UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended: June 30, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ________________ to ________________
Commission
file number: 000-12536
SMART
POWERR CORP.
(Exact
name of registrant as specified in its charter)
Nevada | | 90-0093373 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
4/F,
Tower C
Rong
Cheng Yun Gu Building Keji 3rd Road, Yanta District
Xi
An City, Shaan Xi Province
China
710075
(Address
of principal executive offices)
(011)
86-29-8765-1098
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.001 par value | | CREG | | Nasdaq Capital Market |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| | Emerging Growth Company | ☐ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 14, 2024, there were
8,765,857 shares of the registrant’s common stock outstanding.
SMART POWERR CORP.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMART
POWERR CORP.
CONSOLIDATED
BALANCE SHEETS
| |
JUNE
30,
2024 | | |
DECEMBER 31,
2023 | |
| |
(UNAUDITED) | | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 68,102,052 | | |
$ | 32,370 | |
VAT
receivable | |
| 169,638 | | |
| 170,694 | |
Advance
to supplier | |
| 67,024,680 | | |
| 67,440,761 | |
Short
term loan receivables | |
| - | | |
| 68,773,208 | |
Other
receivables | |
| 46,882 | | |
| 48,519 | |
| |
| | | |
| | |
Total
current assets | |
| 135,343,252 | | |
| 136,465,552 | |
| |
| | | |
| | |
NON-CURRENT
ASSETS | |
| | | |
| | |
Right-of-use asset | |
| 152,357 | | |
| - | |
Plant and equipment, net | |
| 3,970 | | |
| 3,994 | |
| |
| | | |
| | |
Total
non-current assets | |
| 156,327 | | |
| 3,994 | |
| |
| | | |
| | |
TOTAL
ASSETS | |
$ | 135,499,579 | | |
$ | 136,469,546 | |
| |
| | | |
| | |
LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT
LIABILITIES | |
| | | |
| | |
Accounts
payable | |
$ | 69,649 | | |
$ | 70,083 | |
Accrued
liabilities and other payables | |
| 2,707,419 | | |
| 2,664,461 | |
Taxes
payable | |
| 4,277,024 | | |
| 4,277,091 | |
Accrued
interest on notes | |
| 103,545 | | |
| 2,290 | |
Notes
payable | |
| 5,025,767 | | |
| 5,222,743 | |
Operating
lease liability | |
| 61,520 | | |
| - | |
Payable for purchase of 10% equity interest of Zhonghong | |
| 420,946 | | |
| 423,567 | |
Interest
payable on entrusted loans | |
| 339,346 | | |
| 341,459 | |
Entrusted
loan payable | |
| 10,804,288 | | |
| 10,871,560 | |
| |
| | | |
| | |
Total
current liabilities | |
| 23,809,504 | | |
| 23,873,254 | |
| |
| | | |
| | |
NONCURRENT
LIABILITIES | |
| | | |
| | |
Income
tax payable | |
| 3,350,625 | | |
| 3,350,625 | |
Operating
lease liability | |
| 90,838 | | |
| - | |
| |
| | | |
| | |
Total
noncurrent liabilities | |
| 3,441,463 | | |
| 3,350,625 | |
| |
| | | |
| | |
Total
liabilities | |
| 27,250,967 | | |
| 27,223,879 | |
| |
| | | |
| | |
CONTINGENCIES
AND COMMITMENTS | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS’
EQUITY | |
| | | |
| | |
Common stock, $0.001 par value; 100,000,000 shares authorized, 8,516,357 and 7,963,444 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively | |
| 8,516 | | |
| 7,963 | |
Additional
paid in capital | |
| 165,329,781 | | |
| 164,870,025 | |
Statutory
reserve | |
| 15,191,645 | | |
| 15,191,645 | |
Accumulated
other comprehensive loss | |
| (11,094,405 | ) | |
| (10,326,595 | ) |
Accumulated
deficit | |
| (61,186,925 | ) | |
| (60,497,371 | ) |
| |
| | | |
| | |
Total
Company stockholders’ equity | |
| 108,248,612 | | |
| 109,245,667 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 135,499,579 | | |
$ | 136,469,546 | |
The
accompanying notes are an integral part of these consolidated financial statements
SMART
POWERR CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| |
SIX
MONTHS ENDED
JUNE 30, | | |
THREE
MONTHS ENDED
JUNE 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenue | |
| | |
| | |
| | |
| |
Contingent rental income | |
$ | - | | |
$ | - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Interest income on sales-type
leases | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Total operating income | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
General
and administrative | |
| 559,237 | | |
| 459,235 | | |
| 350,803 | | |
| 374,407 | |
| |
| | | |
| | | |
| | | |
| | |
Total
operating expenses | |
| 559,237 | | |
| 459,235 | | |
| 350,803 | | |
| 374,407 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (559,237 | ) | |
| (459,235 | ) | |
| (350,803 | ) | |
| (374,407 | ) |
| |
| | | |
| | | |
| | | |
| | |
Non-operating income (expenses) | |
| | | |
| | | |
| | | |
| | |
Gain (loss) on note
conversion | |
| (21,243 | ) | |
| 5,602 | | |
| - | | |
| (4,880 | ) |
Interest income | |
| 81,281 | | |
| 170,441 | | |
| 41,297 | | |
| 82,246 | |
Interest expense | |
| (204,331 | ) | |
| (220,280 | ) | |
| (100,251 | ) | |
| (109,176 | ) |
Other
income, net | |
| 28,152 | | |
| 228,618 | | |
| - | | |
| 216,333 | |
| |
| | | |
| | | |
| | | |
| | |
Total
non-operating income (expenses), net | |
| (116,141 | ) | |
| 184,381 | | |
| (58,954 | ) | |
| 184,523 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before income tax | |
| (675,378 | ) | |
| (274,854 | ) | |
| (409,757 | ) | |
| (189,884 | ) |
Income tax expense | |
| 14,176 | | |
| 62,492 | | |
| - | | |
| 57,958 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (689,554 | ) | |
| (337,346 | ) | |
| (409,757 | ) | |
| (247,842 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive items | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation loss
| |
| (767,810 | ) | |
| (4,492,048 | ) | |
| (649,189 | ) | |
| (6,173,768 | ) |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (1,457,364 | ) | |
$ | (4,829,394 | ) | |
$ | (1,058,946 | ) | |
$ | (6,421,610 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares used for computing basic and diluted loss per share | |
| 8,238,106 | | |
| 7,643,072 | | |
| 8,360,386 | | |
| 7,803,991 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.08 | ) | |
$ | (0.04 | ) | |
$ | (0.05 | ) | |
$ | (0.03 | ) |
The
accompanying notes are an integral part of these consolidated financial statements
SMART
POWERR CORP.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
SIX
AND THREE MONTHS ENDED JUNE 30, 2024 AND 2023
(UNAUDITED)
| |
Common
Stock | | |
Paid
in | | |
Statutory | | |
Other
Comprehensive | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Reserves | | |
