holders of the series A preferred stock
have agreed to waive any adjustment based on the issuance of common stock or the
issuance of options or warrants or other convertible securities at an exercise
or conversion price at a price below the conversion price, and we have agreed,
as long as the series A preferred stock is outstanding, not to issue shares at a
price, or grant options or warrants or other convertible securities at an
exercise or conversion price which is less than the conversion
price. This agreement is binding on the present holders of the series
A preferred stock and their transferees.
No
dividends are payable with respect to the series A preferred stock. While the
series A preferred stock is outstanding, we may not pay dividends on or redeem
shares of common stock.
Upon any voluntary or involuntary
liquidation, dissolution or winding-up, the holders of the series A preferred
stock are entitled to a preference of $.374 per share before any distributions
or payments may be made with respect to the common stock or any other class or
series of capital stock which is junior to the series A preferred stock upon
voluntary or involuntary liquidation, dissolution or winding-up.
The holders of the series A preferred
stock have no voting rights, with certain limited exceptions.As long as any
shares of series A preferred stock are outstanding, we shall not, without the
affirmative approval of the holders of 75% of the outstanding shares of series A
preferred stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the series A preferred stock or alter, (b)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon liquidation senior to or otherwise pari passu with the series A
preferred stock, or any of preferred stock possessing greater voting rights or
the right to convert at a more favorable price than the series A preferred
stock, (c) amend our certificate of incorporation or other charter documents in
breach of any of the provisions hereof, (d) increase the authorized number of
shares of series A preferred stock, or (e) enter into any agreement with respect
to the foregoing.
The
holders of the series A preferred stock may not convert the series A preferred
stock to the extent that such conversion would result in the holders and their
affiliates owning more than 4.9% of our outstanding common stock. This
limitation may not be amended or waived; provided, that the limitation does not
supply with respect to a change of control. The shares of series A preferred
stock are automatically converted upon a change of control, as defined in the
certificate of designation.
Warrants
The
following table summarizes information about stock warrants outstanding and
exercisable as of April 15, 2010.
|
Exercise
Price
|
|
|
Outstanding
April
15,
2010
|
|
|
Weighted
Average
Remaining
Life in
Years
|
|
|
Number
exercisable
|
|
|
$
|
1.20
|
|
|
|
1,989,092
|
|
|
|
2.
79
|
|
|
|
1,989,092
|
|
|
$
|
1.698
|
|
|
|
1,985,681
|
|
|
|
2.
58
|
|
|
|
1,985,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,974,773
|
|
|
|
|
|
|
|
3,974,773
|
|
If we
issue warrants in connection with an offering of securities, the applicable
prospectus supplement will describe the following terms, where applicable, of
the warrants in respect of which this prospectus is being
delivered:
|
·
|
The
title of the warrants;
|
|
·
|
The
aggregate number of the warrants;
|
|
·
|
The
price or prices at which the warrants will be
issued;
|
|
·
|
The
designation, amount and terms of the offered securities purchasable upon
exercise of the warrants;
|
|
·
|
if
applicable, the date on and after which the warrants and the offered
securities purchasable upon exercise of the warrants will be separately
transferable;
|
|
·
|
The
terms of the securities purchasable upon exercise of such warrants and the
procedures and conditions relating to the exercise of such
warrants;
|
|
·
|
Any
provisions for adjustment of the number or amount of securities receivable
upon exercise of the warrants or the exercise price of the
warrants;
|
|
·
|
The
price or prices at which and currency or currencies in which the offered
securities purchasable upon exercise of the warrants may be
purchased;
|
|
·
|
The
date on which the right to exercise the warrants shall commence and the
date on which the right shall
expire;
|
|
·
|
The
minimum or maximum amount of the warrants that may be exercised at any one
time;
|
|
·
|
information
with respect to book-entry procedures, if
any;
|
|
·
|
if
appropriate, a discussion of Federal income tax consequences;
and
|
|
·
|
Any
other material terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
|
We
anticipate that warrants for the purchase of common stock or preferred stock
will be offered and exercisable for U.S. dollars only. Warrants will be issued
in registered form only.
Upon
receipt of payment and the warrant certificate properly completed and duly
executed at the corporate trust office of the warrant agent or any other office
indicated in the applicable prospectus supplement, we will, as soon as
practicable, forward the purchased securities. If less than all of the warrants
represented by the warrant certificate are exercised, a new warrant certificate
will be issued for the remaining warrants.
