424B1 1 v165478_424b1.htm Unassociated Document
 
Filed Pursuant to Rule 424(b)(1)
Registration Nos. 333-161924
and 333-163013

PROSPECTUS
 
4,800,000 Ordinary Shares


GOLDEN GREEN ENTERPRISES LIMITED

·
We are offering 4,800,000 ordinary shares.
 
·
Our ordinary shares have been approved for listing on the Nasdaq Global Market under the symbol “CHOP.”
 
The purchase of the ordinary shares involves a high degree of risk.  See “Risk Factors” beginning on page 10.
 
   
Per Share
   
Total
 
Public offering price
  $  5.00     $ 24,000,000  
Underwriting discount(1)
  $ 0.35     $ 1,680,000  
Proceeds, before expenses, to Golden Green Enterprises Limited  
  $ 4.65     $ 22,320,000  
 
(1) Does not include a corporate finance fee in the amount of 1% of the gross proceeds, or $0.05 per share payable to the underwriters.
 
This is a firm commitment underwriting.  We have granted the underwriters a 45-day option to purchase up to an additional 720,000 ordinary shares solely to cover over-allotments, if any.
 
The underwriters expect to deliver the ordinary shares on or about November 16, 2009.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
Maxim Group LLC
 
Chardan Capital Markets, LLC
 
The date of this prospectus is November 9, 2009.
 
 
 

 

TABLE OF CONTENTS
 
 
Page
SUMMARY
1
RISK FACTORS
10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
32
USE OF PROCEEDS
33
DIVIDEND POLICY
33
PRICE RANGE OF OUR SECURITIES
34
EXCHANGE RATE INFORMATION
36
CAPITALIZATION
37
SELECTED CONSOLIDATED FINANCIAL DATA
38
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
41
CORPORATE STRUCTURE AND HISTORY
55
OUR INDUSTRY
58
OUR BUSINESS
64
MANAGEMENT
73
RELATED PARTY TRANSACTIONS
78
PRINCIPAL SHAREHOLDERS
81
DESCRIPTION OF OUR SECURITIES
83
SHARES ELIGIBLE FOR FUTURE SALE
91
TAXATION
92
ENFORCEABILITY OF CIVIL LIABILITIES
98
UNDERWRITING
99
EXPENSES RELATED TO THIS OFFERING
105
LEGAL MATTERS
105
EXPERTS
105
WHERE YOU CAN FIND MORE INFORMATION
105
INDEX TO FINANCIAL STATEMENTS  F-1
 

 
You should only rely on the information contained in this prospectus.  We have not, and the underwriters have not, authorized any other person to provide you with different information.  This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted.  The information in this prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

We obtained statistical data, market data and other industry data and forecasts used throughout this prospectus from market research, publicly available information and industry publications.  While we believe that the statistical data, industry data, forecasts and market research are reliable, we have not independently verified the data and we do not make any representation as to the accuracy of the information.
 
 
i

 


SUMMARY
 
The items in the following summary are described in more detail later in this prospectus.  Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements, the notes thereto and matters set forth under “Risk Factors.”

In this prospectus, unless indicated otherwise, references to: (1) “Golden Green,” “the company,” “we,” “us,” or “our” refer to the combined business of Golden Green Enterprises Limited and all of its direct and indirect subsidiaries; (2) “Wealth Rainbow” refers to Wealth Rainbow Development Limited, a company organized under the laws of Hong Kong, which is the direct, wholly-owned subsidiary of Golden Green; (3) “Henan Green” refers to Henan Green Complex Materials Co., Ltd., a company organized under the laws of the People’s Republic of China, which is Golden Green’s  indirect, wholly-owned subsidiary and the company which conducts substantially all of our business operations; (4) “COAC” refers to China Opportunity Acquisition Corp., which merged with and into Golden Green in March 2009, (5) “China” and “PRC” refer to People’s Republic of China; (6) “BVI” refers to the British Virgin Islands; (7) “RMB” refers to Renminbi, the legal currency of China; and (8) “U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States.

Unless expressly stated to the contrary, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option.
 
Golden Green Enterprises Limited
 
Our Business

We are a leading China-based, non state-owned contract manufacturer of high precision cold-rolled steel products.  In particular, we are the largest manufacturer in China of high precision cold-rolled narrow strip steel based on sales revenue with a market share of approximately 12.5% of the Chinese market in 2008, according to Freedonia Custom Research, or Freedonia. We utilize a variety of processes and methodologies to convert steel manufactured by third parties into thin steel sheets and strips according to customer specifications.  We produce precision ultra-thin, high strength cold-rolled steel products, with thicknesses ranging from 0.09 mm to 1.3 mm, width up to 600 mm and precision ranging from 0.0025 mm to 0.005 mm.  We sell our products to domestic Chinese customers who primarily operate in the food and packaging, construction materials, telecommunications cable and equipment and electrical appliances industries.  The cold-rolled precision steel industry is relatively new in China.  Manufacturers of products that use specialty precision steel products, such as our customers, traditionally imported raw materials from Japan, South Korea, the European Union and the United States.

Our revenue increased from $45.5 million in 2004 to $62.5 million in 2005, $99.0 million in 2006, $139.6 million in 2007 and $196.3 million in 2008, representing a compound annual growth rate (CAGR) of approximately 44.1% from 2004 to 2008.  Revenue grew 1.4% from $101.0 million for the six months ended June 30, 2008 to $102.4 million for the six months ended June 30, 2009.  Net income before minority interest increased from $4.0 million in 2004 to $7.8 million in 2005, $15.9 million in 2006, $23.7 million in 2007 and $35.5 million in 2008, representing a CAGR of 72.6% from 2004 to 2008.  Our net income grew 4.0% from $19.8 million for the six months ended June 30, 2008 to $20.6 million for the six months ended June 30, 2009.  For the fiscal years ended 2007 and 2008, we reported a minority interest of $10.6 million and $14.0 million, respectively, after our acquisition of Henan Green due to a 44.98% minority ownership interest.  As of March 17, 2009, the minority interest ceased to exist.

We believe that our significant growth reflects our success in increasing market penetration and expanding  production lines.  As a net importer of high-end precision products, China currently still lacks the capability to produce high-end precision steel products.  Our success in the past mainly came from being able to expand into products which replace expensive imported products and being able to manufacture these types of products at a cost-efficient level compared to domestic Chinese manufacturers. We believe our technology and product development capability is a key driving force behind this success.

Our PRC manufacturing facility is located in Zhengzhou, Henan Province.  We operate six sets of cold-rolled steel production lines with a current annual steel processing capacity of approximately 250,000 metric tons and a chromium coating production line with an annual capacity of approximately 50,000 metric tons.

 
1

 


Prior to 2009, we produced and sold uncoated steel sheets to manufacturers or distributors which then further treated or outsourced our products for tin or zinc coating to produce tinplate or zinc-coated steel, or for electrolytic chromic acid treatments to produce chromium coated steel, according to customer specifications.  We added chromium coating facilities in December 2008, and launched mass production of chromium coated steel products in February 2009.  Going forward, we plan to add production lines in tin- and zinc- coating to increase our product offerings and which we believe will increase our profit margin.  Newly-added capacity to produce these types of high-end coated steel products will enable us to expand our business into construction decoration materials, a high profit margin business.  In addition, we plan to use a significant portion of the net proceeds of this offering to expand our cold-rolled steel processing capacity to 500,000 metric tons by 2011.

Market Opportunity

China has been the world’s largest manufacturer of crude steel since 1996. Growth in the global steel industry has been driven primarily by China’s economic development in recent years.  From 2002 to 2008, world steel production grew at a CAGR of 7%.  During this period, Chinese steel production grew at a CAGR of 18%, and the GDP growth per year in the country was 10%.  In 2008 China accounted for approximately 38% of the world’s steel production and approximately 41% of the world’s steel consumption.

China has historically been a net importer of high precision cold-rolled steel products.  To meet demand, manufacturers have generally imported precision steel products from Japan, Korea and the United States.  From 2005 to 2008, China’s production of cold-rolled products grew at a CAGR of 29.1% to reach 40 million tons, replacing a large percentage of imported products while closing the gap between its demand and supply.  According to Freedonia, consumption of high precision cold-rolled narrow strip steel products with width below 600 mm and thickness less then 0.3 mm amounted to 1.4 million metric tons in 2008, growing at a CAGR of 19.1% from 2005 to 2008 and is projected to grow at 10.0% from 2008 to 2011 to reach 1.87 tons.  Imports of narrow strip steel have declined while Chinese manufacturers have increased their production over time. We have benefited from, and expect to continue to benefit from, the growing demand and the opportunity of replacing imported products as a result of cost advantages in manufacturing, distribution and logistics.

High precision cold-rolled narrow strip steel is used in a wide range of industries including the food and packaging, construction materials, telecommunications cable and equipment and electrical appliances industries.  Demand for high precision steel in these end markets in China is projected to grow over the foreseeable future, and we believe we are well positioned to benefit from this growth.  We believe our established presence as a supplier of precision steel products to each of these industries will enable us to take advantage of the anticipated growth in demand in these end markets.

Our Competitive Strengths

We believe that the following competitive strengths contribute to our strong market position and will enable us to continue to improve our profitability and cash flow:

 
·
We have a strong track record of growth. During the years from 2004 through 2008, our revenue has grown at a CAGR of approximately 44.1%.  We intend to continue this growth by expanding our processing capacity, adding coated steel production capacity and introducing new products with higher profit margins.

 
·
Strong reputation and experience as a leading China-based manufacturer of precision cold-rolled narrow strip steel. We are the largest manufacturer in China of high precision cold-rolled narrow strip steel based on sales revenue with a market share of approximately 12.5% of the Chinese market in 2008, according to Freedonia.  We work with customers and end users from the trial stage to commercial production in the development and commercialization of new, high-performance products.  We believe we are often the supplier of choice when our existing customers develop new products, and we have developed a reputation as an experienced contract manufacturer that offers process development and manufacturing services tailored to meet the needs of customers.

 
2

 


 
·
Range of diversified end markets in growing industries we serve.  We sell our products to customers in a diverse range of industries, including the food packaging, telecommunication, electrical appliance, and construction materials industries.  We believe the broad range of end markets reflects the strength of our reputation as well as the wide range of available markets for our products.  Demand for high precision steel in these end markets is projected to grow, and we believe we are well positioned to benefit from this growth.

 
·
Ability to manage the fluctuation of raw material and final product prices in a volatile steel market environment.  Our principal raw materials, hot-rolled and cold-rolled steel, account for the majority of our production costs.  The price of our raw materials is largely set and affected by fluctuations in steel prices.  As the direction of the steel price changes, we believe our ability to manage the price of raw materials, prices of our final products and our long-term relationships with suppliers and customers are key to our success.

 
·
Our potential competitors face significant barriers to entry. High-precision cold-rolled steel products are produced in capital intensive manufacturing operations using large and advanced pieces of equipment which require considerable initial investment, maintenance and repair expenses, thereby creating a significant barrier for new market entrants.  Companies which lack substantial resources or access to capital will face significant difficulties in entering or effectively competing in our market segment.

 
·
Experienced and knowledgeable management team and loyal employees.  We have an experienced management team led by Mr. Mingwang Lu, our chairman and chief executive officer, who has been working in the steel industry since 1985.  Other members of our senior management team have an average of 15 years of experience in the steel business.  We also have good relations with employees, whose loyalty is illustrated by low employee turn-over in the last decade.

Our Growth Strategy

We intend to continue to strive to be a leading supplier of cold rolled precision steel products by pursuing the following growth strategies:
 
 
·
Increase production capacity. We intend to expand our steel processing capacity to 500,000 metric tons by 2011 and expect that the addition of this new production capacity will help us meet demand and contribute to growing our revenue.

 
·
Broaden product portfolio and mix by expanding into coated steel production.  We are developing and introducing new, higher valued-added products, such as chrome and zinc coated products, that we expect will increase our margins and meet the increasing demands of new and existing customers.

 
·
Increase market penetration. We intend to further enhance our leadership position in the high-end coated steel product segment by expanding sales channels, increasing product offerings and focusing on customer satisfaction and other competitive strengths to gain additional market share.

 
·
Strengthen our research and development capabilities.  We continually strive to manufacture high quality products to meet the rigid product specifications of our customers.  We will continue to broaden our research and development efforts.  We plan to continue to invest in research and development and expect that this investment will contribute to our ability to manufacture new high quality products to more extreme and precise specifications and tolerances.

 
·
Improve operating efficiencies and strengthen cost control. We intend to develop our business while managing financial risks and expanding our product mix and service platform.  In particular, we intend to continue to expand our technical expertise to improve manufacturing processes, increase efficiency and  control cost of raw materials and production processes.  We generally do not enter into long-term contracts with customers or end users, which enables us to price our products on a contract by contract basis utilizing the most current raw material prices and other costs, making our profit margin less susceptible to fluctuations from changes in market prices.

 
3

 


 
·
Pursue strategic relationships and acquisition opportunities.  We intend to evaluate and pursue acquisition opportunities which enhance our product offerings, customer base or geographic reach or which allow us to capitalize on our fragmented industry and to develop a more efficient cost structure and economies of scale.

Company History and Organizational Structure

We are a holding company and all of our active business operations are conducted by our indirect, operating subsidiary, Henan Green.

Golden Green was incorporated as a BVI company on March 11, 2008 under the BVI Business Companies Act, 2004.  Golden Green was incorporated solely for the purpose of acquiring the issued share capital of Wealth Rainbow, which was organized in 2008 for the sole purpose of acquiring and holding all of the outstanding equity capital in Henan Green.  Neither Golden Green nor Wealth Rainbow has any active business operations other than their ownership of Henan Green.

Henan Green is the direct wholly-owned subsidiary of Wealth Rainbow and the indirect, wholly-owned subsidiary of Golden Green.  Henan Green was formed in China in December 2000 by Zhengzhou No. 2 Iron and Steel Company Limited, together with six individuals including Mr. Mingwang Lu and Mr. Baiwang Lu, the brother of Mr. Mingwang Lu.  Mr. Mingwang Lu has been actively involved in the operations and management of Henan Green. In December 2006, Zhengzhou No. 2 Iron and Steel Company Limited transferred all its equity interest in Henan Green to 11 individuals including Mr. Mingwang Lu.  On October 21, 2008, the then shareholders of Henan Green transferred all their equity interest in Henan Green to Wealth Rainbow.

Henan Green was therefore acquired by Golden Green through Wealth Rainbow on October 21, 2008 and the acquisition was accounted for as a reorganization under common control with the purchase of a minority interest. For reporting purposes, a control group comprised of our Chairman and CEO, Mr. Lu and his two direct relatives (Mr. Lu’s son, Yi Lu and Mr. Lu’s brother, Baiwang Lu) held 55.02% of the shares of Henan Green on the date of acquisition.  Upon the acquisition, we were wholly owned by Wealth Rainbow, whose sole shareholder was Ms. Yuying Lu, the daughter of Mr. Lu.  Wealth Rainbow was acquired by Golden Green on November 28, 2008, and upon the acquisition, Henan Green was wholly owned by Golden Green, the majority shareholder of which is Oasis Green Investments Limited, whose sole shareholder is Ms. Yuying Lu, the daughter of Mr. Lu.  Therefore, under U.S. GAAP reporting rules the control group’s 55.02% interest of Henan Green that was acquired constitutes an exchange of equity interests between entities under common control, and the remaining 44.98% interest of Henan Green was accounted for as a minority interest prior to the date of acquisition.  As of March 17, 2009, the minority interest ceased to exist.