Loss | | |
Deficit | | |
Total | |
Balance
as of December 31, 2023 | |
| 7,963,444 | | |
$ | 7,963 | | |
$ | 164,870,025 | | |
$ | 15,191,645 | | |
$ | (10,326,595 | ) | |
$ | (60,497,371 | ) | |
$ | 109,245,667 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (279,797 | ) | |
| (279,797 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion
of long-term notes into common shares | |
| 165,081 | | |
| 165 | | |
| 321,078 | | |
| - | | |
| - | | |
| - | | |
| 321,243 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Transfer
to statutory reserves | |
| - | | |
| - | | |
| - | | |
| 31 | | |
| - | | |
| (31 | ) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (118,621 | ) | |
| - | | |
| (118,621 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of March
31, 2024 | |
| 8,128,525 | | |
| 8,128 | | |
| 165,191,103 | | |
| 15,191,676 | | |
| (10,445,216 | ) | |
| (60,777,199 | ) | |
| 109,168,492 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (409,757 | ) | |
| (409,757 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion
of long-term notes into common shares | |
| 259,067 | | |
| 259 | | |
| (259 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
compensation expense | |
| 128,765 | | |
| 129 | | |
| 138,937 | | |
| - | | |
| - | | |
| - | | |
| 139,066 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Transfer
to statutory reserves | |
| - | | |
| - | | |
| - | | |
| (31 | ) | |
| - | | |
| 31 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (649,189 | ) | |
| - | | |
| (649,189 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of June 30, 2024 | |
| 8,516,357 | | |
$ | 8,516 | | |
$ | 165,329,781 | | |
$ | 15,191,645 | | |
$ | (11,094,405 | ) | |
$ | (61,186,925 | ) | |
$ | 108,248,612 | |
| |
Common
Stock | | |
Paid
in | | |
Statutory | | |
Other
Comprehensive | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Reserves | | |
Loss | | |
Deficit | | |
Total | |
Balance
as of December 31, 2022 | |
| 7,391,996 | | |
$ | 7,392 | | |
$ | 163,663,305 | | |
$ | 15,168,003 | | |
$ | (8,318,564 | ) | |
$ | (59,726,943 | ) | |
$ | 110,793,193 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (89,504 | ) | |
| (89,504 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion
of long-term notes into common shares | |
| 241,537 | | |
| 242 | | |
| 489,276 | | |
| - | | |
| - | | |
| - | | |
| 489,518 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Transfer
to statutory reserves | |
| - | | |
| - | | |
| - | | |
| 2,590 | | |
| - | | |
| (2,590 | ) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation gain | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,681,720 | | |
| - | | |
| 1,681,720 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance as of
March 31, 2023 | |
| 7,633,533 | | |
| 7,634 | | |
| 164,152,581 | | |
| 15,170,593 | | |
| (6,636,844 | ) | |
| (59,819,037 | ) | |
| 112,874,927 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (247,842 | ) | |
| (247,842 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Conversion
of long-term notes into common shares | |
| 154,473 | | |
| 154 | | |
| 254,727 | | |
| - | | |
| - | | |
| - | | |
| 254,881 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Transfer
to statutory reserves | |
| - | | |
| - | | |
| - | | |
| 15,296 | | |
| - | | |
| (15,296 | ) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation gain | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,173,768 | ) | |
| - | | |
| (6,173,768 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of June 30, 2023 | |
| 7,788,006 | | |
$ | 7,788 | | |
$ | 164,407,308 | | |
$ | 15,185,889 | | |
$ | (12,810,612 | ) | |
$ | (60,082,175 | ) | |
$ | 106,708,198 | |
The
accompanying notes are an integral part of these consolidated financial statements
SMART
POWERR CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
SIX
MONTHS ENDED
JUNE 30, | |
| |
2024 | | |
2023 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss | |
$ | (689,554 | ) | |
$ | (337,346 | ) |
Adjustments to reconcile
net loss to net cash used in operating activities: | |
| | | |
| | |
Amortization of OID
and debt issuing costs of notes | |
| - | | |
| 31,250 | |
Operating lease expenses | |
| 30,854 | | |
| 31,637 | |
Loss (gain) on note
conversion | |
| 21,243 | | |
| (5,602 | ) |
Stock compensation expense | |
| 139,066 | | |
| - | |
Changes in assets and
liabilities: | |
| | | |
| | |
Advance to supplier | |
| - | | |
| (68,898,980 | ) |
Other receivables | |
| 18,164 | | |
| (4,290 | ) |
Taxes payable | |
| 60 | | |
| 46,034 | |
Payment of lease liability | |
| (30,854 | ) | |
| (31,637 | ) |
Accrued
liabilities and other payables | |
| 262,889 | | |
| 126,642 | |
| |
| | | |
| | |
Net cash used in operating
activities | |
| (248,132 | ) | |
| (69,042,292 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITY: | |
| | | |
| | |
Short
term loan receivable | |
| 68,542,364 | | |
| (69,994,412 | ) |
| |
| | | |
| | |
Net
cash provided by (used in) investing activity | |
| 68,542,364 | | |
| (69,994,412 | ) |
| |
| | | |
| | |
EFFECT OF EXCHANGE RATE
CHANGE ON CASH | |
| (224,550 | ) | |
| 679,186 | |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH | |
| 68,069,682 | | |
| (138,357,518 | ) |
CASH, BEGINNING OF PERIOD | |
| 32,370 | | |
| 138,813,673 | |
| |
| | | |
| | |
CASH, END OF PERIOD | |
$ | 68,102,052 | | |
$ | 456,155 | |
| |
| | | |
| | |
Supplemental cash flow data: | |
| | | |
| | |
Income
tax paid | |
$ | 26,606 | | |
$ | 37,279 | |
Interest
paid | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosure of non-cash financing
activities | |
| | | |
| | |
Right-of-use
assets obtained in exchange for operating lease liabilities | |
$ | 182,990 | | |
$ | - | |
Conversion
of notes into common shares | |
$ | 300,000 | | |
$ | 750,000 | |
The
accompanying notes are an integral part of these consolidated financial statements
SMART
POWERR CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2024 (UNAUDITED) AND DECEMBER 31, 2023
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Smart
Powerr Corp. (the “Company” or “SPC”) was incorporated in Nevada, and was formerly known as China Recycling Entergy
Corporation. The Company, through its subsidiaries, provides energy saving solutions and services, including selling and leasing energy
saving systems and equipment to customers, and project investment in the Peoples Republic of China (“PRC”).