Prior to
the exercise of any securities warrants to purchase common stock, holders of the
warrants will not have any of the rights of holders of the common stock
purchasable upon exercise, including in the case of securities warrants for the
purchase of common stock, the right to vote or to receive any payments of
dividends on the common stock purchasable upon exercise.
Debt
Securities
The
following description, together with the additional information we include in
any applicable prospectus supplements, summarizes the material terms and
provisions of the debt securities that we may offer under this prospectus, but
is not complete. We may issue debt securities, in one or more series, as either
senior or subordinated debt or as senior or subordinated convertible debt. While
the terms we have summarized below will apply generally to any future debt
securities we may offer under this prospectus, we will describe the particular
terms of any debt securities that we may offer in more detail in the applicable
prospectus supplement. Unless the context requires otherwise, whenever we refer
to the “indentures,” we also are referring to any supplemental indentures that
specify the terms of a particular series of debt securities.
We may
issue any new debt securities under an indenture that we will enter into with a
trustee named in such indenture, all as set forth in a prospectus supplement.
The form of any such indentures will be filed in an amendment to this
registration statement relating to the prospectus supplement. Any
indenture and any trustee will be qualified under the Trust Indenture Act of
1939, as amended (the “Trust Indenture Act”).
The
following summaries of material provisions of any senior debt securities, any
subordinated debt securities and the related indentures are subject to, and
qualified in their entirety by reference to, all of the provisions of any
indenture applicable to a particular series of debt securities. We urge you to
read the applicable prospectus supplements related to any debt securities that
we may offer under this prospectus, as well as the complete indentures that
contains the terms of any debt securities. Except as we may otherwise indicate,
the terms of any senior indenture and any subordinated indenture will be
identical.
In
addition, the material specific financial, legal and other terms as well as any
material U.S. federal income tax consequences particular to securities of each
series will be described in the prospectus supplement relating to the securities
of that series. The prospectus supplement may or may not modify the general
terms found in this prospectus and will be filed with the SEC. For a complete
description of the terms of a particular series of debt securities, you should
read both this prospectus and the prospectus supplement relating to that
particular series.
General
The terms
of each series of debt securities will be established by or pursuant to a
resolution of our board of directors and set forth or determined in the manner
provided in an officers’ certificate or by a supplement indenture. Debt
securities may be issued in separate series without limitation as to aggregate
principal amount. We may specify a maximum aggregate principal amount for the
debt securities of any series. This section and the applicable prospectus
supplement summarize all the material terms of the applicable indenture and the
debt security being offered. They do not, however, describe every aspect of the
indenture and the debt security. For example, in this section and the prospectus
supplement we use terms that have been given special meaning in the indenture,
but we describe the meaning for only the more important of those terms. We will
describe in the applicable prospectus supplement the terms of the series of debt
securities being offered, including:
|
•
|
the
principal amount being offered, and if a series, the total amount
authorized and the total amount
outstanding;
|
|
•
|
any
limit on the amount that may be
issued;
|
|
•
|
whether
or not we will issue the series of debt securities in global form, and, if
so, the terms and who the depositary will
be;
|
|
•
|
the
annual interest rate, which may be fixed or variable, or the method for
determining the rate and the date interest will begin to accrue, the dates
interest will be payable and the regular record dates for interest payment
dates or the method for determining such
dates;
|
|
•
|
whether
or not the debt securities will be secured or unsecured, and the terms of
any secured debt;
|
|
•
|
the
terms of the subordination of any series of subordinated
debt;
|
|
•
|
the
place where payments will be
payable;
|
|
•
|
restrictions
on transfer, sale or other assignment, if
any;
|
|
•
|
our
right, if any, to defer payment of interest and the maximum length of any
such deferral period;
|
|
•
|
the
date, if any, after which, and the price at which, we may, at our option,
redeem the series of debt securities pursuant to any optional or
provisional redemption provisions and the terms of those redemption
provisions;
|
|
•
|
the
date, if any, on which, and the price at which we are obligated, pursuant
to any mandatory sinking fund or analogous fund provisions or otherwise,
to redeem, or at the holder’s option, to purchase, the series of debt
securities and the currency or currency unit in which the debt securities
are payable;
|
|
•
|
whether
the indenture will restrict our ability
to:
|