On March 17, 2009, we completed a business combination transaction with COAC.  COAC was incorporated in Delaware on August 7, 2006 as a blank check company whose objective was to acquire an operating business with its principal operations located in China.  COAC completed its initial public offering in which it raised approximately $41.4 million on March 26, 2007.  All business activity conducted by COAC from its inception until our merger on March 17, 2009 related to its initial public offering and search for a business combination partner.  Upon completion of the merger transaction with COAC, we succeeded to foreign private issuer status under applicable securities laws and the individuals who currently comprise our Board of Directors were so appointed.

The following chart reflects our organizational structure as of the date of this prospectus:
 
 
4

 

 
 
Office Location

Our principal business office is located in China at No. 69 Huaibei Street, Longhai Middle Road, Zhengzhou, China. The telephone number at our executive offices is (86)-371-6897-0951.  Our registered office is Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands and our registered agent is Equity Trust (BVI) Limited of Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands.  We maintain a website at www.henangr.com that contains information in the Chinese language about our company, but that information is not part of this prospectus.

 
5

 


The Offering
 
Ordinary shares offered(1):
 
4,800,000 shares
     
Ordinary shares outstanding prior to the offering:
  35,095,723 shares
     
Ordinary shares outstanding after the offering:
 
39,895,723 shares
     
Offering price:
 
$5.00 per ordinary share
     
Use of proceeds:
 
We intend to use the majority of the net proceeds from the offering to construct and expand our manufacturing facilities and production lines, maintain existing machinery and purchase additional manufacturing equipment for our new production lines, fund research and development efforts for new and existing products and for working capital.
 
We intend to use the remaining net proceeds for other general corporate purposes, including potential acquisitions or investments in complimentary businesses, products or technologies.  We do not currently have any agreements or understandings with third parties to make any material acquisitions of, or investment in, other businesses.  Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes.
 
See “Use of Proceeds” on page 33 for more information on the use of proceeds.
 
Dividend policy:
 
Our board of directors does not intend to declare cash dividends on our ordinary shares for the foreseeable future.
     
Trading Symbols:
 
 
Our ordinary shares, warrants, and units have been approved for listing on the NASDAQ Global Market under the symbols “CHOP”, “CHOPW”, and “CHOPU”, respectively.

 (1) assuming that the underwriters will not excercise their option to purchase up to 720,000 ordinary shares to cover over-allotments

 
Risk Factors
 
In operating our business, we have faced and will continue to face significant challenges.  Our ability to successfully operate our business is subject to numerous risks as discussed more fully in the section titled “Risk Factors.”  For example:

 
·
Evaluating our business and prospects based only on our past results may be difficult;
 
·
Our sales revenues are derived from sales to a limited number of customers;
 
·
If our customers or prospects adopt substitute products, demand for our products could decrease;
 
·
Decrease in the availability, or increase in the cost, of raw materials could materially reduce our earnings;
 
·
We may be unable to secure financing for our ongoing capital and maintenance expenditures;
 
· 
Our expansion plans require us to apply for certain governmental approvals; 
 
·
We are susceptible to a downturn or negative changes in the highly volatile steel industry; and
 
·
We are subject to risks of conducting business in China.

Any of the above risks could materially and adversely affect our business, financial position and results of operations.  An investment in our ordinary shares involves risks.  You should carefully read and consider the information set forth in “Risk Factors” and all other information set forth in this prospectus before investing in our ordinary shares.

 
6

 


Summary Consolidated Financial Information

The following summary consolidated statements of income data for the fiscal years ended December 31, 2007 and 2008 and the summary consolidated balance sheet data as of December 31, 2007 and 2008 have been derived from the audited consolidated financial statements of Golden Green that are included elsewhere in this prospectus.  The following summary statements of income data for the fiscal year ended December 31, 2006 and the summary balance sheet data as of December 31, 2006 have been derived from the audited financial statements of Henan Green that are included elsewhere in this prospectus.  The following summary consolidated statements of income data for the six months ended June 30, 2008 and 2009 and the summary consolidated balance sheet data as of June 30, 2009 have been derived from the unaudited consolidated financial statements of Golden Green that are included elsewhere in this prospectus.  Such unaudited financial information includes all adjustments, consisting of only normal recurring accruals, which our management considers necessary for the fair presentation of our financial position and results of operations for such interim periods.

Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.  Our historical results for any period are not necessarily indicative of our future performance.  You should read the following information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus.

(In thousands of U.S. dollars, except per share data)

   
Year Ended
December 31,
   
Six Months Ended
June 30,
 
   
2006
   
2007
   
 2008
   
 2008
   
 2009
 
   
(Henan Green,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
unaudited)
   
(Consolidated,
unaudited)
 
Statement of Operations Data:
                             
                               
Revenues
  $ 99,017     $ 139,649     $ 196,264     $ 100,979     $ 102,409  
Operating expenses
    (2,470 )     (3,301 )     (4,263 )     (1,889 )     (2,194 )
Operating income
    23,893       35,771       49,594       27,314       28,442  
Income taxes
    (7,770 )     (11,422 )     (11,870 )     (6,423 )     (6,897 )
Net income before minority interest(1)
    N/A       23,650       35,506       19,756       20,554  
Net income(1)(2)
    15,879       13,012       21,585       10,870       20,554  
Basic earnings per share(1)(3)(4)
    N/A     $ 0.43     $ 0.72     $ 0.36     $ 0.64  
Diluted earnings per share(1)(3)(4)
    N/A     $ 0.43     $ 0.72     $ 0.36     $ 0.59  

 
7

 


   
As of December 31,
   
As of June 30, 2009
 
   
2006
   
2007
   
 2008
   
Actual
       
   
(Henan Green,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
unaudited)
   
As Adjusted(5)
 
                               
Balance Sheet Data:
                             
                               
Working capital
  $ 6,041     $ 14,535     $ (8,789 )   $ 10,606     $ 36,516  
Current assets
    68,822       74,654       94,019       119,515       141,115  
Total assets
    85,782       91,817       115,377       143,937       165,537  
Current liabilities
    62,781       60,119       102,808       108,909       104,599  
Total liabilities
    63,239       60,273       102,836       108,909        104,599  
Shareholders’ equity
    22,543       17,356       12,540       35,028       60,938  

(1)
Henan Green was acquired by Golden Green on October 21, 2008 and for reporting purposes a 44.98% interest of Henan Green has been accounted for as a minority interest prior to the date of acquisition during the years ended December 31, 2007 and 2008.  Net income and per share data have been calculated after giving effect to the minority interest in such periods.  The minority interest was not accounted for during the years ended December 31, 2004, 2005 and 2006 in respect of Henan Green.
 
(2)
We have no discontinued operations, therefore net income and net income per share has been provided in lieu of income from continuing operations and income from continuing operations per share.
 
(3)
In anticipation of the merger transaction with China Opportunity Acquisition Corp., Golden Green effectuated a recapitalization on March 13, 2009 pursuant to which 29,999,900 newly issued ordinary shares were issued to Golden Green’s then-current shareholders pro rata with their relative ownership percentages.  Consequently, the foregoing table presents per share data (basic and diluted) on a pro forma basis assuming that the recapitalization had already occurred at all times during the periods presented.
 
(4)
Ordinary shares outstanding (actual and diluted) and per share data (basis and diluted) of Henan Green have been omitted for 2004, 2005 and 2006 because of differences in the capital structures of Golden Green and Henan Green.  Presenting such data in this prospectus is not particularly helpful and could be misleading to readers.
 
(5)
The “as adjusted” information gives effect to the sale of 4,800,000 ordinary shares in this offering (other than pursuant to the underwriters’ over-allotment option), including the application of the related gross proceeds of $24 million and the payment of the underwriting discount and commission and the estimated offering costs of $2.4 million from such sale and the collection of a subscription receivable and payment to former minority stockholders of $4.31 million which occurred in September 2009.
 
The following table includes a reconciliation of our Adjusted EBITDA to Net Income, the most directly comparable GAAP financial measure:

(In thousands of U.S. dollars)

   
For the Six Months Ended June 30
   
For Years Ended December 31,
 
   
2009
   
2008
   
2008
   
2007
   
2006
 
   
Company and its subsidiaries
   
Company and its subsidiaries
   
Henan Green
 
                               
Net Income before Minority Interest
  $ 20,554     $ 19,756     $ 35,505     $ 23,650     $ 15,879  
Depreciation and amortization
    1,396       1,190       2,478       2,184       1,842  
Provision for income taxes
    6,897       6,422       11,869       11,421       7,770  
Other income
    (152 )     (84 )     (155 )     (16 )     0  
Merger expenses
    186       0       0       0       0  
Interest expenses
    1,569       1,962       3,769       2,147       1,312  
Interest income
    (426 )     (743 )     (1,395 )     (1,432 )     (1,068 )
Adjusted EBITDA
    30,024       28,503       52,071       37,954       25,735  

 
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Non-GAAP Financial Measure
 
This prospectus contains disclosure of Adjusted EBITDA, which is a non-GAAP financial measure within the meaning of Regulation G promulgated by the Securities and Exchange Commission, or the SEC.  Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP.  Items excluded from Adjusted EBITDA are significant and necessary components to the operations of our business, and therefore Adjusted EBITDA should only be used as a supplemental measure of our operating performance.

We define Adjusted EBITDA as net income before minority interest, interest expense, income taxes, depreciation and amortization, non-operating income (expense), non-recurring merger expenses and non-cash share-based compensation expenses.  We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results, including our return on capital and operating efficiencies, from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, non-operating items and non-cash share-based compensation.  We also believe Adjusted EBITDA is a measure widely used by management, securities analysts, investors and others to evaluate our financial performance and other companies in our industry.  Other companies may calculate Adjusted EBITDA differently, and therefore our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

 
9

 

RISK FACTORS
 
The ordinary shares being offered by us are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in our ordinary shares.  Before purchasing any of our ordinary shares, you should carefully consider the following factors relating to our business and prospects.  You should pay particular attention to the fact that we conduct all of our operations in China and are governed by a legal and regulatory environment that in some respects differs significantly from the environment that may prevail in the U.S. and other countries.  If any of the following risks actually occurs, our business, financial condition or operating results will suffer, the trading price of our ordinary shares could decline, and you may lose all or part of your investment.
 
RISKS RELATED TO OUR BUSINESS

Due to our rapid growth in recent years, our past results may not be indicative of our future performance so evaluating our business and prospects may be difficult.

Our business has grown and evolved rapidly in recent years as demonstrated by our growth in sales revenue from approximately $45.5 million in 2004 to $196.3 million in 2008.  Our net income has grown from approximately $2.2 million in 2004 to approximately $21.6 million in 2008.  We may not be able to achieve similar growth in future periods.  Therefore, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects in the future.  Moreover, our ability to achieve satisfactory operating results at higher production and sales volumes is unproven.  You should not rely on our past results or our historical rate of growth as an indication of our future performance.

A large percentage of our revenues are derived from sales to a limited number of customers and our business will suffer if sales to these customers decline.

We currently sell high precision steel products to more than 20 major customers in the Chinese domestic market.  For the fiscal years ended December 31, 2008 and 2007, sales revenues generated from our top 10 customers amounted to 48.0% and 47.1% of total sales revenues, respectively and sales to our largest single customer for the same periods amounted to 10.0% and 15.2% of our total sales revenues, respectively.  For the six months ended June 30, 2009, sales revenues generated from our top 10 customers amounted to 40% of total sales revenues, and sales to our largest single customer for the same periods amounted to 7.9% of our total sales revenues.  We do not enter into long-term contracts with our customers and therefore cannot be certain that sales to these customers will continue.  The loss of any of our largest customers would likely have a material negative impact on our sales revenues and business.

If our customers which operate in highly competitive markets are willing to accept substitutes in lieu of our products, our business and results of operations will suffer.

Our customers and other users of cold-rolled steel products operate in highly competitive markets, which are becoming increasingly cost-conscious.  Cold-rolled precision steel competes with other materials, such as aluminum, plastics, composite materials and glass, among others, for industrial and commercial applications. Customers have demonstrated a willingness to substitute other materials for cold-rolled steel.  If our customers increasingly utilize substitutes for cold-rolled steel products in their operations, sales of our products will decline and our business and results of operations will suffer.

We may be unable to fund the substantial ongoing capital and maintenance expenditures that our operations require.

Our operations are capital intensive and our business strategy is likely to require additional substantial capital investment.  Our growth strategy includes increasing our annual production capacity, which was 250,000 metric tons as of December 31, 2008, to 500,000 metric tons by 2011, subject to receipt of certain regulatory approvals in China, and building an additional manufacturing facility on 50 acres of land which we recently acquired.  In the future, we may require additional capital for building new production lines and acquiring new equipment as well as for maintaining the condition of our existing equipment and complying with environmental laws and regulations.  Sourcing external capital funds for these purposes are key factors that have constrained and may in the future constrain our growth, production capability and profitability.  There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us or at all.   If we need to raise capital by selling a substantial number of additional ordinary shares or securities convertible into ordinary shares, this will cause dilution to the holders of our ordinary shares and could also cause the market price of our ordinary shares to decline.

 
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If we have miscalculated the future demand for our products, we may wind up unnecessarily spending a significant amount of funds on the expansion of our manufacturing facilities.

We intend to use the majority of the net proceeds of this offering to construct and significantly expand our manufacturing facilities and production lines.  Our expansion plans will double our manufacturing capacity, allowing us to produce up to approximately 500,000 metric tons of our high precision, cold rolled steel products annually once construction is completed.  The scope and timing of our expansion plans has been based on our internal projections and estimated demand for our products.  If our projections are incorrect and the actual demand for our products is less than our projections, we may expend a significant amount of capital on an expansion project which ultimately may not have been needed.

The global economic crisis could further impair the steel industry thereby limiting demand for our products and affecting the overall availability and cost of external financing for our operations.

The continuation or intensification of the global economic crisis and turmoil in the global financial markets may adversely impact our business, the businesses of our customers from whom we generate revenues and our potential sources of capital financing.  Our high precision, cold rolled steel products parts are primarily sold to customers who operate in the food and packaging, construction materials, telecommunications cable and equipment and electrical appliances industries.  The global economic crisis harmed most industries and has been particularly detrimental to the steel industry.  Since virtually all of our sales are made to end users in other industries, our sales and business operations are dependent on the financial health of both the steel industry and other industries in which our customers operate.  Therefore, our business could suffer if our customers experience, or continue to experience, difficulties in their respective industries or a downturn in their business.  Presently, it is unclear whether and to what extent the economic stimulus measures and other actions taken or contemplated by the Chinese government and other governments throughout the world will mitigate the effects of the crisis on the steel industry and other industries that affect our business.  Although these conditions have not presently impaired our ability to access credit markets and finance our operations, the impact of the current crisis on our ability to obtain capital financing in the future, and the cost and terms of same, is unclear.