The
Company’s organizational chart as of June 30, 2024 is as follows:
Erdos
TCH – Joint Venture
On
April 14, 2009, the Company formed a joint venture (the “JV”) with Erdos Metallurgy Co., Ltd. (“Erdos”) to recycle
waste heat from Erdos’ metal refining plants to generate power and steam to be sold back to Erdos. The name of the JV was Inner
Mongolia Erdos TCH Energy Saving Development Co., Ltd. (“Erdos TCH”) with a term of 20 years. Erdos contributed 7%
of the total investment of the project, and Xi’an TCH Energy Technology Co., Ltd. (“Xi’an TCH”) contributed 93%.
On June 15, 2013, Xi’an TCH and Erdos entered into a share transfer agreement, pursuant to which Erdos sold its 7% ownership
interest in the JV to Xi’an TCH for $1.29 million (RMB 8 million), plus certain accumulated profits. Xi’an
TCH paid the $1.29 million in July 2013 and, as a result, became the sole stockholder of the JV. Erdos TCH currently has two power
generation systems in Phase I with a total 18 MW power capacity, and three power generation systems in Phase II with a total 27 MW power
capacity. On April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective May 1, 2016, whereby Erdos TCH cancelled
monthly minimum lease payments from Erdos, and started to charge Erdos based on actual electricity sold at RMB 0.30 / KWH.
The selling price of each KWH is determined annually based on prevailing market conditions. In May 2019, Erdos TCH ceased operations
due to renovations and furnace safety upgrades of Erdos, and the Company initially expected the resumption of operations in July 2020,
but the resumption of operations was further delayed due to the government’s mandate for Erdos to significantly lower its energy
consumption per unit of GDP by implementing a comprehensive technical upgrade of its ferrosilicon production line to meet the City’s
energy-saving targets. Erdos is currently researching the technical rectification scheme. Once the scheme is determined, Erdos
TCH will carry out technical transformation for its waste heat power station project. During this period, Erdos will compensate
Erdos TCH RMB 1 million ($145,524) per month, until operations resume. The Company has not recognized any income due to
the uncertainty of collection. In addition, Erdos TCH has 30% ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co.,
Ltd. (“BinZhou Energy Savings”), 30% ownership in DaTangShiDai DaTong Recycling Energy Technology Co., Ltd. (“DaTong
Recycling Energy”), and 40% ownership in DaTang ShiDai TianYu XuZhou Recycling Energy Technology Co, Ltd. (“TianYu XuZhou
Recycling Energy”). These companies were incorporated in 2012 but had no operations since then nor has any registered capital contribution
been made.
Formation
of Zhongxun
On
March 24, 2014, Xi’an TCH incorporated a subsidiary, Zhongxun Energy Investment (Beijing) Co., Ltd. (“Zhongxun”) with
registered capital of $5,695,502 (RMB 35,000,000), which must be contributed before October 1, 2028. Zhongxun is 100%
owned by Xi’an TCH and will be mainly engaged in project investment, investment management, economic information consulting, and
technical services. Zhongxun has not commenced operations nor has any capital contribution been made as of the date of this report.
Formation
of Yinghua
On
February 11, 2015, the Company incorporated a subsidiary, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) with
registered capital of $30,000,000, to be paid within 10 years from the date the business license is issued. Yinghua is 100%
owned by the Company and will be mainly engaged in financial leasing, purchase of financial leasing assets, disposal and repair of financial
leasing assets, consulting and ensuring of financial leasing transactions, and related factoring business. Yinghua has not commenced
operations nor has any capital contribution been made as of the date of this report.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements (“CFS”) are prepared in conformity with U.S. Generally Accepted Accounting
Principles (“US GAAP”). The functional currency of the Company’s operating entities is Chinese Renminbi (“RMB”).
The accompanying consolidated financial statements are translated from RMB and presented in U.S. dollars (“USD”).
Principle
of Consolidation
The
CFS include the accounts of SPC and its subsidiaries, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) and Sifang
Holdings; Sifang Holdings’ wholly owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai
TCH Energy Tech Co., Ltd. (“Shanghai TCH”); Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Tech Co.,
Ltd. (“Xi’an TCH”); and Xi’an TCH’s subsidiaries, 1) Erdos TCH Energy Saving Development Co., Ltd (“Erdos
TCH”), 100% owned by Xi’an TCH, 2) Zhonghong, 90% owned by Xi’an TCH and 10% owned by Shanghai TCH,
and 3) Zhongxun, 100% owned by Xi’an TCH. Substantially all the Company’s revenues are derived from the operations of
Shanghai TCH and its subsidiaries, which represent substantially all the Company’s consolidated assets and liabilities as of June
30, 2024. However, there was no revenue for the Company for the six and three months ended June 30, 2024 or 2023. All significant inter-company
accounts and transactions were eliminated in consolidation.
A subsidiary is an entity in which (i) the Company directly or indirectly
controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the
board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating policies
of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
Uses
and Sources of Liquidity
For
the six months ended June 30, 2024 and 2023, the Company had a net loss of $689,554 and $337,346, respectively. For the three months
ended June 30, 2024 and 2023, the Company had a net loss of $409,757 and $247,842, respectively. The Company had an accumulated
deficit of $61.19 million as of June 30, 2024. The Company disposed all of its systems and currently holds five power generating
systems through Erdos TCH, the five power generating systems are currently not producing any electricity. The Company is in the process
of transforming and expanding into an energy storage integrated solution provider business. The Company plans to pursue disciplined and
targeted expansion strategies for market areas the Company currently does not serve. The Company actively seeks and explores opportunities
to apply energy storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes,
large scale photovoltaic (PV) and wind power stations, remote islands without electricity, and smart energy cities with multi-energy
supplies. The Company’s cash flow forecast indicates it will have sufficient cash to fund its operations for the next 12
months from the date of issuance of these CFS.