|
•
|
incur
additional indebtedness;
|
|
•
|
issue
additional securities;
|
|
•
|
Pay
dividends or make distributions in respect of our capital stock or the
capital stock of our subsidiaries;
|
|
•
|
place
restrictions on our subsidiaries’ ability to pay dividends, make
distributions or transfer assets;
|
|
•
|
make
investments or other restricted
payments;
|
|
•
|
Sell
or otherwise dispose of assets;
|
|
•
|
enter
into sale-leaseback transactions;
|
|
•
|
engage
in transactions with stockholders or
affiliates;
|
|
•
|
issue
or sell stock of our subsidiaries;
or
|
|
•
|
effect
a consolidation or merger;
|
|
•
|
whether
the indenture will require us to maintain any interest coverage, fixed
charge, cash flow-based, asset-based or other financial
ratios;
|
|
•
|
A
discussion of certain material or special U.S. federal income tax
considerations applicable to the debt
securities;
|
|
•
|
information
describing any book-entry features;
|
|
•
|
provisions
for a sinking fund purchase or other analogous fund, if
any;
|
|
•
|
the
applicability of the provisions in the indenture on
discharge;
|
|
•
|
whether
the debt securities are to be offered at a price such that they will be
deemed to be offered at an “original issue discount” as defined in
paragraph (a) of Section 1273 of the Internal Revenue Code of 1986, as
amended;
|
|
•
|
the
denominations in which we will issue the series of debt securities, if
other than denominations of $1,000 and any integral multiple
thereof;
|
|
•
|
the
currency of payment of debt securities if other than U.S. dollars and the
manner of determining the equivalent amount in U.S. dollars;
and
|
|
•
|
any
other specific terms, preferences, rights or limitations of, or
restrictions on, the debt securities, including any additional events of
default or covenants provided with respect to the debt securities, and any
terms that may be required by us or advisable under applicable laws or
regulations.
|
Principal
Amount, Stated Maturity and Maturity
The
principal amount of a debt security means the principal amount payable at its
stated maturity, unless that amount is not determinable, in which case the
principal amount of a debt security is its face amount.
The term
“stated maturity,” with respect to any debt security, means the day on which the
principal amount of your debt security is scheduled to become due. The principal
may become due sooner, by reason of redemption or acceleration after a default
or otherwise in accordance with the terms of the debt security or the applicable
indenture. The day on which the principal actually becomes due, whether at the
stated maturity or earlier, is called the “maturity” of the
principal.
We also
use the terms “stated maturity” and “maturity” to refer to the days when other
payments become due. For example, we may refer to a regular interest payment
date when an installment of interest is scheduled to become due as the “stated
maturity” of that installment. When we refer to the “stated maturity” or the
“maturity” of a debt security without specifying a particular payment, we mean
the stated maturity or maturity, as the case may be, of the
principal.
Conversion
or Exchange Rights
We will
set forth in the applicable prospectus supplement the terms on which a series of
debt securities may be convertible into or exchangeable for our common stock or
other securities. We will include provisions as to whether conversion
or exchange is mandatory, at the option of the holder or at our
option. We may include provisions pursuant to which the number of
shares of our common stock or other securities that the holders of the series of
debt securities receive would be subject to adjustment.
Consolidation,
Merger or Sale
Unless we
provide otherwise in the prospectus supplement applicable to a particular series
of debt securities, the indentures will not contain any covenant that is a
material restriction on our ability to merge or consolidate, or sell, convey,
transfer or otherwise dispose of all or substantially all of our
assets.
Events
of Default under the Indenture
Unless we
provide otherwise in the prospectus supplement applicable to a particular series
of debt securities, the following are events of default under the indentures
with respect to any series of debt securities that we may issue:
|
•
|
If
we fail to pay interest when due and payable and our failure continues for
90 days and the time for payment has not been
extended;
|
|
•
|
If
we fail to pay the principal, premium or sinking fund payment, if any,
when due and payable at maturity, upon redemption or repurchase or
otherwise, and the time for payment has not been
extended;
|
|
•
|
If
we fail to observe or perform any other covenant contained in the debt
securities or the indentures, other than a covenant specifically relating
to another series of debt securities, and our failure continues for 90
days after we receive notice from the trustee or we and the trustee
receive notice from the holders of at least 51% , or such other percent as
shall be set forth in the debt instrument or indenture, in aggregate
principal amount of the outstanding debt securities of the applicable
series; and
|
|
•
|
If
specified events of bankruptcy, insolvency or reorganization
occur.
|
We will
describe in each applicable prospectus supplement any additional events of
default or differences in the events of default identified above relating to the
relevant series of debt securities.