A downturn or negative changes in the highly volatile steel industry will harm our business and profitability.

Steel consumption is highly cyclical and generally follows general economic and industrial conditions, both worldwide and in various smaller geographic areas. Pricing can be volatile as a result of general economic conditions, labor costs, competition, import duties, tariffs and currency exchange rates.  The steel industry has historically been characterized by excess world supply and wide fluctuations in results of operations both in China and globally.  This has led to substantial price decreases during periods of economic weakness, which have not been offset by commensurate price increases during periods of economic strength.  Substitute materials are increasingly available for many steel products, which may further reduce demand for steel.  Additional overcapacity or the use of alternative products could hurt our results of operations.

We are subject to risks associated with changing technology and manufacturing techniques, which could place us at a competitive disadvantage.

Our ability to implement our business plan and to achieve the results projected by management will depend on management's ability to anticipate technological advances in our industry and implement strategies to take advantage of technological change.  We may be unable to address technological advances or introduce new designs or products that may be necessary to remain competitive within the steel industry.

 
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We produce steel products that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise.  We believe that our customers rigorously evaluate our services and products on the basis of a number of factors, including, but not limited to:

  
·
quality,
 
·
price competitiveness,
 
·
technical expertise and development capability,
 
·
innovation,
 
·
reliability and timeliness of delivery,
 
·
product design capability,
 
·
operational flexibility,
 
·
customer service, and
 
·
overall management.

Our success depends on our ability to continue to meet our customers’ changing requirements and specifications with respect to these and other criteria. There can be no assurance that we will be able to address technological advances or introduce new designs or products that may be necessary to remain competitive within the precision steel industry.

Our revenues will decrease if there is less demand for the end products in which our products are installed.

Our finished steel products mainly serve as key components in food and packaging materials, telecommunications cable and equipment, household decorations, construction materials, and electrical appliances.  Therefore, we are subject to the general changes in economic conditions affecting the food and beverage, chemical, telecommunications, construction and household appliance industry participants.  If our customers which operate in these industries experience a downturn in their business or if they utilize substitutes for our products in their manufacturing operations, demand for our products and our business results will suffer.

Environmental compliance and remediation could result in substantially increased capital requirements and operating costs.

Our steel manufacturing and processing operations are subject to numerous Chinese provincial and local laws and regulations relating to the protection of the environment, health and safety and fire protection.  These laws and regulations may require environmental impact evaluation reports or the issuance of permits or other authorizations before we construct new production facilities, restrict the types, quantities and concentration of substances that can be released into the environment in connection with our production activities, require permitting or authorization for release of pollutants into the environment, and impose substantial liabilities for pollution resulting from historical and current operations. No license will be issued for the operation of a manufacturing facility until it is examined and deemed to be in compliance with applicable regulations.  Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, incurrence of investigatory or remedial obligations or the imposition of injunctive relief.  In addition, these laws and regulations continue to evolve and are becoming increasingly stringent.  The ultimate impact of complying with such laws and regulations is not always clearly known or determinable because regulations under some of these laws have not yet been promulgated or are undergoing revision.  Our business and operating results could suffer if we were required to increase our expenditures to comply with any new environmental regulations affecting our operations.  As of the date of this prospectus, we are not in full compliance with all applicable governmental regulations governing construction of our facilities with respect to two production facilities, each with a 50,000 metric ton annual capacity, we received approval of our environmental impact reports but have not received the final Acceptance of Environmental Protection Facility with respect to these facilities.

Our capital improvement and expansion plans require us to obtain significant capital which may be unavailable to us on favorable terms or at all.

We plan to expand our annual production capacity by 100% to 500,000 metric tons by 2011 in order to meet expected demand for our products.  Our expansion plans may require us to acquire new property or land use rights, expand existing buildings or construct new buildings and procure additional highly specialized manufacturing equipment.  Each of these activities will require considerable capital and we expect that the proceeds of this financing will be used to complete these capital expansion projects.  Additional capital could be needed after this financing.  To the extent that we finance our future capital expansion projects with debt financing, we may become subject to financial covenants or operating covenants that restrict our ability to freely operate our business or take actions that are desired by shareholders, such as the payment of dividends.  If we elect to finance our future capital expansion plans through equity financings, our shareholders may experience dilution or may have their voting or economic rights as shareholders subordinated to a senior class of stock.  In either event, we may be unable to find external sources of financing on favorable terms or at all.  Our failure to obtain external financing for our capital expansion projects can severely impede our growth plans and strategy and impair our revenue, earnings and overall financial performance.

 
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Our level of indebtedness may make it more difficult for us to fulfill all of our debt obligations and may reduce the amount of cash available for maintaining and growing our operations, which could have an adverse effect on our revenues.

Our total debt under existing bank loans to us as of June 30, 2009 was approximately $79.6 million. Repayment of some of these loans is secured by certain of our assets, including restricted cash accounts. A failure to repay our debt obligations when due could result in default under our loan agreements, which could give our lenders the right to seize our assets. In addition, this indebtedness and the incurrence of any new indebtedness could (i) make it more difficult for us to satisfy and pay our existing liabilities and obligations, which could in turn result in an event of default, (ii) require us to dedicate a substantial portion of our cash flow from operations to debt service payments, thereby reducing the availability of cash for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iii) impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, (iv) diminish our ability to withstand a downturn in our business, the industry in which we operate or the economy generally, (v) limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, or (vi) place us at a competitive disadvantage compared to competitors that have proportionately less debt.  If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital, sell assets, cease our operations or file for bankruptcy protection.  We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations and be subject to foreclosure on such loans.  Additionally, we could incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify.

We maintain significant levels of restricted cash which impairs our free cash flow.

Our short term notes payable are often secured by a pledge of restricted cash.  As of June 30, 2009, approximately $43.3 million of our cash was restricted as collateral support for our indebtedness.  Our liquidity and working capital may be negatively affected by high levels of restricted cash.  Depending on the level of our restricted cash, (i) it may become more difficult for us to satisfy our existing or future liabilities or obligations, which could in turn result in an event of default on such obligations, (ii) we may have less available cash for working capital and capital expenditures, acquisitions, general corporate purposes or other purposes, and (iii)  we may need to obtain additional financing to provide additional liquidity.

We face significant competition from competitors with greater resources, and we may not have the resources necessary to successfully compete with them.

The steel manufacturing and processing business is highly fragmented and competitive. We compete with a large number of other steel manufacturers and processors in China, on a region-by-region basis, and with foreign steel manufacturers, such as Posco Steel, on a world wide basis.  We believe that our primary competitors in the market for our products are Yongxin Precision Materials (Wuxi) Co. Ltd., Jiangyin Huaxia Cold-rolled Steel Products Corp., Baosteel Group Corporation, Handan Iron & Steel Co., Ltd., Nippon Steel Corporation, Pohang Iron and Steel Company, and China Steel Corporation.  Our competitors are of various sizes, some of which have more established brand names and relationships in certain markets than we do.  We are not in direct competition with China’s local state-owned steel companies, which are much larger than us, because those companies concentrate on the production of hot rolled steel.  As such, they are more often a raw material supplier to us, rather than a competitor.  We are one of a limited number of specialty precision cold-rolled steel producers in China.  Differences in the type and nature of the specialty precision steel products in China’s steel industry are relatively small and, coupled with intense competition from international and local suppliers and customer price sensitivity, competition can be fierce.  Our competitors may increase their market share through pricing strategies that damage our business.  Since our industry is capital intensive, our competitors may be able to successfully compete with us if their financial resources, staff and facilities are substantially greater than ours, placing us at a competitive disadvantage to these larger companies.

 
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Any decrease in the availability, or increase in the cost, of raw materials could materially reduce our earnings.

Our business operations depend heavily on the availability of various raw materials and energy resources, primarily steel coil, but also zinc, oil paint, electricity and natural gas.  Steel coil has historically accounted for approximately 90% of our total cost of sales.  The availability of raw materials and energy resources may decrease and their prices may fluctuate greatly.  We purchase a large portion of our raw materials from Zhengzhou Zhongchu Materials Distribution Center and Henan Baoyuxin Technology and Trading Co. Ltd., but we currently do not have long-term supply contracts with any particular supplier to assure a continued supply of raw materials.  While we maintain good relationships with these suppliers, the supply of raw materials may nevertheless be interrupted on account of events outside our control, which will negatively impact our operations.  If these or any other important suppliers are unable or unwilling to provide us with raw materials on terms favorable to us, we may be unable to produce certain products.  This could result in a decrease in profit and damage to our reputation in our industry.  So far we have generally been able to pass raw material cost increases on to our customers.  However, if our raw material and energy costs increase to such an extent that we cannot pass these higher costs on to our customers in full or at all, our margins will suffer.  Although we currently benefit from favorable pricing in some of these supply contracts, if market prices for these raw materials decline, we may not be able to take advantage of decreasing market prices, and our profit margins may suffer.

Increases in energy prices will increase our operating costs, and we may be unable to pass all these increases on to our customers in the form of higher prices for our products.

We use a significant amount of electricity, gasoline and other energy sources to manufacture and transport our products.  We do not hedge our exposure to higher prices via energy futures contracts.  A substantial increase in the price of fuel and other energy sources would increase our operating costs and could negatively impact our profitability and cash flows if we cannot pass the increases on to our customers.

We produce a limited number of products and may not be able to respond quickly to significant changes in the market or new market entrants.

Cold-rolled specialty precision steel manufacturing is a relatively new industry in China.  Previously, our customers which manufacture durable goods have relied solely on imports from Japan, Korea, the European Union and the United States.  We believe the average quality and standards of products of China’s high precision steel industry lags behind international standards.  While we offer more than 40 high precision steel products and believe we have developed a nationally recognizable brand, there are many other specialty precision steel products of similar nature in the market.  We have not yet developed an internationally recognizable brand for specialty steel products.   If there are significant changes in market demand and/or competitive forces, we may not be able to change our product mix or adapt our production equipment quickly enough to meet customers’ needs.  Under such circumstances, our narrow band of precision steel products and/or new market entrants may negatively impact our financial performance.

Increased imports of steel products into China could negatively affect domestic steel demand and prices and reduce our profitability.

While China’s steel production capability has increased rapidly in recent years, we believe that domestic production continues to be insufficient to meet demand.  As a result, China is expected to continue to import a significant portion of its steel products. Foreign competitors may have lower labor costs, and are often owned, controlled or subsidized by their governments, which allows their production and pricing decisions to be influenced by political and economic policy considerations as well as prevailing market conditions.  Import levels may also be impacted by decisions of government agencies, under trade laws.  Increases in future levels of imported steel could negatively impact future market prices and demand levels for our precision steel products.

 
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While virtually all of our operations, customers and sales are in China, some limited administrative functions are geographically dispersed so any deterioration of general business conditions in China may make it difficult or prohibitive to continue to operate or expand our business.

Our manufacturing operations are located in China, some of our administrative offices are located in Hong Kong and a limited number of administrative matters are handled in the BVI.  We also have regulatory filing obligations in the United States.  The geographical distances between our facilities create a number of logistical and communications challenges, including time differences and differences in the cultures in each location, which makes communication and effective cooperation more difficult. In addition, because of the location of the manufacturing facilities in China, our operations could be affected by, among other things:

 
·
economic and political instability in China, including problems related to labor unrest,
 
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lack of developed infrastructure,
 
·
variances in payment cycles,
 
·
currency fluctuations,
 
·
overlapping taxes and multiple taxation issues,
 
·
employment and severance taxes,
 
·
compliance with local laws and regulatory requirements,
 
·
greater difficulty in collecting accounts receivable, and
 
·
the burdens of cost and compliance with a variety of foreign laws.

Moreover, inadequate development or maintenance of infrastructure in China, including adequate power and water supplies, transportation, raw materials availability or the deterioration in the general political, economic or social environment could make it difficult, more expensive and possibly prohibitive to continue to operate or expand our facilities in China.

Our rapid expansion could significantly strain our resources, management and operational infrastructure which could impair our ability to meet increased demand for our products and hurt our business results.

To accommodate our anticipated growth, we will need to expend capital resources and dedicate personnel to implement and upgrade our accounting, operational and internal management systems and enhance our record keeping and contract tracking system. Such measures will require us to dedicate additional financial resources and personnel to optimize our operational infrastructure and to recruit more personnel to train and manage our growing employee base. If we cannot successfully implement these measures efficiently and cost-effectively, we will be unable to satisfy the demand for our products, which will impair our revenue growth and hurt our overall financial performance.

Our production facilities are subject to risks of power shortages which may impair our ability to meet our customers’ needs.

Our manufacturing processes are extremely specialized and depend on critical pieces of equipment and a constant availability of energy to power them.  Many cities and provinces in China have suffered serious power shortages in recent times, largely as a result of the growth and commercialization of formerly rural regions of China.  Many of the regional grids do not have sufficient power generating capacity to fully satisfy the increased demand for electricity driven by continual economic growth and persistent hot weather. Local governments have occasionally required local factories to temporarily shut down their operations or reduce their daily operational hours in order to reduce local power consumption levels.  To date, our operations have not been affected by those administrative measures.  While we have not experienced any severe or lengthy power outages in the past, we do not have any back up power generation systems.  However, there is a risk that we may be affected by those administrative measures or power outages in the future, thereby causing material production disruption and delay in delivery schedule. In such event, our business, results of operation and financial conditions could be damaged.

Unexpected equipment failures may damage our business due to production curtailments or shutdowns.

Highly specialized machinery is used in our manufacturing processes which cannot be repaired or replaced without significant expense and time delay.  On occasion, our equipment may be out of service as a result of unanticipated failures which may result in plant shutdowns or periods of materially reduced production. Interruptions in production capabilities will inevitably increase production costs and reduce our sales and earnings.  In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or adverse weather conditions. Furthermore, any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative effect on our profitability and cash flows. We do not have business interruption insurance to cover losses as a result of equipment failures. In addition, longer-term business disruption could result in a loss of customers. If this were to occur, our future sales levels, and therefore our profitability, could decline.

 
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We might fail to adequately protect our intellectual property and third parties may claim that our products infringe upon their intellectual property.

As part of our business strategy, we intend to accelerate our investment in new technologies in an effort to strengthen and differentiate our product portfolio and make our manufacturing processes more efficient.   Our primary focus will be to develop new and better technologies to allow us to manufacture higher valued-added products, such as chrome finished, zinc coated and galvanized products.  As a result, we believe that the protection of our intellectual property will become more important to our business. Currently, we have one patent application pending. We expect to rely on a combination of patents, trade secrets, trademarks and copyrights to provide protection in this regard, but this protection might be inadequate. For example, our pending or future patent applications might not be approved or, if allowed, they might not be of sufficient strength or scope. Conversely, third parties might assert that our technologies infringe their proprietary rights. In either case, litigation could result in substantial costs and diversion of our resources, and whether or not we are ultimately successful, the litigation could hurt our business and financial condition.

We face risks associated with future investments or acquisitions.