Use
of Estimates
In
preparing these CFS in accordance with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets
and liabilities in the balance sheets as well as revenues and expenses during the period reported. Actual results may differ from these
estimates. On an on-going basis, management evaluates its estimates, including those allowances for bad debt, impairment loss on
fixed assets and construction in progress, income taxes, and contingencies and litigation. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources.
Revenue
Recognition
A) Sales-type
Leasing and Related Revenue Recognition
The
Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
842. The Company’s sales type lease contracts for revenue recognition fall under ASC 842. During the six and three months ended
June 30, 2024 and 2023, the Company did not sell any new power generating projects.
The
Company constructs and leases waste energy recycling power generating projects to its customers. The Company typically transfers legal
ownership of the waste energy recycling power generating projects to its customers at the end of the lease.
The
Company finances construction of waste energy recycling power generating projects. The sales and cost of sales are recognized at the
inception of the lease, which is when control is transferred to the lessee. The Company accounts for the transfer of control as a sales
type lease in accordance with ASC 842-10-25-2. The underlying asset is derecognized, and revenue is recorded when collection of payments
is probable. This is in accordance with the revenue recognition principle in ASC 606 - Revenue from contracts with customers. The investment
in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and estimated executory
cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The
discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist
of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest is amortized to income over the
lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception
of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction
of receivables. Revenue is recognized net of value-added tax.
B) Contingent
Rental Income
The
Company records income from actual electricity generated of each project in the period the income is earned, which is when the electricity
is generated. Contingent rent is not part of minimum lease payments.
Operating
Leases
The
Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on
the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the
rate implicit in the lease is not readily determinable for an operating lease, the Company generally uses an incremental borrowing rate
based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use
(“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and
lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized
based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the
lease term.
ROU
assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject
to the impairment guidance in ASC 360, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU
assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent
from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used,
which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets
and liabilities. The Company recognized no impairment of ROU assets as of June 30, 2024 and December 31, 2023.
Operating
leases are included in operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.
Cash
Cash
includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original
maturity of three months or less as of the purchase date.
Credit
losses
On
January 1, 2023, the Company adopted Accounting Standards Update 2016-13 “Financial
Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which
replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss
(“CECL”) methodology. The adoption of the credit loss accounting standard has no material impact on the Company’s
consolidated financial statements as of January 1, 2023.
The
Company’s other receivables in the balance sheet are within the scope of ASC Topic 326. As the Company has limited customers
and debtors, the Company uses the loss-rate method to evaluates the expected credit losses on an individual basis. When establishing
the loss rate, the Company makes the assessment on various factors, including historical experience, credit-worthiness of customers
and debtors, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that
may affect its ability to collect from the customers and debtors. The Company also provides specific provisions for allowance when facts
and circumstances indicate that the receivable is unlikely to be collected.
Expected
credit losses are recorded as allowance for credit losses on the consolidated statements of operations. After all attempts to collect
a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amount that is previously
reserved for, the Company will reduce the specific allowance for credit losses.
Accounts
Receivable
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy of these reserves. As of June 30, 2024 and December 31, 2023, the Company
had no accounts receivable.
Value
added tax (“VAT”)
The
Company is subject to VAT and related surcharges on revenue generated from sales and services. The Company records revenue net of VAT.
This VAT may be offset by qualified input VAT paid by the Company to suppliers. Net VAT balance between input VAT and output VAT is recorded
in the line item of VAT receivable on the unaudited consolidated balance sheets.
The
VAT rate is 13% for taxpayers selling consumer products and 6% for providing technology services. Entities that are VAT general
taxpayers are allowed to offset qualified input VAT, paid to suppliers against their output VAT liabilities. As of June 30, 2024 and
December 31, 2023, the Company had $169,638 and $170,694 VAT receivable, respectively.
Advance
to suppliers
Advance
to suppliers consist of balances paid to suppliers for materials that have not been received. The Company reviews its advances to suppliers
on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies
to the Company or refund an advance.
Short
term loan receivables
The
Company provided loans to certain third parties for the purpose of making use of its cash.
The
Company monitors all loans receivable for delinquency and provides for estimated losses for specific receivables that are not likely
to be collected. Management periodically assesses the collectability of these loans receivable. Delinquent account balances are written-off
against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of
June 30, 2024, the Company did not have any outstanding short term loan receivables; at December 31, 2023, the Company had $68.77 million
short term loan receivables and did not accrue allowance against short term loan receivables.
Concentration
of Credit Risk
Cash
includes cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions and state-owned
banks within the PRC are covered by insurance up to RMB 500,000 ($71,792) per bank. Any balance over RMB 500,000 ($71,792)
per bank in PRC is not covered. The Company has not experienced any losses in such accounts.
Certain
other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The
Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’
financial condition and customer payment practices to minimize collection risk on accounts receivable.
The
operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition and results of operations may
be influenced by the political, economic and legal environments in the PRC.
Plant
and Equipment
Plant
and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred;
additions, renewals and betterments are capitalized. When plant and equipment are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation
of plant and equipment is provided using the straight-line method over the estimated lives as follows:
Vehicles | |
2 – 5 years |
Office and Other Equipment | |
2 – 5 years |
Impairment
of Long-lived Assets
In
accordance with FASB ASC Topic 360, “Plant, and Equipment,” the Company reviews its long-lived assets, including
plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may
not be fully recoverable. If the total expected undiscounted future net cash flows are less than the carrying amount of the asset, a
loss is recognized for the difference between the fair value (“FV”) and carrying amount of the asset. The Company did
not record any impairment for the six and three months ended June 30, 2024 and 2023.
Accounts
and other payables
Accounts
and other payables represent liabilities for goods and services provided to the Company prior to the end of the financial year which
are unpaid. They are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of
the business if longer). Otherwise, they are presented as non-current liabilities.
Accounts
and other payables are initially recognized as fair value, and subsequently carried at amortized cost using the effective interest method.
Borrowings
Borrowings
are presented as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the
financial year end date, in which case they are presented as non-current liabilities.