If an
event of default with respect to debt securities of any series occurs and is
continuing, other than an event of default specified in the last bullet point
above, the trustee or the holders of at least 51%, or such other percent as
shall be set forth in the debt instrument or indenture, in aggregate principal
amount of the outstanding debt securities of that series, by notice to us in
writing, and to the trustee if notice is given by such holders, may declare the
unpaid principal, premium, if any, and accrued interest, if any, due and payable
immediately. If an event of default specified in the last bullet
point above occurs with respect to us, the unpaid principal, premium, if any,
and accrued interest, if any, of each issue of debt securities then outstanding
shall be due and payable without any notice or other action on the part of the
trustee or any holder.
Subject
to the terms of the indentures, the holders of a majority, or such other percent
as shall be set forth in the debt instrument or indenture, in principal amount
of the outstanding debt securities of an affected series may waive any default
or event of default with respect to the series and its consequences, except
defaults or events of default regarding payment of principal, premium, if any,
or interest, unless we have cured the default or event of default in accordance
with the indenture. Any waiver shall cure the default or event of
default.
Subject
to the terms of the indentures, if an event of default under an indenture occurs
and continues, the trustee will be under no obligation to exercise any of its
rights or powers under such indenture at the request or direction of any of the
holders of the applicable series of debt securities, unless such holders have
offered the trustee reasonable indemnity or security satisfactory to it against
any loss, liability or expense. The holders of a majority, or such
other percent as shall be set forth in the debt instrument or indenture, in
principal amount of the outstanding debt securities of any series will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee, or exercising any trust or power conferred on
the trustee, with respect to the debt securities of that series, provided
that:
|
•
|
the
direction so given by the holder is not in conflict with any law or the
applicable indenture; and
|
|
•
|
subject
to its duties under the Trust Indenture Act, the trustee need not take any
action that might involve it in personal liability or might be unduly
prejudicial to the holders not involved in the
proceeding.
|
The
indentures provide that if an event of default has occurred and is continuing,
the trustee will be required in the exercise of its powers to use the degree of
care that a prudent person would use in the conduct of its own
affairs. The trustee, however, may refuse to follow any direction
that conflicts with law or the indenture, or that the trustee determines is
unduly prejudicial to the rights of any other holder of the relevant series of
debt securities, or that would involve the trustee in personal
liability. Prior to taking any action under the indentures, the
trustee will be entitled to indemnification against all costs, expenses and
liabilities that would be incurred by taking or not taking such
action.
Modification
of Indenture; Waiver
Subject
to the terms of the indenture for any series of debt securities that we may
issue, we and the trustee may change an indenture without the consent of any
holders with respect to the following specific matters:
|
•
|
to
fix any ambiguity, defect or inconsistency in the
indenture;
|
|
•
|
to
comply with assumption of obligations in the event of a consolidation,
merger, or sale;
|
|
•
|
to
comply with any requirements of the SEC in connection with the
qualification of any indenture under the Trust Indenture
Act;
|
|
•
|
to
add to, delete from or revise the conditions, limitations, and
restrictions on the authorized amount, terms, or purposes of issue,
authentication and delivery of debt securities, provided that it does not
have a material adverse effect on any holders as set forth in the
indenture;
|
|
•
|
to
provide for the issuance of and establish the form and terms and
conditions of the debt securities of any series as provided under
“Description of Debt Securities — General,” to establish the form of any
certifications required to be furnished pursuant to the terms of the
indenture or any series of debt securities, or to add to the rights of the
holders of any series of debt
securities;
|
|
•
|
to
evidence and provide for the acceptance of appointment hereunder by a
successor trustee;
|
|
•
|
to
provide for uncertificated debt securities and to make all appropriate
changes for such purpose;
|
|
•
|
to
add to our covenants such new covenants, restrictions, conditions or
provisions for the benefit of the holders, to make the occurrence, or the
occurrence and the continuance, of a default in any such additional
covenants, restrictions, conditions or provisions an event of default or
to surrender any right or power conferred to us in the indenture;
or
|
|
•
|
to
change anything that does not adversely affect the interests of any holder
of debt securities of any series in any material
respect.