An important component of our growth strategy is to invest in or acquire businesses complementary to ours that will enable us, among other things, to expand the products we offer to our existing target customer base, and that will provide opportunities to expand into new markets. We may be unable to identify suitable investment or acquisition candidates or to make these investments or acquisitions on a commercially reasonable basis, if at all. If we complete an investment or acquisition, we may not realize the anticipated benefits from the transaction.  Integrating an acquired company or technology is complex, distracting and time consuming, as well as a potentially expensive process.  The successful integration of an acquisition would require us to:

 
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integrate and retain key management, sales, research and development, and other personnel;
 
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incorporate the acquired products or capabilities into our offerings both from an engineering and sales and marketing perspective;
 
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coordinate research and development efforts;
 
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integrate and support pre-existing supplier, distribution and customer relationships; and
 
·
consolidate duplicate facilities and functions and combine back office accounting, order processing and support functions.

The geographic distance between the companies, the complexity of the technologies and operations being integrated and the disparate corporate cultures being combined may increase the difficulties of combining an acquired company or technology.  Acquired businesses are likely to have different standards, controls, contracts, procedures and policies, making it more difficult to implement and harmonize company-wide financial, accounting, billing, information and other systems.  Management’s focus on integrating operations may distract attention from our day-to-day business and may disrupt key research and development, marketing or sales efforts.

Our acquisition strategy also depends on our ability to obtain necessary government approvals that may be required.  We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations implemented in China.

 
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We do not carry any business interruption insurance, product liability or recall insurance or third-party liability insurance.

Operation of our business and facilities involves many risks, including equipment failures, natural disasters, industrial accidents, power outages, labor disturbances, business interruptions, property damage, product liability, personal injury and death.  We do not carry any business interruption insurance or third-party liability insurance for our business to cover claims in respect of product liability, personal injury or property or environmental damage arising from accidents on our property or relating to our operations. Therefore, our existing insurance coverage may not be sufficient to cover all risks associated with our business. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations.

Henan Green’s business will suffer if it loses its land use rights.
 
There is no private ownership of land in China and all land ownership is held by the government of China, its agencies, and collectives.  In the case of land used for business purposes, land use rights can be obtained from the government for a period up to 50 years, and are typically renewable.  Land use rights can be granted upon approval by the land administrative authorities of China (State Land Administration Bureau) upon payment of the required land granting fee, the entry into a land use agreement with a competent governmental authority and certain other ministerial procedures.  Henan Green holds land use rights for some of its occupied properties and leases the land and the building on which its main facilities are located from third parties that it reasonably believes have proper land use rights, but no assurance can be given that Henan Green’s land use rights will be renewed or that our lessors will maintain their land use rights.  The land use right certificate relating to the land on which our employee dormitory is located has expired and we are in the process of obtaining a new land use right certificate for this property.  We have received land use certificates for certain parcels of land on which our operations reside, but we may not have followed all procedures required to obtain such certificates or paid all required fees.  If the Chinese administrative authorities determine that we have not fully complied with all procedures and requirements needed to hold a land use certificate, we may be forced by the Chinese administrative authorities to retroactively comply with such procedures and requirements, which may be burdensome and require us to make payments, or such Chinese administrative authorities may invalidate or revoke our land use certificate entirely. If the land use right certificates needed for our operations are determined by the government of China to be invalid or if they are not renewed, or if we are unable to renew the lease for our facilities when it expires in 2027, we may lose production facilities or employee accommodations that would be difficult or even impossible to replace.  Should we have to relocate, our workforce may be unable or unwilling to work in the new location and our business operations will be disrupted during the relocation. The relocation or loss of facilities could cause us to lose sales and/or increase its costs of production, which would negatively impact financial results.
 
If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected and investor confidence and the market price of our ordinary shares may be adversely impacted.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 20-F.  In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on the effectiveness of the company’s internal controls over financial reporting.  Under current SEC rules, we will be required to include a management report and our independent registered public accounting firm’s attestation report beginning with our annual report for the fiscal year ending December 31, 2009.  Our management may conclude that our internal controls over our financial reporting are not effective.  Even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may issue a report that is qualified if it is not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.  Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our reporting processes, which could adversely impact the market price of our ordinary shares.

Investor confidence and the market price of our shares may be adversely impacted if we are unable to correct deficiencies in our internal controls over our financial reporting identified by our auditors.

Our auditors, in performing their audit of our financial statements for the years ended December 31, 2008 and 2007, have provided us with a letter describing certain matters involving our internal controls they consider to be deficiencies under the standards of the Public Company Accounting Oversight Board.  In particular, our auditors identified the following three deficiencies: (i) the Company’s fixed assets are not consistently classified by type; (ii) management of account codes should be improved for purpose of account classifications; and (iii) the requirements in SOX 404 regarding assessment of the effectiveness of internal controls over financial reporting have not been met.  It should be noted that the Company is not required to have, nor were its auditors engaged to perform an audit of its internal control over financial reporting.
 
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If we fail to remediate our deficiencies or to otherwise develop and maintain adequate internal control over financial reporting, we could fail to timely and accurately report our financial results or prevent fraud, or have to restate our financial statements.  As a result, stockholders could lose confidence in our financial reporting and our stock price could suffer.  Although we have taken certain steps to begin to remediate these deficiencies, we cannot assure you that such steps will remediate the deficiencies that have been identified or be effective in preventing deficiencies in our internal control over financial reporting in the future.

We may face adverse claims from and may be liable for damages to some former shareholders of COAC based on an agreement we entered into with our original shareholders.

On November 12, 2008, we entered into an Agreement of Merger and Plan of Reorganization, or the Merger Agreement with COAC, Wealth Rainbow Development Limited, Henan Green Complex Materials Co., Ltd, and several of our original shareholders, Oasis Green Investments Limited, Plumpton Group Limited and Honest Joy Group Limited, or the Original Shareholders.

When the parties entered into the Merger Agreement, we and the Original Shareholders expected to succeed to COAC’s liabilities and obligations as a result of the merger, but also expected to receive, as partial consideration for the merger, a significant portion of COAC’s $41.5 million in cash and cash equivalents.  Additionally, in connection with the merger negotiations, the parties agreed to an earn-out arrangement whereby, upon our attainment of certain financial milestones and results, the Original Shareholders would be entitled to receive from us a total of 3,000,000 additional ordinary shares, or the Earn-Out Shares.  Under the Merger Agreement, the Earn-Out Shares were to be issued and paid in three equal annual installments and distributed among the Original Shareholders as specified in the Merger Agreement for each year that we met the respective performance threshold specified therein.  The parties also agreed upon customary conditions to closing, including the approval of the merger by the stockholders of COAC.  Prior to and in connection with the vote of COAC’s stockholders on the proposal to merge with and into Golden Green, COAC used a significant portion of the $41.5 million in cash and cash equivalents held in trust to satisfy obligations to its stockholders in respect of the vote on the merger.  Thereafter, persons holding a sufficient number of shares of COAC stock voted in favor of the merger.

Notwithstanding the redemptions and the substantial depletion of funds held in the Trust Fund, we and the Original Shareholders consummated the merger with COAC on March 17, 2009.  All COAC securities were exchanged for our equivalent securities, and COAC merged with and into the Company which survived the merger and succeeded to the rights and obligations of COAC.

Shortly after completion of the merger, we and the Original Shareholders initiated discussions regarding the proper treatment of the Earn-Out Shares given that the Original Shareholders agreed to complete the merger transaction even though the expected COAC cash assets were no longer available to us as originally envisioned by the parties.   As a result of the negotiations between the Original Shareholders and us regarding the appropriate treatment of the Earn-Out Shares, we and the Original Shareholders entered into an agreement dated September 15, 2009, pursuant to which, we agreed to issue to the Original Shareholders an aggregate of 2,850,000 ordinary shares within ten days of entering into the agreement.  The 2,850,000 shares are to be divided among the Original Shareholders in the same proportion to the amounts of the Earn-Out Shares that they would have received under the terms of the Earn-Out in the Merger Agreement. In consideration of the issuance of the ordinary shares, we and the Original Shareholders agreed to a mutual release of all claims relating to the merger, the redemptions, and the Earn-Out Shares.

Some former shareholders of COAC, who are currently minority shareholders in our company, may believe that this treatment of the Earn-Out Shares and the related agreement are not in their best interests and may file adverse claims against us seeking monetary or injunctive relief.  Although we do not believe such claims would have merit, if such claims are successful, our agreement with the Original Stockholders may not be enforced and we may be exposed to monetary damages to such shareholders.  In addition, we may incur significant costs associated with the defense of such a lawsuit.
 
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Failure to comply with the U.S. Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

Our executive officers, employees and other agents may violate applicable law in connection with the marketing or sale of our products, including China’s anti-corruption laws and the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business.  In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls.  Foreign companies, including some that may compete with us, are not subject to these prohibitions, and therefore may have a competitive advantage over us.  Our executive officers and employees have not been subject to the U.S. Foreign Corrupt Practices Act prior to the completion of our merger in March of 2009.  The PRC also strictly prohibits bribery of government officials.  However, corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC.  While we intend to implement measures to ensure compliance with the FCPA and Chinese anti-corruption laws by all individuals involved with our company, our employees or other agents may engage in such conduct for which we might be held responsible.  If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.  In addition, our brand and reputation, our sales activities or the price of our ordinary shares could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.

We rely heavily on our key management personnel and the loss of their services could adversely affect our business.

Our executive management team has a specialized knowledge of steel markets and works closely with our customers to provide products to exact specifications.  Our Chairman and founder, Mr. Lu, has twenty-four years experience in the steel industry in China.  In addition, the executive management team has an average of fifteen years of industry experience. Their long tenure with the company and the industry has enabled the management team to build close relationships with suppliers and customers.  The expertise of management and technical innovation of the company give it a strong competitive advantage.  Golden Green Enterprises Limited does not currently have employment agreements with our management team and we do not maintain key person insurance on these individuals.  The loss of Mr. Lu’s services or any of our other management poses a risk to our business.  We may not be able to attract or retain qualified management on acceptable terms in the future due to the intense competition for qualified personnel in our industry and as a result, our business could be adversely affected.

RISKS RELATED TO DOING BUSINESS IN CHINA

Substantially all of our operating assets are located in China and substantially all of our revenue will be derived from our operations in China so our business, results of operations and prospects are subject to the economic, political and legal policies, developments and conditions in China.

The PRC’s economic, political and social conditions, as well as government policies, could impair our business.  The PRC economy differs from the economies of most developed countries in many respects.  China’s GDP has grown consistently since 1978 (National Bureau of Statistics of China).  However, we cannot assure you that such growth will be sustained in the future. If, in the future, China’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could impair our ability to remain profitable.  The PRC’s economic growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us.  For example, our financial condition and results of operations may be hindered by PRC government control over capital investments or changes in tax regulations.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the use 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 productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over PRC 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.
 
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If the Ministry of Commerce, or MOFCOM, China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency, determines that MOFCOM and CSRC approval of our recent merger was required or if other regulatory obligations are imposed upon us, we may incur sanctions, penalties or additional costs which would damage our business

On August 8, 2006, six PRC regulatory agencies, including the MOFCOM and the CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, a new regulation with respect to the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006.  Article 11 of the M&A Rules requires PRC companies, enterprises or natural persons to obtain MOFCOM approval in order to effectuate mergers or acquisitions between PRC companies and foreign companies legally established or controlled by such PRC companies, enterprises or natural persons.  Article 40 of the M&A Rules requires that an offshore special purpose vehicle formed for overseas listing purposes and controlled directly or indirectly by PRC companies or individuals should obtain the approval of the CSRC prior to the listing and trading of such offshore special purpose vehicle’s securities on an overseas stock exchange, especially in the event that the offshore special purpose vehicle acquires shares of or equity interests in the PRC companies in exchange for the shares of offshore companies.  On September 21, 2006, the CSRC published on its official website procedures and filing requirements for offshore special purpose vehicles seeking CSRC approval of their overseas listings.

On March 17, 2009, we completed a merger transaction with COAC, which resulted in our current ownership and corporate structure.  We believe, based on the opinion of our PRC legal counsel, Jingtian & Gongcheng, Attorneys at Law, that MOFCOM and CSRC approvals were not required for our merger transaction or for the listing and trading of our securities on a trading market because we are not an offshore special purpose vehicle that is directly or indirectly controlled by PRC companies or individuals.  Although the merger and acquisition regulations provide specific requirements and procedures, there are still many ambiguities in the meaning of many provisions.  Further regulations are anticipated in the future, but until there has been clarification either by pronouncements, regulation or practice, there is some uncertainty in the scope of the regulations and the regulators have wide latitude in the enforcement of the regulations and approval of transactions.  If the MOFCOM, CSRC or another PRC regulatory agency subsequently determines that the MOFCOM and CSRC approvals were required, we may face sanctions by the MOFCOM, CSRC or another PRC regulatory agency.  If this happens, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, restrict or prohibit payment or remittance of dividends paid by Henan Green, or take other actions that could damage our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities.

In 2008, Wealth Rainbow acquired 100% of the equity interest of Henan Green from 13 shareholders who are PRC nationals, following which Henan Green was changed from a domestic company into a wholly foreign owned enterprise.  The prior sole owner of Wealth Rainbow and majority owner of Golden Green is the daughter of Mingwang Lu, one of the selling shareholders of Henan Green.  The M&A Regulations requires that when a foreign investor which is established or controlled by domestic natural person acquires the equity interest of a domestic company that is related with such foreign investor, such acquisition shall be approved by the Ministry of Commerce, and the parties to the acquisition shall have the obligation to disclose the existence of any interested party relationship.  Golden Green believes, based on the opinion of the PRC legal counsel, Jingtian & Gongcheng, Attorneys at Law, that all the necessary approvals and registrations for Wealth Rainbow’s acquisition of the equity interest in Henan Green had been obtained.  However, there remains some uncertainty as to the interpretation and implementation of M&A Regulations with regard to the interested party relationship.  If a PRC regulatory agency, such as the Ministry of Commerce, subsequently determines that the approval from the Ministry of Commerce was required for the acquisition, Golden Green may face sanctions by such PRC regulatory agency. If this happens, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from the offering into China, restrict or prohibit payment or remittance of dividends by Henan Green to us, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities.  The PRC regulatory agency may also take actions requiring us, or making it advisable for us, to cancel this previous acquisition.
 
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The New M&A Regulations establish more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisition in China.

The New M&A Regulations establish additional procedures and requirements that could make some acquisitions of PRC companies by foreign investors, such as ours, more time-consuming and complex, including requirements in some instances that the approval of the Ministry of Commerce shall be required for transactions involving the shares of an offshore listed company being used as the acquisition consideration by foreign investors.  In the future, we may grow our business in part by acquiring complementary businesses.  Complying with the requirements of the New M&A Regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

If the PRC imposes restrictions designed to reduce inflation, future economic growth in the PRC could be severely curtailed which could hurt our business and profitability.

While the economy of the PRC has experienced rapid growth, this growth has been uneven among various sectors of the economy and in different geographical areas of the country.  Rapid economic growth often can lead to growth in the supply of money and rising inflation.  In order to control inflation in the past, the PRC has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending.  Imposition of similar restrictions may lead to a slowing of economic growth, a decrease in demand for our steel products and generally damage our business and profitability.

Fluctuations in exchange rates could harm our business and the value of our securities.