Borrowings
are initially recognized at fair value (net of transaction costs) and subsequently carried at amortized cost. Any difference between
the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using
an effective interest method.
Borrowing
costs are recognized in profit or loss using the effective interest method.
Cost
of Sales
Cost
of sales consists primarily of the direct material of the power generating system and expenses incurred directly for project construction
for sales-type leasing and sales tax and additions for contingent rental income.
Income
Taxes
Income
taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end
based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The
Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets
and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated
with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under
FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would
be ultimately sustained. The benefit of a tax position is recognized in the CFS in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement
with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured
as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits
is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income. At
June 30, 2024 and December 31, 2023, the Company did not take any uncertain positions that would necessitate recording a tax related
liability.
Statement
of Cash Flows
In
accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations
are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash
flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Fair
Value of Financial Instruments
For
certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, other receivables,
accounts payable, accrued liabilities and short-term debts, the carrying amounts approximate their FVs due to their short maturities.
Receivables on sales-type leases are based on interest rates implicit in the lease.
FASB
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the FV of financial instruments
held by the Company. FASB ASC Topic 825, “Financial Instruments,” defines FV, and establishes a three-level
valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported
in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable
estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and
their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
|
● |
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
● |
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|
● |
Level 3 inputs to the valuation
methodology are unobservable and significant to FV measurement. |
The
Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC 480, “Distinguishing
Liabilities from Equity,” and ASC 815, “Derivatives and Hedging.”
As
of June 30, 2024 and December 31, 2023, the Company did not have any long-term debt; and the Company did not identify any assets or liabilities
that are required to be presented on the balance sheet at FV.
Stock-Based
Compensation
The
Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation –
Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date FV
of the equity instrument issued and recognized as compensation expense over the requisite service period.
The
Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50,
“Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to
non-employees is measured at the FV of the equity instrument issued or committed to be issued, as this is more reliable than the FV of
the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the
counterparty’s performance is complete.
The
Company follows ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from
non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an
option pricing model and the attribution of cost. ASC 718 applies to all share-based payment transactions in which a grantor acquires
goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.
Basic
and Diluted Earnings per Share
The
Company presents net income (loss) per share (“EPS”) in accordance with FASB ASC Topic 260, “Earning Per Share.” Accordingly,
basic income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of
shares outstanding, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income by the weighted-average
number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock
method for stock options and warrants and the if-converted method for convertible notes. The Company made an accounting policy election
to use the if-converted method for convertible securities that are eligible to receive common stock dividends, if declared. Diluted EPS
reflect the potential dilution that could occur based on the exercise of stock options or warrants or conversion of convertible securities
using the if-converted method.
For
the six and three months ended June 30, 2024 and 2023, the basic and diluted income (loss) per share were the same due to the anti-dilutive
features of the warrants and options. For the six and three months ended June 30, 2024 and 2023, 30,911 shares purchasable
under warrants and options were excluded from the EPS calculation as these were not dilutive due to the exercise price was more than
the stock market price.
Foreign
Currency Translation and Comprehensive Income (Loss)
The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into U.S.
Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting
period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of
stockholders’ equity as “Accumulated other comprehensive income.” Gains and losses resulting from foreign currency
transactions are included in income.
The
Company follows FASB ASC Topic 220, “Comprehensive Income.” Comprehensive income is comprised of net income
and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders.
Segment
Reporting
FASB
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment
reporting. The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. FASB ASC Topic 280 has no effect on the Company’s CFS
as substantially all of the Company’s operations are conducted in one industry segment. All of the Company’s assets are located
in the PRC.
New
Accounting Pronouncements
In
November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU
2023-07”). The amendments in ASU 2023-07 improve reportable segment disclosure requirements through enhanced disclosures about
significant segment expenses that are regularly provided to the chief operating decision maker (CODM). In addition, the amendments enhance
interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide
new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07
will be effective for annual reporting periods beginning after December 15, 2023, and interim periods within annual reporting periods
beginning after December 15, 2024. Early adoption is permitted. The adoption of ASU 2023-01 did not have a material impact on the Company’s
consolidated financial statement presentation or disclosures.
In
December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”),
which requires disclosures of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes
paid, among other disclosure requirements. This ASU will be effective for annual reporting periods beginning after December 15, 2024.
Early adoption is permitted. ASU 2023-09 will be applied on a prospective basis with the option to apply the standard retrospectively.
The Company’s management does not believe that the adoption of ASU 2023-09 will have a material impact on the Company’s consolidated
financial statement presentation or disclosures.
The
Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently
adopted, will have a material impact on the Company’s financial statement presentation or disclosures.
3.
SHORT-TERM LOAN RECEIVABLE
As
of June 30, 2024 and December 31, 2023, the Company had nil and $68,773,208 (RMB 486.1 million) short term loan to
Jinan Youkai Engineering Consulting Co., Ltd (“Youkai”), respectively, an unrelated party of the Company. The short-term
loan was for five days with a capital utilization fee of $14,119 (RMB 100,000) per day for total of $70,595 (RMB 500,000).
To ensure the safety of the funds, before money was transferred to Youkai, Youkai handed over the official seal, financial seal and bank
account UK to the Company for custody and management until repayment of the loan. The Company received the repayment of $68.7 million
in full plus capital utilization fee in January 2024.
4.
ADVANCE TO SUPPLIERS
On
June 19, 2023, the Company entered a purchase agreement with Hubei Bangyu New Energy Technology Co., Ltd. (“Bangyu”). The
total contract amount was $82.3 million (RMB 595.0 million) for purchasing the energy storage battery systems. As of June
30, 2024 and December 31, 2023, the Company made a prepayment to Bangyu of $66.79 million (RMB 476.0 million) and $67.4 million
(RMB 476.0 million). The Company is in the process of transforming and expanding into energy storage integrated solution provider
business. The Company actively seeks and explores opportunities to apply energy storage technologies to new industries or segments with
high growth potential, including industrial and commercial complexes, large scale photovoltaic (PV) and wind power stations, remote
islands without electricity, and smart energy cities with multi-energy supplies.
On
August 2, 2021, the Company entered a Research and Development (“R&D”) Cooperation Agreement with a software development
company to design, establish, upgrade and maintenance of Smart Energy Management Cloud Platform for energy storage and remote-site monitoring;
upon completion, the Company will provide such platform to its customers at a fee. Total contracted R&D cost is $1,000,000, as of
December 31, 2022, the Company paid $200,000 as R&D expense, and was committed to pay remaining $800,000 after trial operation.