|
In
addition, under the indentures, the rights of holders of a series of debt
securities may be changed by us and the trustee with the written consent of the
holders of at least a majority in aggregate principal amount of the outstanding
debt securities of each series that is affected. However, subject to
the terms of the indenture for any series of debt securities that we may issue
or otherwise provided in the prospectus supplement applicable to a particular
series of debt securities, we and the trustee may only make the following
changes with the consent of each holder of any outstanding debt securities
affected:
|
•
|
extending
the stated maturity of the series of debt
securities;
|
|
•
|
reducing
the principal amount, reducing the rate of or extending the time of
payment of interest, or reducing any premium payable upon the redemption
or repurchase of any debt securities;
or
|
|
•
|
reducing
the percentage of debt securities, the holders of which are required to
consent to any amendment, supplement, modification or
waiver.
|
Discharge
Each
indenture provides that, subject to the terms of the indenture and any
limitation otherwise provided in the prospectus supplement applicable to a
particular series of debt securities, we can elect to be discharged from our
obligations with respect to one or more series of debt securities, except for
specified obligations, including obligations to:
|
•
|
register
the transfer or exchange of debt securities of the
series;
|
|
•
|
replace
stolen, lost or mutilated debt securities of the
series;
|
|
•
|
maintain
paying agencies;
|
|
•
|
recover
excess money held by the trustee;
|
|
•
|
compensate
and indemnify the trustee; and
|
|
•
|
appoint
any successor trustee.
|
In order
to exercise our rights to be discharged, we must deposit with the trustee money
or government obligations sufficient to pay all the principal of, any premium
and interest on, the debt securities of the series on the dates payments are
due.
Form,
Exchange and Transfer
We may
issue debt securities of each series only in fully registered form without
coupons and, unless we otherwise specify in the applicable prospectus
supplement, in denominations of $1,000 and any integral multiple
thereof. The indentures will provide that we may issue debt
securities of a series in temporary or permanent global form and as book-entry
securities that will be deposited with, or on behalf of, The Depository Trust
Company or another depositary named by us and identified in a prospectus
supplement with respect to that series (the “Depository”). See
“Book-Entry” below for a further description of the terms relating to any
book-entry securities.
At the
option of the holder, subject to the terms of the indentures and the limitations
applicable to global securities described in the applicable prospectus
supplement, the holder of the debt securities of any series can exchange the
debt securities for other debt securities of the same series, in any authorized
denomination and of like tenor and aggregate principal amount.
Subject
to the terms of the indentures and the limitations applicable to global
securities set forth in the applicable prospectus supplement, holders of the
debt securities may present the debt securities for exchange or for registration
of transfer, duly endorsed or with the form of transfer endorsed thereon duly
executed if so required by us or the security registrar, at the office of the
security registrar or at the office of any transfer agent designated by us for
this purpose. Unless otherwise provided in the debt securities that
the holder presents for transfer or exchange, we will make no service charge for
any registration of transfer or exchange, but we may require payment of any
taxes or other governmental charges.
We will
name in the applicable prospectus supplement the security registrar, and any
transfer agent in addition to the security registrar, that we initially
designate for any debt securities. We may at any time designate
additional transfer agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent acts, except
that we will be required to maintain a transfer agent in each place of payment
for the debt securities of each series.
Subordination
Any debt
securities which are designated as subordinated debt will be unsecured and will
be subordinate and junior in priority of payment to certain of our other
indebtedness to the extent described in a prospectus supplement. The
subordinated indenture does not limit the amount of subordinated notes which we
may issue, nor does it limit us from issuing any other secured or unsecured
debt.
Delaware
Law and Certain Charter and By-law Provisions
We are
subject to the provisions of Section 203 of the Delaware General Corporation Law
statute. Section 203 prohibits a publicly-held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A “business
combination” includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an “interested stockholder” is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation’s voting stock.
Our
certificate of incorporation contains certain provisions permitted under
Delaware General Corporation Law relating to the liability of directors. The
provisions eliminate a director’s liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances where such liability may not be
eliminated under applicable law. Further, our certificate of incorporation
contains provisions to indemnify our directors and officers to the fullest
extent permitted by Delaware General Corporation Law.