The value of our ordinary shares will be indirectly affected by the foreign exchange rate between U.S. dollars and RMB and between those currencies and other currencies in which our sales may be denominated. Because substantially all of our earnings and cash assets are denominated in RMB and the net proceeds from this offering will be denominated and our financial results are reported in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and the RMB will affect the relative purchasing power of these proceeds, our balance sheet and our earnings per share in U.S. dollars following this offering.  In addition, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.  Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.  Since July 2005, the RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Exchange controls that exist in the PRC may limit our ability to utilize our cash flow effectively.

We are subject to the PRC’s rules and regulations on currency conversion.  In the PRC, the State Administration for Foreign Exchange, or SAFE, regulates the conversion between Renminbi and foreign currencies. Currently, foreign investment enterprises, or FIEs, are required to apply to the SAFE for “Foreign Exchange Registration Certificates for FIEs.” As a result of our ownership of Henan Green, Henan Green is a FIE.  With such registration certificates, which need to be renewed annually, FIEs are allowed to open foreign currency accounts including a “current account” and “capital account.” Currency conversion within the scope of the “current account,” such as remittance of foreign currencies for payment of dividends, can be effected without requiring the approval of the SAFE.  However, conversion of currency in the “capital account,” including capital items such as direct foreign investment, loans and securities, still require approval of the SAFE. Further, any capital contributions to Henan Green by its offshore shareholder must be approved by the Ministry of Commerce in China or its local counterpart. We cannot assure you that the PRC regulatory authorities will not impose further restrictions on the convertibility of the Renminbi. Any future restrictions on currency exchanges may limit our ability to use our cash flow for the distribution of dividends to our shareholders or to fund operations it may have outside of the PRC.
 
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In August 2008, SAFE promulgated Circular 142, a notice regulating the conversion by FIEs of foreign currency into Renminbi by restricting how the converted Renminbi may be used.  Circular 142 requires that Renminbi converted from the foreign currency-dominated capital of a FIE may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC unless specifically provided for otherwise.  In addition, SAFE strengthened its oversight over the flow and use of Renminbi funds converted from the foreign currency-dominated capital of a FIE.  The use of such Renminbi may not be changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used.  Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the SAFE rules.

A failure by our shareholders or beneficial owners who are PRC citizens or residents in China to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws.

Notice on Issues Relating to Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, was issued on October 21, 2005 by SAFE (that replaced two previously issued regulations on January 24, 2005 and April 8, 2005, respectively).  Notice 75 requires PRC residents (including both corporate entities and natural persons) to register with SAFE or its competent local branch before establishing or controlling any company outside of China referred to as an “offshore special purpose company” for the purpose of raising fund from overseas to acquire assets of, or equity interests in, PRC companies. Under Notice 75, a “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC residents for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents in onshore companies.  In addition, any PRC resident that is the shareholder of an offshore special purpose company is required to amend his or her SAFE registration with the SAFE or its competent local branch, with respect to that offshore special purpose company in connection with any of its increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China. The SAFE regulations require retroactive approval and registration of direct or indirect investments previously made by PRC residents in offshore special purpose companies. To further clarify the implementation of Notice 75, SAFE issued Notice 106 in May, 2007. Under Notice 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders who are PRC residents in a timely manner.  In the event that a PRC shareholder with a direct or indirect investment in an offshore parent company fails to obtain the required SAFE approval and make the required registration, the PRC subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries. Further, failure to comply with the various SAFE approval and registration requirements described above, as currently drafted, could result in liability under PRC law for foreign exchange evasion.

There still remain uncertainties as to how certain procedures and requirements under the aforesaid SAFE regulations will be enforced, and it remains unclear how these existing regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. Based on the opinion of the PRC legal counsel, Jingtian & Gongcheng, Attorneys at Law, we understand that none of our shareholders and beneficial owners is a PRC citizen or resident but cannot assure that has been or will be the case. Although we are committed to complying with the relevant rules, we cannot assure you that we will never have shareholders or beneficial owners who are PRC citizens or residents, or that such persons have always complied with and will in the future make or obtain any applicable registrations or approvals required by SAFE Notice 75, Notice 106 or other related regulations. If one or several of its shareholders or beneficial owners are PRC citizens or residents, we cannot assure that these shareholders or beneficial owners have always complied with and will in the future make or obtain any applicable registrations or approvals required by Notice 75 or other related regulations.  Failure by such shareholders or beneficial owners to comply with SAFE Notice 75 and Notice 106 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiary’s ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
 
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Because we failed to make the payment of the transfer price of the acquisition of Henan Green’s equity interests on a timely basis pursuant to relevant PRC regulations, there is no guarantee that the PRC government will not challenge the validity of the acquisition in the future.

On August 10, 2008, Wealth Rainbow entered into an equity transfer agreement with the then shareholders of Henan Green to acquire all of their equity interests in Henan Green for RMB 65.6 million (approximately $9.6 million).  On October 21, 2008, Henan Green obtained the Certificate of Approval for Establishment of Enterprises with Investment of Taiwan, Hong Kong, Macao and Overseas Chinese in the People’s Republic of China issued by Henan Provincial Government and a new business license was issued to Henan Green on October 30, 2008.  Article 16 of the M&A Rules requires that the equity interest transfer price be paid in full within three months commencing from the issuance of the new business license to Henan Green.  If the transfer price is not paid by this date, we may apply to the relevant PRC regulatory agency for an extension of up to one year from the date of the issuance of the license; provided, however, that 60% of the transfer price will be required to be paid within six months from such date, which was April 30, 2009.  On January 4, 2009, we obtained the approval from the relevant PRC regulatory agency allowing us to make the full payment of the transfer price by October 30, 2009.  Wealth Rainbow has fully paid the transfer price, making payments between July 2009 and September 16, 2009.  However, because it did not comply with the requirement to pay 60% of the transfer price by April 30, 2009, the relevant PRC regulatory agency may challenge the validity of the acquisition in the future.
 
Any outbreak of the Swine Flu (H1N1), severe acute respiratory syndrome, or SARS, the Avian Flu, or another widespread public health problem in the PRC could adversely affect our operations.
 
There have been recent outbreaks of the highly pathogenic Swine Flu, caused by the H1N1 virus, in certain regions of the world, including parts of China, where all of our manufacturing facilities are located and where all of our sales occur.  Our business is dependent upon our ability to continue to manufacture and distribute our products, and an outbreak of the Swine Flu, or a renewed outbreak of SARS, the Avian Flu, or another widespread public health problem in China, could have a negative effect on our operations.  Any such outbreak could have an impact on our operations as a result of:

 
·
quarantines or closures of our manufacturing or distribution facilities or the retail outlets, which would severely disrupt our operations,
 
·
the sickness or death of our key officers and employees, and
 
·
a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our operations.

Because Chinese law governs many of our material agreements, we may not be able to enforce our rights within the PRC or elsewhere, which could result in a significant loss of business, business opportunities or capital.

Chinese law governs many of our material agreements, some of which may be with Chinese governmental agencies. We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of the PRC.  The system of laws and the enforcement of existing laws and contracts in the PRC may not be as certain in implementation and interpretation as in the United States. The Chinese judiciary is relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.
 
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Because our funds are held in banks in uninsured PRC bank accounts, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Funds on deposit at banks and other financial institutions in the PRC are often uninsured.  A significant portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit.  Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

Our management is unfamiliar with United States securities laws and will have to expend time and resources becoming familiar with such laws which could lead to various regulatory issues.

Many members of our management team are not familiar with United States securities laws and will have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues and a diversion of management attention, which may harm our operations.

The ability of our Chinese operating subsidiary to pay certain foreign currency obligations, including dividends, is subject to restrictions.

Our ability to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances. Since substantially all of our operations are conducted in China and a majority of our revenues are generated in China, a significant portion of our revenue earned and currency received are denominated in Renminbi.  The Chinese government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Renminbi is currently not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends, if any, on our ordinary shares or otherwise satisfy foreign currency denominated obligations.  Under existing Chinese foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange by complying with certain procedural requirements.  However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.  The Chinese government may also at its discretion restrict access in the future to foreign currencies for current account transactions.  If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.  In addition, current regulations in China would permit Henan Green to pay dividends to us only out of Henan Green’s accumulated distributable profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, Henan Green will be required to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its accumulated profits each year. Such reserve account may not be distributed as cash dividends.

Our business could be severely harmed if the Chinese government changes its policies, laws, regulations, tax structure or its current interpretations of its laws, rules and regulations relating to our operations in China.

Our manufacturing facility is located in Henan, China and virtually all of our assets are located in China.  We generate our sales revenue only from customers located in China.  Our results of operations, financial state of affairs and future growth are, to a significant degree, subject to China’s economic, political and legal development and related uncertainties. Our operations and results could be materially affected by a number of factors, including, but not limited to

 
·
Changes in policies by the Chinese government resulting in changes in laws or regulations or the interpretation of laws or regulations,
 
·
changes in taxation,
 
·
changes in employment restrictions,
 
·
restrictions on imports and sources of supply,
 
·
import duties, and
 
·
currency revaluation.
 
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Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activities and greater economic decentralization. If the Chinese government does not continue to pursue its present policies that encourage foreign investment and operations in China, or if these policies are either not successful or are significantly altered, then our business could be harmed.  Following the Chinese government’s policy of privatizing many state-owned enterprises, the Chinese government has attempted to augment its revenues through increased tax collection.  It also exercises significant control over China’s 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.  Continued efforts to increase tax revenues could result in increased taxation expenses being incurred by us.  Economic development may be limited as well by the imposition of austerity measures intended to reduce inflation, the inadequate development of infrastructure and the potential unavailability of adequate power and water supplies, transportation and communications.  In addition, the Chinese government continues to play a significant role in regulating industry by imposing industrial policies.

The Chinese laws and regulations which govern our current business operations are sometimes vague and uncertain and may be changed in a way that hurts our business.

China’s legal system is a civil law system based on written statutes, in which system decided legal cases have little value as precedents, unlike the common law system prevalent in the United States. There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our arrangements with customers in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings.  The Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade.  However, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.   We are considered an FIE under Chinese laws, and as a result, we must comply with Chinese laws and regulations.  We cannot predict what effect the interpretation of existing or new Chinese laws or regulations may have on our business.  If the relevant authorities find us to be in violation of Chinese laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation: levying fines; revoking our business and other licenses; requiring that we restructure our ownership or operations; and requiring that we discontinue any portion or all of our business.

A slowdown or other adverse developments in the Chinese economy may materially and adversely affect our customers’ demand for our services and our business.

All of our operations are conducted in China and all of our revenues are generated from sales to businesses operating in China.  Although the Chinese economy has grown significantly in recent years, such growth may not continue. we do not know how sensitive we are to a slowdown in economic growth or other adverse changes in Chinese economy which may affect demand for precision steel products.  A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our products and in turn reduce our results of operations.

Controversies affecting China’s trade with the United States could depress the price of our securities.

While China has been granted permanent most favored nation trade status in the United States through its entry into the World Trade Organization, controversies and trade disagreements between the United States and China may arise that depress the price of our securities.  Political or trade friction between the United States and China, whether or not actually affecting our business, could also materially and adversely affect the prevailing market price of our securities.
 
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Imposition of trade barriers and taxes may reduce our ability to do business internationally, and the resulting loss of revenue could harm our profitability.

We may experience barriers to conducting business and trade in our targeted emerging markets in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to repatriation taxes levied upon the exchange of income from local currency into foreign currency, substantial taxes of profits, revenues, assets and payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products, and there can be no assurance that this will not reduce the level of sales that we achieve in such markets, which would reduce our revenues and profits.

There can be no guarantee that China will comply with the membership requirements of the World Trade Organization, which could leave us subject to retaliatory actions by other governments and reduce our ability to sell our products internationally.

China has agreed that foreign companies will be allowed to import most products into any part of China. In the sensitive area of intellectual property rights, China has agreed to implement the trade-related intellectual property agreement of the Uruguay Round. There can be no assurances that China will implement any or all of the requirements of its membership in the World Trade Organization in a timely manner, if at all. If China does not fulfill its obligations to the World Trade Organization, we may be subject to retaliatory actions by the governments of the countries into which it sell our products, which could render its products less attractive, thus reducing revenues and profits.

The implementation of the new PRC employment contract law and increases in the labor costs in China may hurt our business and profitability.

A new employment contract law became effective on January 1, 2008 in China. It imposes more stringent requirements on employers in relation to entry into fixed-term employment contracts, recruitment of temporary employees and dismissal of employees. In addition, under the newly promulgated Regulations on Paid Annual Leave for Employees, which also became effective on January 1, 2008, employees who have worked continuously for more than one year are entitled to paid vacation ranging from 5 to 15 days, depending on the length of the employee’s service. Employees who waive such vacation entitlements at the request of the employer will be compensated for three times their normal daily salaries for each vacation day so waived. As a result of the new law and regulations, our labor costs may increase. There is no assurance that disputes, work stoppages or strikes will not arise in the future. Increases in the labor costs or future disputes with our employees could damage our business, financial condition or operating results.
 
Under the New EIT Law, Golden Green and Wealth Rainbow may be classified as “resident enterprises” of China, which may subject Gold Green and Wealth Rainbow to PRC income tax on their taxable global income.

China passed a new Enterprise Income Tax Law, or the New EIT Law, and its implementation regulations, both of which became effective on January 1, 2008.  Under the New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese domestic enterprise for enterprise income tax purposes. The implementing rules of the New EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.  On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the New EIT Law and its implementation with respect to non-Chinese enterprises or group controlled offshore entities.  Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China.  A resident enterprise would be generally subject to the uniform 25% enterprise income tax rate as to its worldwide income.  Although the Notice is directly applicable to enterprises registered in an offshore jurisdiction and controlled by Chinese domestic enterprises or groups, it is uncertain whether the PRC tax authorities will make reference to the Notice when determining the resident status of other offshore companies, such as Golden Green.  Since substantially all of our management is currently based in China, it is likely we may be treated as a Chinese resident enterprise for enterprise income tax purposes.  The tax consequences of such treatment are currently unclear, as they will depend on how local tax authorities apply or enforce the New EIT Law or the implementation regulations.
 
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In addition, under the New EIT Law and implementation regulations, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent that such dividends have their source within the PRC unless there is an applicable tax treaty between the PRC and the jurisdiction in which an overseas holder resides which reduces or exempts the relevant tax.  Similarly, any gain realized on the transfer of shares by such investors is also subject to the 10% PRC income tax if such gain is regarded as income derived from sources within the PRC.  If we are considered a PRC “resident enterprise”, it is unclear whether the dividends we pay with respect to our shares, or the gain you may realize from the transfer of our shares, would be treated as income derived from sources within the PRC and be subject to PRC tax.  If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if you are required to pay PRC income tax on the transfer of your shares, the value of your investment in our shares may be materially and adversely affected.

Dividends received by Golden Green or Wealth Rainbow from their PRC subsidiaries may be subject to PRC withholding tax.

If Golden Green or Wealth Rainbow is not treated as a resident enterprise under the New EIT Law, then dividends that Golden Green or Wealth Rainbow receives from Henan Green may be subject to PRC withholding tax. The New EIT Law and the implementing rules provide that an income tax rate of 10% will normally be applicable to dividends payable to investors that are “non-resident enterprises,” or non-resident investors, which (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends are derived from sources within the PRC.