During the year ended December 31, 2022, the Company expensed $200,000 in R&D.
On
August 23, 2021, the Company entered a Market Research and Project Development Service Agreement with a consulting company in Xi’an
for a service period of 12 months. The consulting company will perform market research for new energy industry including photovoltaic
and energy storage, develop potential new customers and due diligence check, assisting the Company for business cooperation negotiation
and relevant agreements preparation. Total contract amount is $1,150,000, and the Company paid $650,000 at commencement of the service
and recorded as R&D expense during the year ended December 31, 2022; the Company prepaid $200,000 during the year 2023 and as
of June 30, 2024 and December 31, 2023, the Company will pay the remaining of $300,000 upon completion all the services.
5.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following as of June 30, 2024 and December 31, 2023:
| |
2024 | | |
2023 | |
Education and union fund and
social insurance payable | |
$ | 160,954 | | |
$ | 181,394 | |
Accrued payroll and welfare | |
| 235,178 | | |
| 263,472 | |
Accrued litigation | |
| 2,293,992 | | |
| 2,124,087 | |
Other | |
| 17,295 | | |
| 95,508 | |
Total | |
$ | 2,707,419 | | |
$ | 2,664,461 | |
Accrued
litigation was mainly for court enforcement fee, fee to lawyer, penalty and other fees (see Note 14).
6.
TAXES PAYABLE
Taxes
payable consisted of the following as of June 30, 2024 and December 31, 2023:
| |
2024 | | |
2023 | |
Income tax | |
$ | 7,627,403 | | |
$ | 7,627,529 | |
Other | |
| 246 | | |
| 187 | |
Total | |
| 7,627,649 | | |
| 7,627,716 | |
Current | |
| 4,277,024 | | |
| 4,277,091 | |
Noncurrent | |
$ | 3,350,625 | | |
$ | 3,350,625 | |
As
of June 30, 2024, income tax payable included $7.61 million from recording the estimated one-time transition tax on post-1986
foreign unremitted earnings under the Tax Cut and Jobs Act signed on December 22, 2017 ($4.28 million included in current tax payable
and $3.35 million noncurrent). An election was available for the U.S. shareholders of a foreign company to pay the tax liability
in installments over a period of eight years (until year 2026) with 8% of net tax liability in each of the first five years, 15% in the
sixth year, 20% in the seventh year, and 25% in the eighth year. The Company made such an election.
7.
DEFERRED TAX, NET
Deferred
tax assets resulted from asset impairment loss which was temporarily non-tax deductible for tax purposes but expensed in accordance with
US GAAP; interest income in sales-type leases which was recognized as income for tax purposes but not for book purpose as it did not
meet revenue recognition in accordance with US GAAP; accrued employee social insurance that can be deducted for tax purposes in the future,
and the difference between tax and accounting basis of cost of fixed assets which was capitalized for tax purposes and expensed as part
of cost of systems in accordance with US GAAP. Deferred tax liability arose from the difference between tax and accounting basis of net
investment in sales-type leases.
As
of June 30, 2024 and December 31, 2023, deferred tax assets consisted of the following:
|
|
2024 |
|
|
2023 |
|
Accrued
expenses |
|
$ |
611,528 |
|
|
$ |
615,336 |
|
Write-off
Erdos TCH net investment in sales-type leases * |
|
|
4,038,120 |
|
|
|
4,063,263 |
|
Impairment
loss of Xi’an TCH’s investment into the HYREF fund |
|
|
2,630,914 |
|
|
|
2,647,296 |
|
US
NOL |
|
|
1,220,717 |
|
|
|
1,086,706 |
|
PRC
NOL |
|
|
579,188 |
|
|
|
8,355,472 |
|
Total
deferred tax assets |
|
|
9,080,467 |
|
|
|
16,768,073 |
|
Less:
valuation allowance for deferred tax assets |
|
|
(9,080,467 |
) |
|
|
(16,768,073 |
) |
Deferred
tax assets, net |
|
$ |
- |
|
|
$ |
- |
|
8.
ENTRUSTED LOAN PAYABLE
Entrusted
Loan Payable (HYREF Loan)
The
HYREF Fund was established in July 2013 with a total fund of RMB 460 million ($77 million) invested in Xi’an Zhonghong
for Zhonghong’s three new CDQ WHPG projects. The HYREF Fund invested RMB 3 million ($0.5 million) as an equity
investment and RMB 457 million ($74.5 million) as a debt investment in Xi’an Zhonghong; in return for such investments,
the HYREF Fund was to receive interest from Zhonghong for the HYREF Fund’s debt investment. The loan was collateralized by the
accounts receivable and the fixed assets of Shenqiu Phase I and II power generation systems; the accounts receivable and fixed assets
of Zhonghong’s three CDQ WHPG systems; and a 27 million RMB ($4.39 million) capital contribution made by Xi’an
TCH in Zhonghong. Repayment of the loan (principal and interest) was also jointly and severally guaranteed by Xi’an TCH and the
Chairman and CEO of the Company. In the fourth quarter of 2015, three power stations of Erdos TCH were pledged to Industrial Bank as
an additional guarantee for the loan to Zhonghong’s three CDQ WHPG systems. In 2016, two additional power stations of Erdos TCH
and Pucheng Phase I and II systems were pledged to Industrial Bank as an additional guarantee along with Xi’an TCH’s equity
in Zhonghong.
The
term of this loan was for 60 months from July 31, 2013 to July 30, 2018, with interest of 12.5%. The Company paid RMB 50 million
($7.54 million) of the RMB 280 million ($42.22 million), and on August 5, 2016, the Company entered into a supplemental agreement with
the lender to extend the due date of the remaining RMB 230 million ($34.68 million) of the original RMB 280 million ($45.54 million)
to August 6, 2017. During the year ended December 31, 2017, the Company negotiated with the lender again to further extend the remaining
loan balance of RMB 230 million ($34.68 million), RMB 100 million ($16.27 million), and RMB 77 million ($12.08 million). The lender had
tentatively agreed to extend the remaining loan balance until August 2019 with interest of 9%, subject to the final approval from its
headquarters. The headquarters did not approve the extension proposal with interest of 9%; however, on December 29, 2018, the Company
and the lender agreed to an alternative repayment proposal as described below.