Transfer Agent
The
transfer agent for our common stock is Empire Stock Transfer, Inc., its address
is 1859 Whitney Mesa Dr., Henderson, NV 89014, and its telephone number is (702)
818-5898.
LEGAL
MATTERS
The
validity of the securities being offered by this prospectus will be passed upon
for us by Sichenzia Ross Friedman Ference LLP, New York, New York. If the
validity of any securities is also passed upon by counsel any underwriters,
dealers or agents, that counsel will be named in the prospectus supplement
relating to that specific offering.
EXPERTS
The
consolidated financial statements of China Wind Systems, Inc. as
of December 31, 2009 and 2008 and for the fiscal years then ended
have been audited by Sherb & Co. LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We are
subject to the reporting requirements of the Exchange Act and file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy these reports, proxy statements and other information
at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.
You can request copies of these documents by writing to the SEC and paying a fee
for the copying cost. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. The SEC also maintains an Internet
site that contains reports, proxy statements and other information about
issuers, like us, who file electronically with the SEC. The address of the SEC’s
web site is
http://www.sec.gov
. Our common stock is listed for trading on the NASDAQ Global Market under the
symbol “CWS.”
We have
filed a registration statement on Form S-3 with the SEC to register the
securities that may be offered pursuant to this prospectus. This prospectus is
part of that registration statement and, as permitted by the SEC’s rules, does
not contain all of the information included in the registration statement. For
further information about us, this offering and our common stock, you may refer
to the registration statement and its exhibits and schedules as well as the
documents described herein or incorporated herein by reference. You can review
and copy these documents, without charge, at the public reference facilities
maintained by the SEC or on the SEC’s website as described above, or you may
obtain a copy from the SEC upon payment of the fees prescribed by the
SEC.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
The SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information we incorporate by reference is considered to be
an important part of this prospectus, and information that we file with the SEC
at a later date will automatically add to, update or supersede this
information.
We incorporate by reference into this prospectus the documents listed
below:
|
•
|
our
annual report on Form 10-K for the year ended December 31, 2009
filed with the SEC on March 31,
2010;
|
|
•
|
our
definitive proxy statement on Schedule 14A filed with the SEC on February
17, 2010;
|
|
•
|
our
current reports on Form 8-K, filed with the SEC on the following
dates:
|
January
11, 2010
January
13. 2010
February
26, 2010
March 8,
2010
March 9,
2010
March 31,
2010
|
•
|
the
description of our common stock contained in our registration statement on
Form 8-A filed on December 24,
2009.
|
We are
also incorporating by reference all future filings that we make with the SEC
under Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of
filing of the registration statement on Form S-3 of which this prospectus is a
part and prior to the termination or completion of any offering of securities
under this prospectus and all applicable prospectus supplements (except, in each
case, for information contained in any such filing that is furnished and not
“filed” under the Exchange Act), which filings will be deemed to be incorporated
by reference in this prospectus, as supplemented by the applicable prospectus
supplement, and to be a part hereof from the respective dates of such
filings.
We will
provide without charge to each person, including any beneficial owner, to whom
this prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the information that is incorporated by reference in this
prospectus. Requests for such documents should be directed to: China Wind
Systems, Inc., No. 9 Yanyu Middle Road, Qianzhou Village, Huishan
District, Wuxi City, Jiangsu Province, the People’s Republic of China
214181, Attention: Investor Relations, Tel:011-86-
5108-339-7559.
This
prospectus is part of a registration statement on Form S-3 that we filed with
the SEC. That registration statement contains more information than this
prospectus regarding us and our common stock, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address listed above or from the SEC’s Internet website.
You should rely only on the
information provided in and incorporated by reference into this prospectus or
any prospectus supplement. We have not authorized anyone else to provide you
with different information. You should not assume that the information in this
prospectus or any prospectus supplement is accurate as of any date other than
the date on the front cover of these documents.
$30,000,000
Common
Stock
Warrants
Debt
Securities
Units
China
Wind Systems, Inc.
Prospectus
,
2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
The
following table sets forth the costs and expenses to be paid by us in connection
with the sale of the shares of common stock being registered hereby. All amounts
are estimates, except for the SEC registration fee.