As described above, the PRC tax authorities determine the resident enterprise status of entities organized under the laws of foreign jurisdictions, including Golden Green or Wealth Rainbow, on a case-by-case basis. Each of Golden Green or Wealth Rainbow is a holding company and substantially all of its income may be derived from dividends it receives from Henan Green.  Thus, if Golden Green or Wealth Rainbow is considered as a “non-resident enterprise” under the New EIT Law and the dividends paid to Golden Green or Wealth Rainbow by subsidiaries in China are considered income sourced within China, such dividends received by Golden Green or Wealth Rainbow may be subject to the 10% enterprise income tax.

The State Council of the PRC or a tax treaty between China and the jurisdictions in which the non-PRC investors reside may reduce such income tax. Pursuant to the Double Tax Avoidance Agreement between Hong Kong and Mainland China, if the beneficial owner in Hong Kong owns more than 25% of the registered capital in a company in China, the 10% withholding tax is reduced to 5%. Wealth Rainbow is incorporated in Hong Kong, which owns 100% of the equity interest in Henan Green. If Wealth Rainbow is considered as a “non-resident enterprise” under the New EIT Law and the dividends paid to Wealth Rainbow by Henan Green are considered income sourced from China, such dividends received by Wealth Rainbow may be subject to the reduced income tax rate of 5% under the Double Tax Avoidance Agreement.

As of the date of this prospectus, the PRC tax authorities have not been able to provide us with a definitive determination as to the “resident enterprise” status of Golden Green or Wealth Rainbow. We will continue to consult with the PRC tax authorities and make any necessary tax withholding if the PRC tax authorities determine that Golden Green or Wealth Rainbow is a resident enterprise under the New EIT Law.
 
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Dividends payable by us to our foreign investors and any gain on the sale of our shares may be subject to taxes under PRC tax laws.

If dividends payable to shareholders by Golden Green are treated as income derived from sources within China, then the dividends that shareholders receive from us, and any gain on the sale or transfer of our shares, may be subject to taxes under PRC tax laws.

Under the New EIT Law and its implementing rules, PRC enterprise income tax at the rate of 10% is applicable to dividends payable by us to our investors that are non-resident enterprises so long as such non-resident enterprise investors do not have an establishment or place of business in China or, despite the existence of such establishment of place of business in China, the relevant income is not effectively connected with such establishment or place of business in China, to the extent that such dividends have their sources within the PRC.  Similarly, any gain realized on the transfer of our shares by such investors is also subject to a 10% PRC income tax if such gain is regarded as income derived from sources within China and Golden Green is considered as a resident enterprise which is domiciled in China for tax purposes.  Additionally, there is a possibility that the relevant PRC tax authorities may take the view that the purpose of Golden Green and Wealth Rainbow is holding Henan Green, and the capital gain derived by our overseas shareholders or investors from the share transfer is deemed China-sourced income, in which case such capital gain may be subject to a PRC withholding tax at the rate of up to 10%.  If we are required under the New EIT Law to withhold PRC income tax on our dividends payable to our foreign shareholders or investors who are non-resident enterprises, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our shares may be materially and adversely affected.

In January, 2009, the State Administration of Taxation promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises (“Measures”), pursuant to which, the entities which have the direct obligation to make the following payment to a non-resident enterprise shall be the relevant tax withholders for such non-resident enterprise, and such payment includes: incomes from equity investment (including dividends and other return on investment), interests, rents, royalties, and incomes from assignment of property as well as other incomes subject to enterprise income tax received by non-resident enterprises in China.  Further, the Measures provides that in case of equity transfer between two non-resident enterprises which occurs outside China, the non-resident enterprise which receives the equity transfer payment shall, by itself or engage an agent to, file tax declaration with the PRC tax authority located at place of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred shall assist the tax authorities to collect taxes from the relevant non-resident enterprise.  However, it is unclear whether the Measures refer to the equity transfer by a non-resident enterprise which is a direct or an indirect shareholder of the said PRC company.  Given these Measures, there is a possibility that Golden Green may have an obligation to withhold income tax in respect of the dividends paid to non-resident enterprise investors.

RISKS RELATED TO THIS OFFERING AND THE MARKET FOR OUR ORDINARY SHARES GENERALLY

There has not been an active public market for our ordinary shares so the price of our ordinary shares could be volatile and could decline following this offering at a time when you want to sell your holdings.

Prior to this offering, our securities traded on the Over-the-Counter Bulletin Board under the symbols GGEEF, GGENF and GGETF, respectively.  Our ordinary shares are not actively traded and the price of our ordinary shares is volatile, and this volatility may continue.  For instance, since the completion of our merger transaction, the closing bid price of our ordinary shares, as reported on the over-the-counter bulletin board ranged between $5.10 and $9.75. Our ordinary shares have been approved for listing on the Nasdaq Global Market under the symbol “CHOP” and trading will start upon the effectiveness of this registration statement.  Although we believe that this offering and the Nasdaq listing will improve the liquidity for our ordinary shares, there is no assurance that the offering will improve volume, reduce volatility and stabilize our share price.  Numerous factors, many of which are beyond our control, may cause the market price of our ordinary shares to fluctuate significantly. These factors include:
 
28


 
·
expiration of lock-up agreements;
 
·
our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;
 
·
changes in financial estimates by us or by any securities analysts who might cover our stock;
 
·
speculation about our business in the press or the investment community;
 
·
significant developments relating to our relationships with our customers or suppliers;
 
·
stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the steel industry;
 
·
customer demand for our products;
 
·
investor perceptions of the steel industry in general and our company in particular;
 
·
the operating and stock performance of comparable companies;
 
·
general economic conditions and trends;
 
·
major catastrophic events;
 
·
announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
 
·
changes in accounting standards, policies, guidance, interpretation or principles;
 
·
loss of external funding sources;
 
·
failure to maintain compliance with Nasdaq rules;
 
·
sales of our ordinary shares, including sales by our directors, officers or significant shareholders; and
 
·
additions or departures of key personnel.

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources.

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, from September 2008 until June 2009, securities markets in the United States, China and throughout the world experienced a historically large decline in share price. These market fluctuations may adversely affect the price of our ordinary shares and other interests in our company at a time when you want to sell your interest in us.

Our failure to meet the listing requirements of the Nasdaq Global Market could result in a de-listing of our ordinary shares.

If after listing we fail to satisfy the continued listing requirements of the Nasdaq Global Market, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to de-list our ordinary shares.  Such a de-listing would likely have a negative effect on the price of our ordinary shares and would impair your ability to sell or purchase our ordinary shares when you wish to do so.  In the event of a de-listing, we would take actions to restore our compliance with Nasdaq's listing requirements, but we can provide no assurance that any such action taken by us would allow our ordinary shares to become listed again, stabilize the market price or improve the liquidity of our ordinary shares, prevent our ordinary shares from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

The exercise of outstanding warrants may result in dilution to the holders of our ordinary shares and trigger certain of our payment obligations.

Dilution of the per share value of our ordinary shares could result from the exercise of outstanding warrants which we assumed in connection with our merger with COAC.  As of June 30, 2009, there were outstanding warrants to purchase 16,066,667 ordinary shares at an exercise price of $5.00 per share as well as an Underwriter’s Unit Purchase Option to purchase 600,000 units at an exercise price of $6.60 per unit (which consists of 1 ordinary share and 2 warrants to purchase our ordinary shares with the warrants exercisable at $5.00 per ordinary share) pursuant to which the holder will acquire up to 1,800,000 ordinary shares in the aggregate.  The warrants will expire and cease to be exercisable on March 19, 2011.  When the exercise price of the warrants is less than the trading price of our ordinary shares, exercise of the warrant would have a dilutive effect on our shareholders.  The possibility of the issuance of shares of our ordinary shares upon exercise of the warrants could cause the trading price of our ordinary shares to decline.  The impact of potentially issuing additional warrants can have a dilutive effect on our shareholders.  In addition, pursuant to our merger agreement with COAC, if at least 75% of these warrants are exercised at a price equal to or greater than $5.00 per share, we will receive at least approximately $64.8 million and will become obligated to make a total payment of $5.0 million to two of our original shareholders.
 
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Future sales or perceived sales of our ordinary shares could depress our stock price.

All of our executive officers and directors and certain of our shareholders have agreed not to sell shares of our ordinary shares for a period of 270 days following this offering, subject to extension under specified circumstances at the option of Maxim Group LLC.  See “Underwriting.” Ordinary shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933, as amended.  A substantial number of our ordinary shares held by our current shareholders are freely tradable. See “Shares Eligible for Future Sale.” If the holders of these shares were to attempt to sell a substantial amount of their holdings at once, the market price of our ordinary shares could decline. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short the ordinary shares, a practice in which an investor sells shares that he or she does not own at prevailing market prices, hoping to purchase shares later at a lower price to cover the sale. As each of these events would cause the number of shares of our ordinary shares being offered for sale to increase, our ordinary shares market price would likely further decline. All of these events could combine to make it very difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

We do not intend to pay dividends on shares of our ordinary shares for the foreseeable future.

Prior to our March 2009 merger with COAC, our operating subsidiary, Henan Green, declared and paid dividends of $51.9 million and $16.1 million in 2008 and 2007, respectively.  Notwithstanding Henan Green’s past history of making dividend payments, we intend to retain any future earnings to fund the operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on our ordinary shares in the foreseeable future.

We may use these proceeds in ways with which you may not agree.

While we currently intend to use the proceeds from this offering to expand our production capacity, to purchase new equipment and for working capital, we have considerable discretion in the application of the proceeds.  You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used in a manner agreeable to you. You must rely on our judgment regarding the application of the net proceeds of this offering.  The net proceeds may be used for corporate purposes that do not immediately improve our profitability or increase the price of our shares.

We are a “foreign private issuer,” and have disclosure obligations that are different than those of other U.S. domestic reporting companies so you should not expect to receive the same information about us at the same time as a U.S. domestic reporting company may provide.

We are a foreign private issuer and, as a result, we are not subject to certain of the requirements imposed upon U.S. domestic issuers by the SEC. For example, we are not required to issue quarterly reports or proxy statements.  Through the fiscal year ending December 31, 2010, we are allowed six months to file our annual report with the SEC and thereafter must file our annual report within four months of our fiscal year end.  We are not required to disclose certain detailed information regarding executive compensation that is required from U.S. domestic issuers. Further, our directors and executive officers are not required to report equity holdings under Section 16 of the Securities Act.  As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5.  Since many of the disclosure obligations required of us as a foreign private issuer are different than those required by other U.S. domestic reporting companies, our shareholders should not expect to receive information about us in the same amount and at the same time as information is received from, or provided by, other U.S. domestic reporting companies. We are liable for violations of the rules and regulations of the SEC which do apply to us as a foreign private issuer. Violations of these rules could affect our business, results of operations and financial condition.
 
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You may have difficulty enforcing judgments obtained against us.

We are a BVI company and substantially all of our assets are located outside of the United States. Virtually all of our assets and a substantial portion of our current business operations are conducted in the PRC.  In addition, almost all of our directors and officers are nationals and residents of countries other than the United States.  A substantial portion of the assets of these persons are located outside the United States.  As a result, it may be difficult for you to effect service of process within the United States upon these persons.  It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents in the United States and whose assets are located in significant part outside of the United States.  The courts of the BVI would recognize as a valid judgment, a final and conclusive judgment in personam obtained in the federal or state courts in the United States against the Company under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the BVI, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the BVI, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the BVI and (f) there is due compliance with the correct procedures under the laws of the BVI.  In addition, there is uncertainty as to whether the courts of the BVI or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.  In addition, it is uncertain whether such BVI or PRC courts would entertain original actions brought in the courts of the BVI or the PRC, against us or such persons predicated upon the securities laws of the United States or any state.

Because we are incorporated under the laws of the BVI, it may be more difficult for our shareholders to protect their rights than it would be for a shareholder of a corporation incorporated in another jurisdiction.

Our corporate affairs are governed by our Memorandum and Articles of Association, by the BVI Business Companies Act, 2004, and by the common law of the BVI.  Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management and the rights of our shareholders differ from those that would apply if we were incorporated in the United States or another jurisdiction.  The rights of shareholders under BVI law may not be as clearly established as are the rights of shareholders in the United States or other jurisdictions.  Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders.  Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously unreasonable may be declared null and void. BVI law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in US jurisdictions.  In addition, the circumstances in which a shareholder of a BVI company may sue the company derivatively, and the procedures and defenses that may be available to the company, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the US.  Furthermore, our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the laws of most US jurisdictions.  The directors of a BVI corporation, subject in certain cases to court approval but without shareholder approval, may implement a reorganization, merger or consolidation, the sale of any assets, property, part of the business, or securities of the corporation, subject to a limit of up to 50% of such assets.  The ability of our board of directors to create new classes or series of shares and the rights attached by amending our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our ordinary shares at a premium over then current market prices. Thus, our shareholders may have more difficulty protecting their interests in the face of actions by our board of directors or our controlling shareholders than they would have as shareholders of a corporation incorporated in another jurisdiction.
 
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We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to U.S. shareholders.

We do not currently expect to be classified as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes for our tax year ending December 31, 2009.  However, the PFIC test is an annual test that, as discussed below, depends upon the composition of our gross income for the year and the percentage, based on a quarterly average for the year, of our gross assets that constitutes “passive” assets.  Accordingly, it is not possible to determine whether we will not be classified as a PFIC for our tax year ending December 31, 2009 until after the year has ended.  In addition, even if we are not classified as a PFIC for our taxable year ending December 31, 2009, because the PFIC test is annual, we cannot assure you that we will not be a PFIC for any following tax year.  A non-U.S. corporation will be classified as a PFIC for the taxable year if (i) at least 75% of its gross income is passive income for such year or (ii) at least 50% of the fair market value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce or are held for the production of passive income.  The fair market value of our assets may be determined to a large extent by the market price of our ordinary shares, which may fluctuate after this offering.  Furthermore, how we spend as well as how quickly we spend the proceeds from this offering will affect the composition of our income and assets.  If we are treated as a PFIC for any tax year during which U.S. shareholders hold ordinary shares, certain adverse United States federal income tax consequences could apply to such U.S. holders.  See “Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company Rules.”

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements are contained principally in the sections entitled “Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”  These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.  These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” above.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements.  Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.  Given these uncertainties, you should not place undue reliance on these forward-looking statements.  Also, forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus, or that we filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 
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USE OF PROCEEDS
 
We estimate that we will receive net proceeds of approximately $21.6 million from the sale of our ordinary shares that we are offering, after deducting the underwriting discount and commissions and our expenses of the offering. If the over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $24.9 million.
 
We intend to use the majority of the net proceeds from the offering to construct and expand our manufacturing facilities and production lines, maintain existing machinery and purchase additional manufacturing equipment for our new production lines, fund research and development efforts for new and existing products and for working capital.

We intend to use the remaining net proceeds for other general corporate purposes, including potential acquisitions or investments in complimentary businesses, products or technologies.  We do not currently have any agreements or understandings with third parties to make any material acquisitions of, or investment in, other businesses. Depending on future events and others changes in the business climate, we may determine at a later time to use the net proceeds for different purposes.