Repayment
of HYREF loan
1. Transfer
of Chengli project as partial repayment
On
December 29, 2018, Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Chonggong Bai entered into a CDQ WHPG Station Fixed
Assets Transfer Agreement, pursuant to which Xi’an Zhonghong transferred Chengli CDQ WHPG station as the repayment for the loan
of RMB 188,639,400 ($27.54 million) to HYREF, the transfer of which was completed on January 22, 2019.
Xi’an
TCH is a secondary limited partner of HYREF. The FV of the CDQ WHPG station applied in the transfer was determined by the parties based
upon the appraisal report issued by Zhonglian Assets Appraisal Group (Shaanxi) Co., Ltd. as of August 15, 2018. However, per the discussion
below, Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai (the “Buyers”) entered into a Buy Back Agreement,
also agreed to buy back the Station when conditions under the Buy Back Agreement are met. Due to the Buy Back agreement, the loan was
not deemed repaid, and therefore the Company recognized Chengli project as assets subject to buyback and kept the loan payable remained
recognized under ASC 405-20-40-1 as of December 31, 2020. The Buy Back agreement was terminated in April 2021.
2. Buy
Back Agreement
On
December 29, 2018, Xi’an TCH, Xi’an Zhonghong, HYREF, Guohua Ku, Chonggong Bai and Xi’an Hanneng Enterprises Management
Consulting Co. Ltd. (“Xi’an Hanneng”) entered into a Buy Back Agreement.
Pursuant
to the Buy Back Agreement, the Buyers jointly and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng
which was transferred to HYREF by Chonggong Bai (see 3 below), and a CDQ WHPG station in Boxing County which was transferred to
HYREF by Xi’an Zhonghong. The buy-back price for the Xi’an Hanneng’s equity was based on the higher of (i) the
market price of the equity shares at the time of buy-back; or (ii) the original transfer price of the equity shares plus bank
interest. The buy-back price for the Station was based on the higher of (i) the FV of the Station on the date transferred; or (ii)
the loan Balance as of the date of the transfer plus interest accrued through that date. HYREF could request that the Buyers buy
back the equity shares of Xi’an Hanneng and/or the CDQ WHPG station if one of the following conditions is met: (i) HYREF holds
the equity shares of Xi’an Hanneng until December 31, 2021; (ii) Xi’an Huaxin New Energy Co., Ltd., is delisted from The
National Equities Exchange And Quotations Co., Ltd., a Chinese over-the-counter trading system (the “NEEQ”); (iii)
Xi’an Huaxin New Energy, or any of the Buyers or its affiliates has a credit problem, including not being able to issue an
auditor report or standard auditor report or any control person or executive of the Buyers is involved in crimes and is under
prosecution or has other material credit problems, to HYREF’s reasonable belief; (iv) if Xi’an Zhonghong fails to timely
make repayment on principal or interest of the loan agreement, its supplemental agreement or extension agreement; (v) the Buyers or
any party to the Debt Repayment Agreement materially breaches the Debt Repayment Agreement or its related transaction documents,
including but not limited to the Share Transfer Agreement, the Pledged Assets Transfer Agreement, the Entrusted Loan Agreement and
their guarantee agreements and supplemental agreements. Due to halted trading of Huaxin stock by NEEQ for not filing its 2018
annual report, on December 19, 2019, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai jointly and severally
agreed to buy back all outstanding capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai earlier.
The total buy back price was RMB 261,727,506 ($37.52 million) including accrued interest of
RMB 14,661,506 ($2.10 million), and was paid in full by Xi’an TCH on December 20, 2019.
On
April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement
(termination agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated
upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment
from the buyers other than keeping the CDQ WHPG station from Chengli project. The Company recorded a gain of approximately $3.1 million
from transferring the CDP WHPG station to HYREF as partial repayment of the entrusted loan and accrued interest of RMB 188,639,400 ($27.54 million)
to HYREF resulting from the termination of the buy-back agreement.
3.
Transfer of Xuzhou Huayu Project and Shenqiu Phase I & II project to Mr. Bai for partial repayment of HYREF loan
On
January 4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai entered into a Projects Transfer Agreement, pursuant to
which Xi’an Zhonghong transferred a CDQ WHPG station (under construction) located in Xuzhou City for Xuzhou Huayu Coking Co., Ltd.
(“Xuzhou Huayu Project”) to Mr. Bai for RMB 120,000,000 ($17.52 million) and Xi’an TCH transferred two
Biomass Power Generation Projects in Shenqiu (“Shenqiu Phase I and II Projects”) to Mr. Bai for RMB 127,066,000 ($18.55 million).
Mr. Bai agreed to transfer all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment for the RMB 247,066,000 ($36.07 million)
loan made by Xi’an Zhonghong to HYREF as consideration for the transfer of the Xuzhou Huayu Project and Shenqiu Phase I and II
Projects.
On
February 15, 2019, Xi’an Zhonghong completed the transfer of the Xuzhou Huayu Project and Xi’an TCH completed the transfer
of Shenqiu Phase I and II Projects to Mr. Bai, and on January 10, 2019, Mr. Bai transferred all the equity shares of his wholly owned
company, Xi’an Hanneng, to HYREF as repayment of Xi’an Zhonghong’s loan to HYREF as consideration for the transfer
of the Xuzhou Huayu Project and Shenqiu Phase I and II Projects.
Xi’an
Hanneng is a holding company and was supposed to own 47,150,000 shares of Xi’an Huaxin New Energy Co., Ltd.
(“Huaxin”), so that HYREF will indirectly receive and own such shares of Xi’an Huaxin as the repayment for the
loan of Zhonghong. Xi’an Hanneng already owned 29,948,000 shares of Huaxin; however, Xi’an Hanneng was not able to
obtain the remaining 17,202,000 shares due to halted trading of Huaxin stock by NEEQ for not filing its 2018 annual
report.