SEC
registration fee
|
|
$
|
2,139
|
|
Printing
and engraving expenses
|
|
|
10,000
|
|
Accounting
fees and expenses
|
|
|
5,000
|
|
Legal
fees and expenses
|
|
|
12,500
|
|
Miscellaneous
expenses
|
|
|
|
|
Total
|
|
$
|
29,639
|
|
Item
15. Indemnification of Directors and Officers.
Section 145 of the
Delaware General Corporation Law, as amended, authorizes us to indemnify any
director or officer under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorney’s
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which a
person is a party by reason of being a director or officer of China Wind if it
is determined that such person acted in accordance with the applicable standard
of conduct set forth in such statutory provisions. Our Certificate of
Incorporation contains provisions relating to the indemnification of director
and officers and our By-Laws extend such indemnities to the full extent
permitted by Delaware law. We may also purchase and maintain insurance for the
benefit of any director or officer, which may cover claims for which we could
not indemnify such persons.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Item
16. Exhibits.
The
following exhibits are filed herewith and as a part of this registration
statement:
Exhibit
Number
|
|
Description
|
2.1
|
|
Share
Exchange Agreement among Malex Inc., Malex’s Majority Stockholder, Fulland
and the Fulland Shareholders dated November 13, 2007
(1)
|
|
|
|
4.1
|
|
Amended
Articles of Incorporation setting forth the designations of Series A
Preferred Stock of the Company as filed with the Secretary of Delaware
(2)
|
|
|
|
5.1
|
|
Opinion
of Sichenzia Ross Friedman Ference LLP*
|
|
|
|
23.1
|
|
Consent
of Sichenzia Ross Friedman Ference LLP (included in Exhibit
5.1)
|
|
|
|
23.2
|
|
Consent
of Sherb & Co.
LLP*
|
|
(1)
|
Incorporated
by reference to the Form 8-K filed by the Registrant on November 13,
2007.
|
|
(2)
|
Incorporated
by reference to the Form 8-K filed by the Registrant on September 15,
2009.
|
* filed
herewith.
Item
17. Undertakings.
(a)
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in this registration statement or any material change to
such information in this registration statement.
provided, however,
that the
undertakings set forth in paragraphs (1)(i), (1)(ii) and (1)(iii) above do not
apply if the registration statement is on Form S-3 or Form F-3 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in reports filed with or furnished to the SEC by the
registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statements or
is contained in a form of prospectus filed pursuant to Rule 424(b) that is a
part of the registration statement.
(2)
That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3)
To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
(i) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(ii) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date.
(5)
That, for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities, the undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser: (i) any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to be filed pursuant to
Rule 424; (ii) any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned registrant or used or referred to by the
undersigned registrant; (iii) the portion of any other free writing prospectus
relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned
registrant; and (iv) any other communication that is an offer in the offering
made by the undersigned registrant to the purchaser.
(b) That:
(i) for purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of the
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective; and (ii) for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide
offering
thereof.
(c) That,
for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona
fide
offering thereof.
(d) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) If
and when applicable, the undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the SEC under Section 305(b)(2) of
the Trust Indenture Act.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Beijing, People’s Republic of China, on this 28
th
day of
April, 2010.
|
CHINA
WIND SYSTEMS, INC.
|
|
|
|
|
By:
|
/
s/ Jianhua Wu
|
|
Jianhua
Wu, Chief Executive
Officer
|
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jianhua Wu, as his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (1) any and all
amendments to this Form S-3 (including post-effective amendments) and (2) any
registration statement or post-effective amendment thereto to be filed with the
Securities and Exchange Commission pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and any other regulatory authority, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Jianhua Wu
|
|
Chief
Executive Officer,
|
|
April
28, 2010
|
Jianhua
Wu
|
|
Chairman
of the Board of Directors and Director
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
Teresa Zhang
|
|
Chief
Financial Officer
|
|
April
28, 2010
|
Teresa
Zhang
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/
Xuezhong Hua
|
|
Director
|
|
April
28, 2010
|
Xuezhong
Hua
|
|
|
|
|
|
|
|
|
|
/s/
Xi Liu
|
|
Director
|
|
April
28, 2010
|
Xi
Liu
|
|
|
|
|
|
|
|
|
|
/s/
Drew Bernstein
|
|
Director
|
|
April
28, 2010
|
Drew
Bernstein
|
|
|
|
|
/s/
Megan Penick
|
|
Director
|
|
April
28, 2010
|
Megan
Penick
|
|
|
|
|
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