Pending use of the net proceeds of the offering, we intend to invest the net proceeds in short-term interest-bearing investment grade instruments.

DIVIDEND POLICY
 
Our operating subsidiary, Henan Green, paid dividends of $42.3 million and $16.1 million and in 2008 and 2007, respectively, prior to our 2009 merger with COAC.  For the foreseeable future, we intend to retain any future earnings to fund the operation and expansion of our business and do not anticipate paying cash dividends on our ordinary shares.

The payment of any dividends in the future will be within the discretion of our board of directors, subject to the relevant provision of BVI law.

 
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PRICE RANGE OF OUR SECURITIES
 
The common stock, warrants and units of COAC were quoted on the Over-the-Counter Bulletin Board maintained by the Financial Industry Regulatory Authority, under the symbols of CHNQ, CHNQW and CHNQU, respectively.  COAC units commenced public trading on March 22, 2007 and common stock and warrants commenced public trading on April 18, 2007.

On March 17, 2009, COAC merged with and into us.  As a result of the merger, COAC’s outstanding shares of common stock, warrants and units have been converted into like securities of us on a one-to-one basis.  Our ordinary shares, warrants and units are quoted on the Over-the-Counter Bulletin Board under the symbols of GGEEF, GGENF and GGETF, respectively, effective April 27, 2009.

The following table provides the high and low closing bid prices for our ordinary shares, units and warrants and the historical prices for COAC’s common stock, warrants and units prior to the merger, for the periods indicated below.  The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
 
   
Ordinary
Share/Common Stock*
   
Warrants
   
Unit
 
   
High
   
Low
   
High
   
Low
   
High
   
Low
 
Annual Market Prices
                                   
Year 2007 (from March 22, 2007)
  $ 5.76     $ 5.33     $ 1.08     $ 0.55     $ 7.85     $ 6.05  
Year 2008
    5.85       5.40       0.99       0.03       7.75       5.40  
Year 2009 (through Novermber 9, 2009)
    9.75       5.10       1.79       0.12       6.25       6.01  
                                                 
Quarterly Market Prices  
                                               
First Quarter 2008
    5.62       5.50       0.99       0.62       7.75       6.95  
Second Quarter 2008
    5.75       5.52       0.62       0.46       6.95       6.51  
Third Quarter 2008
    5.85       5.60       0.50       0.23       6.75       5.60  
Fourth Quarter 2008
    5.80       5.40       0.30       0.03       6.00       5.40  
First Quarter 2009
    6.00       5.10       0.40       0.10       6.25       5.95  
Second Quarter 2009**
    6.50       5.55       0.75       0.32       6.01       5.95  
Third Quarter 2009**
    8.75       6.50       1.25       0.55       6.01       6.01  
                                                 
Monthly Market Prices
                                               
May 2009**
    6.00       6.00       0.55       0.50       6.01       6.01  
June 2009**
    6.50       6.00       0.75       0.55       6.01       6.01  
July 2009 **
    6.85       6.50       0.75       0.55       6.01       6.01  
August 2009 **
    8.00       6.75       0.74       0.59       6.01       6.01  
September 2009**
    8.75       7.85       1.25       0.74       6.01       6.01  
October 2009**
    9.75       7.00       1.79       1.02       6.01       6.01  
November 2009 (through November 9, 2009)**     7.25       6.50       1.54       1.15       6.01       6.01  

*The above table set forth the range of high and low closing bid prices per share of our ordinary shares as reported by www.quotemedia.com for the periods indicated.  The last reported price of our ordinary shares on Novermber 9, 2009 was $6.50 per share.

**Reflects the price range of our ordinary shares after the completion of our business combination transaction with COAC in March 2009.

Our ordinary shares, warrants and units have been approved for listing on the Nasdaq Global Market under the symbols “CHOP”, “CHOPW”, and “CHOPU”, respectively.
 
34


Approximate Number of Holders of Our Ordinary Shares

On November 9, 2009 there were approximately 10 shareholders of record of our ordinary shares.  Certain of our shares are held in “nominee” or “street” name; accordingly we believe the number of beneficial owners is greater than the foregoing number.

 
35

 

EXCHANGE RATE INFORMATION
 
The conversion of RMB into U.S. dollars in this prospectus is based on the noon buying rate in the city of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade.

The following table sets forth various information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.  These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.  The source of these rates is the Federal Reserve Bank of New York.  As of November 6, 2009, the noon buying rate was RMB 6.8266 to US$1.00.

   
Noon Buying Rate
 
Renminbi per U.S. Dollar
 
Average(2)
   
High
   
Low
   
Period-
end
 
2004 (1)
  $ 8.2768     $ 8.2774     $ 8.2764     $ 8.2765  
2005 (1)
    8.1826       8.2765       8.0702       8.0702  
2006 (1)
    7.9579       8.0702       7.8041       7.8041  
2007 (1)
    7.5806       7.8127       7.2946       7.2946  
2008 (1)
    6.9193       7.2946       6.7800       6.8225  
May 2009
    6.8235       6.8326       6.8176       6.8278  
June 2009
    6.8334       6.8371       6.8264       6.8302  
July 2009
    6.8317       6.8342       6.8300       6.8319  
August 2009
    6.8323       6.8358       6.8299       6.8299  
September 2009
    6.8277       6.8303       6.8247       6.8262  
October 2009
    6.8267       6.8292       6.8248       6.8264  
November (through November 6, 2009)
    6.8269       6.8278       6.8265       6.8266  
 
(1)
All periods end December 31 of the stated year.
(2)
Averages for a period are calculated by using the average of the exchange rates on the end of each month during the period. Monthly averages are calculated by using the average of the daily rates during the relevant period.
 
 
36

 
    
CAPITALIZATION
 
The following table sets forth a summary of our capitalization on a historical basis as of June 30, 2009, and should be read in conjunction with our interim consolidated financial statements and notes included in this  prospectus.  The table also summarizes our capitalization on an as adjusted basis assuming: (1) the completion of this offering of 4,800,000 ordinary shares at an  offering price of $5.00 per ordinary share, (2) net proceeds to us from this offering of $21.6 million after payment of estimated underwriting discounts and commissions and estimated offering expenses totaling $2.4 million, (3) the collection of the subscription receivable and the payment of $4.31 million to the former minority shareholders, which occurred in September 2009, (4) the effect of the issuance of 2,850,000 shares as a component of the earn-out which are accounted as a stock dividend with an assumed value of $6.50 per share (closing price on June 30, 2009), and (5) the intended application of the net proceeds of this offering.
 
   
As of June 30, 2009
 
   
Actual
   
As Adjusted
 
   
(in thousands)
(unaudited)
 
Cash:
           
Cash and Cash Equivalents
  $ 53,558     $ 75,158  
Restricted Cash
    43,348       43,348  
Total Cash
    96,906       118,506  
Debt:
               
Short-term debt
  $ 79,582     $ 75,272  
Long-term debt
    0       0  
Total debt
    79,582       75,272  
Shareholders’ equity:
               
Ordinary shares, no par value, authorized 100,000,000 shares, 32,245,723 shares issued (actual) and 39,895,723 shares issued (as adjusted)
    0       0  
Additional paid in capital
    8,887       49,012  
Subscription Receivable
    (4,310 )     0  
Accumulated other comprehensive income
    2,381       2,381  
Retained earnings
    28,070       9,545  
Total shareholders’ equity
    35,028       60,938  
Total capitalization
    114,610       136,210  
 
 
37

 
 
SELECTED CONSOLIDATED FINANCIAL DATA
 
The following selected historical financial information should be read in conjunction with our financial statements and related notes and the information contained in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  The selected consolidated statement of income data for the fiscal years ended December 31, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007 and 2008 have been derived from the audited consolidated financial statements of Golden Green included elsewhere in this prospectus. The selected statement of income data for the fiscal year ended December 31, 2006 and the balance sheet data as of December 31, 2006 have been derived from the audited financial statements of Henan Green included elsewhere in this prospectus. The selected statement of income data for the fiscal years ended December 31, 2004 and 2005 and balance sheet data as of December 31, 2004 and 2005 have been derived from the unaudited financial statements of Henan Green that are not included in this prospectus. We derived our selected historical consolidated financial data as of June 30, 2009 and for the six months ended June 30, 2008 and 2009 from our unaudited consolidated financial statements included in this prospectus, which include all adjustments, consisting of normal recurring adjustments, that management considers necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods presented.  The results of operations for past accounting periods are not necessarily indicative of the results to be expected for any future periods.
 
(In thousands of U.S. dollars, except share and per share data)

   
Year Ended
December 31,
   
Six Months Ended
June 30,
 
   
2004
   
2005
   
2006
   
2007
   
2008
   
2008
   
2009
 
   
(Henan
Green,
unaudited)
   
(Henan
Green,
unaudited)
   
(Henan
Green,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
unaudited)
   
(Consolidated,
unaudited)
 
Statement of Operations Data:
                                         
                                           
Revenues
  $ 45,530     $ 62,520     $ 99,017     $ 139,649     $ 196,264     $ 100,979     $ 102,409  
Cost of revenue
    (37,534 )     (48,865 )     (72,654 )     (100,577 )     (142,408 )     (71,776 )     (71,773 )
Gross profit
    7,996       13,655       26,363       39,072       53,857       29,203       30,636  
Operating expenses
    (1,583 )     (1,930 )     (2,470 )     (3,301 )     (4,263 )     (1,889 )     (2,194 )
Operating income
    6,413       11,725       23,893       35,771       49,594       27,314       28,442  
Net income before income taxes and minority interest
    5,939       11,568       23,649       35,072       47,375       26,179       27,451  
Income taxes
    (1,960 )     (3,780 )     (7,770 )     (11,422 )     (11,870 )     (6,423 )     (6,897 )
Net income before minority interest(1)
    N/A       N/A       N/A       23,650       35,506       19,756       20,554  
Net income(1)(2)
    3,979       7,788       15,879       13,012       21,585       10,870       20,554  
Weighted average number of basic ordinary shares(3)(4)
    N/A       N/A       N/A       30,000,000       30,000,000       30,000,000       32,245,723  
Weighted average number of diluted ordinary shares(3)(4)
    N/A       N/A       N/A       30,000,000       30,000,000       30,000,000       35,063,501  
Basic earnings per share(1)(3)(4)
    N/A       N/A       N/A     $ 0.43     $ 0.72     $ 0.36     $ 0.64  
Diluted earnings per share(1)(3)(4)
    N/A       N/A       N/A     $ 0.43     $ 0.72     $ 0.36     $ 0.59  
 
38

 
   
As of December 31,
   
As of June 30, 2009
 
   
2004
   
2005
   
2006
   
2007
   
2008
   
Actual
   
As
 
   
(Henan Green,
Unaudited)
   
Actual
(Consolidated,
unaudited)
   
Actual
(Consolidated,
unaudited)
   
(Consolidated,
audited)
   
(Consolidated,
audited)
   
(Consolidated,
unaudited)
   
Adjusted
(5)
 
Balance Sheet Data:
                                         
Working capital
  $ 3,028     $ 513     $ 6,041     $ 14,535     $ (8,789 )   $ 10,606     $ 36,516  
Current assets
    40,841       71,020       68,822       74,654       94,019       119,515       141,115  
Total assets
    49,157       85,695       85,782       91,817       115,377       143,937       165,537  
Current liabilities
    37,813       71,533       62,781       60,119       102,808       108,909       104,599  
Total liabilities
    39,867       72,051       63,239       60,273       102,836       108,909       104,599  
Shareholders’ equity
    9,290       13,644       22,543       17,356       12,540       35,028       60,938  

(1)Henan Green was acquired by Golden Green on October 21, 2008 and for reporting purposes a 44.98% interest of Henan Green has been accounted for as a minority interest prior to the date of acquisition during the years ended December 31, 2007 and 2008. Net income and per share data have been calculated after giving effect to the minority interest in such periods. Minority Interest was not accounted for during the years ended December 31, 2004, 2005 and 2006 in respect of Henan Green and has not been accounted for since our March 17, 2009 merger with COAC.

(2)We have no discontinued operations, therefore net income and net income per share has been provided in lieu of income from continuing operations and income from continuing operations per share.

(3)In anticipation of the merger transaction with China Acquisition Opportunity Corporation, Golden Green effectuated a recapitalization on March 13, 2009 pursuant to which 29,999,900 newly issued ordinary shares were issued to Golden Green’s then-current shareholders pro rata with their relative ownership percentages. Consequently, the foregoing table presents per share data (basic and diluted) on a pro forma basis assuming that the recapitalization had already occurred at all times during the periods presented.

(4)Ordinary shares outstanding (actual and diluted) and per share data (basis and diluted) of Henan Green have been omitted for 2004, 2005 and 2006 because of differences in the capital structures of Golden Green and Henan Green. Presenting such data in this prospectus is not particularly helpful and could be misleading to readers.

(5)The “as adjusted” information gives effect to the sale of 4,800,000 ordinary shares in this offering (other than pursuant to the underwriters’ over-allotment option), including the application of the related gross proceeds of $24 million and the payment of the underwriting discount and commission and the estimated offering costs of $2.4 million from such sale and the collection of a subscription receivable and payment to former minority stockholders of $4.31 million which occurred in September 2009.

The following table includes a reconciliation of our Adjusted EBITDA to Net Income, the most directly comparable GAAP financial measure:

39

 
(In thousands of U.S. dollars)

   
For the Six Months Ended June 30
   
For YearEnded December 31,
 
   
2009
   
2008
   
2008
   
2007
   
2006
 
   
Company and its subsidiaries
   
Companand its subsidiaries
   
Henan Green
 
                               
Net Income before Minority Interest
  $ 20,554     $ 19,756     $ 35,505     $ 23,650     $ 15,879  
Depreciation and amortization
    1,396       1,190       2,478       2,184       1,842  
Provision for income taxes
    6,897       6,422       11,869       11,421       7,770  
Other income
    (152 )     (84 )     (155 )     (16 )     0  
Merger expenses
    186       0       0       0       0  
Interest expenses
    1,569       1,962       3,769       2,147       1,312  
Interest income
    (426 )     (743 )     (1,395 )     (1,432 )     (1,068 )
Adjusted EBITDA
    30,024       28,503       52,071       37,954       25,735  

Non-GAAP Financial Measure
 
This prospectus contains disclosure of EBITDA, which is a non-financial measure within the meaning of Regulation G promulgated by the SEC.  Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP.  Items excluded from Adjusted EBITDA are significant and necessary components to the operations of our business, and therefore Adjusted EBITDA should only be used as a supplemental measure of our operating performance.

We define Adjusted EBITDA as net income before minority interest, interest expense, income taxes, depreciation and amortization, non-operating income (expense), non-recurring merger expenses and non-cash share-based compensation expenses.  We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results, including our return on capital and operating efficiencies, from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, non-operating items and non-cash share-based compensation.  We also believe Adjusted EBITDA is a measure widely used by management, securities analysts, investors and others to evaluate our financial performance and other companies in our industry.  Other companies may calculate Adjusted EBITDA differently, and therefore our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
 
 
40

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion together with our financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those which we discuss under “Risk Factors” and elsewhere in this prospectus.

General

We are the largest China-based, non state-owned contract manufacturer of cold-rolled high precision narrow strip steel products with a market share of approximately 12.5% of the Chinese market in 2008, according to  Freedonia. We utilize a variety of processes and methodologies to convert steel manufactured by third parties into thin steel sheets and strips according to our customers’ specification. We produce precision ultra-thin, high strength cold-rolled steel products, with thicknesses ranging from 0.09 mm to 1.3 mm, width up to 600 mm and precision ranging from 0.0025 mm to 0.005 mm. We sell our products to domestic Chinese customers who primarily operate in the food and packaging, construction materials, telecommunications cable and equipment and electrical appliances industries. We source the raw materials, which are comprised primarily of steel coil, from a variety of suppliers in China.

Our revenue increased from $45.5 million to $62.5 million to $99.0 million to $139.6 million to $196.3 million for the years from 2004 through 2008, representing a CAGR of approximately 44.1%. Our revenue grew 1.4% from $101.0 million for the six months ended June 30, 2008 to $102.4 million for the six months ended June 30, 2009. Our net income before minority interest increased from $4.0 million in 2004 to $7.8 million in 2005, $15.9 million in 2006, $23.7 million in 2007 and $35.5 million in 2008, representing a CAGR of approximately 72.6%. Our net income grew 4.0% from $19.8 million for the six months ended June 30, 2008 to $20.53 million for the six months ended June 30, 2009. We believe that the growth which we have achieved reflects our success in addressing customer needs, strategically expanding our production lines, increasing market penetration and enhancing the quality of our products.

Our cold rolling steel processing production capacity as of June 30, 2009 was approximately 250,000 metric tons per annum and our chromium coating capacity was approximately 50,000 metric tons per annum. We plan to use a significant portion of the net proceeds from this offering to expand our overall steel processing manufacturing capacity to 500,000 metric tons by 2011. We also intend to add new production lines and higher value-added products, such as chrome finished, zinc coated and galvanized products to improve our profit margin.

Important Factors Affecting our Results of Operations

The most significant factors that affect our financial condition and results of operations are:

Factors Specific to Our Business

 
·
Expansion of our production capacity and product mix. We anticipate that our future results will be further supported by the expected sales of our new product lines, which include zinc coated steel sheets and chrome coated steel sheets. In August 2008, we accelerated our expansion plan by installing a new processing line producing chrome coated steel products, which are higher-end, value-added products with a higher selling price and higher profit margin. We completed pilot production of the chrome coated steel products, and commenced mass production during the first quarter of 2009. We also plan to introduce zinc and tin coated steel products in the near future, while gradually increasing our annual steel processing capacity to 500,000 metric tons by 2011.

 
·
Growth in the Chinese Economy. We operate our manufacturing facilities in China and derive almost all of our revenues from sales to customers in China. Economic conditions in China, therefore, affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our raw materials and our other expenses. China is expected to experience continued growth in all areas of investment and consumption, even in the face of a global economic recession. However, China has been affected by the global economic slowdown and is experiencing a slowing of its growth rate.

 
41

 
 
 
·
Supply and Demand for High-End Precision Cold-Rolled Steel. While the overall Chinese steel industry has recently experienced a period of excess supply, there is an increasing shortage of high-end thin steel sheets and galvanized steel products in China, which has been primarily driven by the limited number of producers of precision thin steel products in China. We expect that the shortage of supply in this steel market will continue. In addition, due to the continuing improvement of the standard of living in China and the growth of China’s middle class, the demand for telecommunications cable and equipment, electrical household appliances and construction materials in which our products serve as components has risen in recent years, thereby increasing the demand for the high-end steel products that we produce.

 
·
Recent Economic Events. Despite the recent global economic crisis and market turmoil, we have experienced continued growth during 2009, albeit at a less rapid pace than in recent years. The recent decline in steel prices in China has not materially affected our gross margins as we have experienced a symmetrical drop in our raw materials costs, offsetting the sales price reductions. We also customarily carry a rolling order backlog of approximately two months. Although some uncertainty can be expected in demand for the rest of 2009 and into 2010 due to the general slowdown in China’s economy, our customers have given no indication of a reduction in orders through the end of 2009. If we continue to produce innovative, high quality products that meet our customers’ demands, we believe that we will continue to experience strong demand over the next 12 months.

 
·
PRC Economic Stimulus Plans. The PRC government has issued a policy entitled “Central Government Policy On Stimulating Domestic Consumption To Counter The Damage Result From Export Business Of The Country.”  Under this policy, the PRC Central Government is dedicating approximately $580 billion to stimulate domestic consumption. Companies that are either directly or indirectly related to construction, building material, electrical household appliances and telecommunication are expected to benefit. An executive order has been announced that the PRC Central Government will improve the living standard in the country’s rural areas by subsidizing the purchase of any electric household appliance for every household in the rural area. In addition, the policy indicates a strong determination to improve telecommunication in all rural areas. We expect to benefit from order growth due to this economic stimulus plan.

Factors Specific to Our Industry

 
·
Cyclicality. The steel industry is highly cyclical and significantly affected by general economic conditions and other factors, such as worldwide production capacity, fluctuations in imports and exports, fluctuations in metal purchase prices and tariffs. Recently, the global steel markets have been experiencing larger and more pronounced cyclical fluctuations, primarily driven by slower global economic growth and the increase in Chinese production and consumption. This trend, combined with the upward pressure on costs of key inputs, comprising mainly metals, energy and transportation and logistics costs, presents increasing uncertainty and challenge for steel producers on a worldwide basis. However, processed steel demand and prices for the precision steel products, like those we manufacture, are driven by and sensitive to other factors, such as product differentiation, customer service and cost reductions through improved efficiencies and economies of scale. Therefore we are comparatively less affected by cyclicality than other companies within our industry.

 
·
Raw Materials Prices. The market for our principal raw material, hot-rolled steel, is price sensitive. In recent months, because of the general slowdown in economic activity experienced in China and the rest of the world, prices for this material have declined. Consequently, our cost of sales has also declined and we have passed the savings onto our customers. While we frequently prepay suppliers for our raw materials in order to ensure an ample supply of raw materials, pricing of our orders is not established until the order and physical delivery are confirmed, at which time the price is confirmed at the then-current market price. We account for inventory at cost and any adjustment required to value inventory at the lower of cost or market is made at the year-end and not at interim periods. Because of the relatively short periods during which inventory is kept on hand, we believe that differences between cost and market are not significant. Other than hot-rolled steel, no other raw materials are significantly used in our manufacturing processes.

 
42

 
 
 
·
Steel prices. Demand for steel in China has played a major role in the movement of international steel prices. The price of steel rose on a global basis from 2004 to June 2008, after which time the price of steel declined by approximately 30%. Any fluctuations in the cost of raw steel affect our operating costs and the prices that we charge our customers. We generally pass onto our customers any cost savings that result from reduced steel prices. For this reason, our revenue and cost of sales are directly related to the market price, demand and supply of steel.

 
·
Product mix and effect on gross margin.  Our gross margin is primarily affected by our product mix. For years ended December 31, 2008, 2007 and 2006, our gross margins were 27.4%, 28.0% and 26.6%, respectively. Fluctuations in our gross margin were primarily driven by changes in our product mix.  Our production costs are generally higher in early phases of production introduction due to higher start-up costs and low production yield rate. Over time we typically improve our manufacturing efficiency.  Furthermore, while the gross profit in dollar value remains constant, a higher level of sales revenue and cost of sales will lead to a lower level of gross profit margin.

 
·
Inventory Revaluation. Inventory revaluation arises from a de-valuation of our inventory and results in (1) a write-down of the inventory as inventory is valued at lower of actual cost or market value; and (2) a charge to net income as a result of the write-down. Under our procurement policy, we do not carry material amounts of raw material inventory without confirmed purchase orders with a predetermined sales price and delivery schedule. Thus, we were not negatively affected by the inventory revaluation as a result of the steel price decline in 2008.

 
·
Consolidation in the Steel Industry. There has been significant consolidation in the global steel industry and consolidation is also taking place in China. The government of China has publicly stated that it expects consolidation of the Chinese steel industry and the top several producers in China to account for the majority of national production. Cross border consolidation has also occurred with the aim of achieving greater efficiency and economies of scale, particularly in response to the effective consolidation undertaken by raw material suppliers and consumers of steel products. Notwithstanding the general trend towards consolidation in the industry, China’s specialty steel sector, the sector in which we operate, is dominated by privately-owned enterprises and is still highly fragmented. This fragmentation presents an opportunity for companies like ours to gain market share through acquisitions and internal expansion.

Minority Interest

Henan Green was acquired by Golden Green through Wealth Rainbow on October 21, 2008 and the acquisition was accounted for as a reorganization under common control with the purchase of a minority interest. For reporting purposes, a control group comprised of our Chairman and CEO, Mr. Lu and his two direct relatives (Mr. Lu’s son, Yi Lu and Mr. Lu’s brother, Baiwang Lu) held 55.02% of the shares of Henan Green on the date of acquisition. Upon the acquisition, we were wholly owned by Wealth Rainbow, whose sole shareholder was Ms. Yuying Lu, the daughter of Mr. Lu. Wealth Rainbow was acquired by Golden Green on November 28, 2008, and upon the acquisition, Henan Green was wholly owned by Golden Green, the majority shareholder of which is Oasis Green Investments Limited, whose sole shareholder is Ms. Yuying Lu, the daughter of Mr. Lu. Therefore, under U.S. GAAP reporting rules the control group’s 55.02% interest of Henan Green that was acquired constitutes an exchange of equity interests between entities under common control, and the remaining 44.98% interest of Henan Green was accounted for as a minority interest prior to the date of acquisition. As of March 17, 2009, the minority interest ceased to exist.

Gross Profit and Gross Margin

For the years ended December 31, 2008, 2007 and 2006, our gross margin was 27.4%, 28.0% and 26.6%, respectively. Our gross margin was 29.9% for the six months ended June 30, 2009 as compared to 28.9% for the same period of 2008. Our direct costs of manufacturing are generally high when we first introduce a new product due to higher start-up costs and higher raw material consumption rate. As production volumes increase, we typically improve our manufacturing efficiency and are able to strengthen our purchasing power by buying raw materials in greater quantities.

 
43

 
 
Changes in our gross margin are primarily driven by changes in our product mix and other strategic operating decisions. Our high-end, value-added products generally tend to have higher profit margins and we have moved to emphasize these products in our mix. Further, general economic conditions and our response to them, cost of raw materials as well as supply and demand of steel finishing fabrication products within our markets influence sales prices.

To gain market penetration, we price our products at levels that we believe are competitive compared to imported products. Through our continuous efforts to improve manufacturing efficiency and reduce production costs, we believe that we are able to offer products of comparable quality to our Chinese state-owned competitors and international competitors at more competitive prices. Our sales prices are influenced by general economic conditions, cost of raw materials as well as supply and demand of steel finishing fabrication products within our markets. Our high-end, value-added products generally tend to have higher profit margin.

Taxation

BVI. Golden Green is incorporated in the BVI. Under the current law of the BVI, Golden Green is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the BVI.

Hong Kong.  We did not have any assessable profits subject to the Hong Kong profits tax from 2006 to 2008. We do not anticipate having any income subject to income taxes in Hong Kong in the foreseeable future.

PRC. In 2007, the PRC government promulgated the new Enterprise Income Tax Law, or EIT Law, and the relevant implementation rules, which became effective on January 1, 2008. Under the EIT Law and its implementation rules, all domestic and foreign investment companies will be subject to a uniform enterprise income tax at the rate of 25% and dividends from PRC subsidiaries to their non-PRC shareholders will be subject to a withholding tax at a rate of 20%, which is further reduced to 10% by the implementation rules, if the non-PRC shareholder is considered to be a non-PRC tax resident enterprise without any establishment or place within China or if the dividends payable has no connection with the non-PRC shareholder’s establishment or place within China, unless any such non-PRC shareholder’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. In addition, pursuant to the EIT Law, enterprises established under the laws of non-PRC jurisdictions, but whose “de facto management body” is located in the PRC, should be treated as resident enterprises for PRC tax purposes However, it is currently uncertain whether we may be deemed a resident enterprise, or how to interpret whether any income or gain is derived from sources within China. See “Risk Factors - Under the New EIT Law, we may be classified as a “resident enterprise” of China.  Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders. If we, as a BVI company with substantially all of our management located in China, were treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which would have an impact on our effective tax rate.

The EIT Law and the Implementing Rules also imposes a unified EIT of 25% on both foreign invested enterprises and domestic enterprises, effective January 1, 2008.  As a result, our PRC subsidiary, Henan Green, was subject to the EIT rates of 33% from 2006 to 2007 and 25% in 2008.

Results of Operations

The following tables set forth key components of our results of operations for the periods indicated, in dollars and as a percentage of revenue.

 
44

 
(All amounts in thousands of U.S. dollars, except for the percentages)

   
For the Six Months Ended June 30,
   
For the Years Ended December 31,
 
  
 
2009
   
2008
   
2008
   
2007
   
2006
 
   
(Consolidated, unaudited) 
   
(Consolidated,
unaudited)
   
(Consolidated, audited)
   
(Consolidated, audited)
   
 (Henan Green, audited)
 
  
 
USD
   
% of
Revenue
   
USD
   
% of
Revenue
   
USD
   
% of
Revenue
   
USD
   
% of
Revenue
   
USD
   
% of
Revenue
 
Revenue
  $ 102,409       100.0     $ 100,979       100.0     $ 196,265       100.0     $ 139,649       100.0     $ 99,017       100.0  
Total cost of revenue
    (71,773 )     -70.1       (71,776 )     -71.1       (142,408 )     -72.6       (100,577 )     -72.0       (72,654 )     -73.4  
Gross profit
    30,636       29.9       29,203       28.9       53,857       27.4       39,072       28.0       26,363       26.6  
General and administrative expenses
    (1,655 )     -1.6       (1,483 )     -1.5       (3,432 )     -1.7       (2,767 )     -2.0       (1,999 )     -2.0  
Selling and marketing expenses
    (539 )     -0.5       (405 )     -0.4       (831 )     -0.4       (534 )     -0.4       (471 )     -0.5  
Operating income
    28,442       27.8       27,314       27.0       49,594       25.3       35,771       25.6       23,893       24.1  
Other income and (expense)
                                                                               
Interest income
    427       0.4       743       0.7       1,395       0.7       1,432       1.0       1,068       1.1  
Interest expenses
    (1,570 )     -1.5       (1,962 )     -1.9       (3,769 )     -1.9       (2,147 )     -1.5       (1,312 )     -1.3  
Sundry income
    152       0.1       84       0.1       156       0.1       16       0.0       -          
Income before income taxes
    27,451       26.8       26,179       25.9       47,375       24.1       35,072       25.1       23,649       23.9  
Income tax expense
    (6,897 )     -6.7       (6,423 )     -6.4       (11,870 )     -6.0       (11,422 )     -8.2       (7,770 )     -7.8  
Net income before Minority Interest
    20,554       0.1       19,756       19.6       35,506