On
December 19, 2019, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai jointly and severally agreed to buy back all outstanding
capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai earlier. The total buy back price was RMB 261,727,506 ($37.52 million)
including accrued interest of RMB 14,661,506 ($2.10 million), and was paid in full by Xi’an TCH on December 20,
2019. On December 20, 2019, Mr. Bai, Xi’an TCH and Xi’an Zhonghong agreed to have Mr. Bai repay the Company in
cash for the transfer price of Xuzhou Huayu and Shenqiu in five installment payments. The 1st payment of RMB 50 million
($7.17 million) was due January 5, 2020, the 2nd payment of RMB 50 million ($7.17 million) was due
February 5, 2020, the 3rd payment of RMB 50 million ($7.17 million) was due April 5, 2020, the 4th payment
of RMB 50 million ($7.17 million) was due on June 30, 2020, and the final payment of RMB 47,066,000 ($6.75 million)
was due September 30, 2020. As of December 31, 2020, the Company received the full payment of RMB 247 million ($36.28 million)
from Mr. Bai.
4.
The lender agreed to extend the repayment of RMB 77.00 million ($11.06 million) to July 8, 2023. However, per court’s
judgement on June 28, 2021, the Company should repay principal $11.06 million and accrued interest of RMB 2,418,229 ($0.35 million)
within 10 days from the judgment date to Beijing Hongyuan Recycling Energy Investment Center (Limited Partnership). In the end of 2022,
Beijing No.4 Intermediate People’s Court of Beijing entered into the judgment enforcement procedure, which, in addition to the
loan principal with interest amount, Xi’an Zhonghong Technology Co., Ltd. was to pay judgment enforcement fee, late fee and other
fees of RMB 80,288,184 ($11.53 million) in total, the Company recorded these additional fees in 2022. The Company has
not paid it yet as of this report date.
Xi’an
TCH had investment RMB 75.00 million ($11.63 million) into the HYREF fund as a secondary limited partner, and the Company
recorded an impairment loss of $11.63 million for such investment during the year ended December 31, 2021 due to uncertainty of
the collection of the investment. This was impaired as Hongyuan does not have the ability to pay back (see Note 14 – Litigation).
9.
NOTE PAYABLE, NET
Promissory
Notes in April 2021
On
April 2, 2021, the Company entered into a Note Purchase Agreement with an institutional investor, pursuant to which the Company issued
to the Purchaser a Promissory Note of $5,250,000. The Purchaser purchased the Note with an OID of $250,000, which was recognized as a
debt discount is amortized using the interest method over the life of the note. The Note bears interest at 8% and has a term of 24 months.
All outstanding principal and accrued interest on the Note was due and payable on April 1, 2023. However, as of this report date, the
Company did not repay the loan, and no any further action from the lender. The Company’s obligations under the Note may be prepaid
at any time, provided that in such circumstance the Company would pay 125% of any amounts outstanding under the Note and being prepaid.
Beginning on the date that is six months from the issue date of the Note, Purchaser shall have the right to redeem any amount
of this Note up to $825,000 per calendar month by providing written notice to the Company. Upon receipt of the redemption
notice from the lender, the Company shall pay the applicable redemption amount in cash to lender within three trading days of receipt
of such redemption notice; if the Company fails to pay, then the outstanding balance will automatically be increased by 25%. On
October 28, 2021, the lender made an adjustment of $1,370,897 to increase the outstanding principal of the notes as a result of
the Company’s failure to pay the redemption amount in cash to lender on time, the Company recorded $1,370,897 principal adjustment
as interest expense in 2021. The lender made an adjustment of $229,015 to increase the outstanding principal of the notes based
on a forbearance agreement entered on September 14, 2022 resulting from the Company’s default event of being delinquent on SEC
filings, the Company recorded the $229,015 principal adjustment as interest expense. During the six months ended June 30, 2024,
the Company amortized OID of $0 and recorded $204,279 interest expense on this Note; and the Company and Lender exchanged these
Partitioned Notes of $300,000 in total for the delivery of 424,148 shares of the Company’s common stock. The
Company recorded $21,243 loss on conversion of these notes in 2024. During the three months ended June 30, 2024, the Company amortized
OID of $0 and recorded $100,240 interest expense on this Note. During the six months ended June 30, 2023, the Company amortized
OID of $31,250 and recorded $220,082 interest expense on this Note; and the Company and Lender exchanged these Partitioned Notes of $750,000
for the delivery of 396,010 shares of the Company’s common stock; the Company recorded $5,602 gain on conversion of these notes
in 2023. During the three months ended June 30, 2023, the Company amortized OID of $0 and recorded $109,018 interest expense on
this Note. As of June 30, 2024, the outstanding principal balance of this note was $5,025,767 with accrued interest of $103,545.
The Note was classified as a current liability in accordance with ASC 470-10-45 Other Presentation Matters – General Due on Demand
Loan Arrangements.
10.
STOCKHOLDERS’ EQUITY
Shares
Issued for Stock compensation
On
June 12, 2024, the Company issued 128,765 shares of its common stock for investment banking services fee, the fair value of 128,765 shares
was $139,066.
Warrants
Following
is a summary of the activities of warrants that were issued from equity financing for the six months ended June 30, 2024:
| | Number of Warrants | | | Average Exercise Price | | | Weighted Average Remaining Contractual Term in Years | |
Outstanding as of January 1, 2024 | | | 16,515 | | | $ | 10.0 | | | | 0.54 | |
Exercisable as of January 1, 2024 | | | 16,515 | | | $ | 10.0 | | | | 0.54 | |
Granted | | | - | | | | - | | | | - | |
Exchanged | | | - | | | | - | | | | - | |
Forfeited | | | - | | | | - | | | | - | |
Expired | | | - | | | | - | | | | - | |
Outstanding as of June 30, 2024 | | | 16,515 | | | $ | 10.0 | | | | 0.04 | |
Exercisable as of June 30, 2024 | | | 16,515 | | | $ | 10.0 | | | | 0.04 | |
11.
STOCK-BASED COMPENSATION PLAN
Options
to Employees and Directors
On
June 19, 2015, the stockholders of the Company approved the China Recycling Energy Corporation Omnibus Equity Plan (the “Plan”)
at its annual meeting. The total shares of Common Stock authorized for issuance during the term of the Plan is 124,626. The Plan
was effective immediately upon its adoption by the Board of Directors on April 24, 2015, subject to stockholder approval, and will terminate
on the earliest to occur of (i) the 10th anniversary of the Plan’s effective date, or (ii) the date on which all shares available
for issuance under the Plan shall have been issued as fully-vested shares. The stockholders approved the Plan at their annual meeting
on June 19, 2015.
The
following table summarizes option activity with respect to employees and independent directors for the six months ended June 30, 2024:
| | Number of Shares | | | Average Exercise Price per Share | | | Weighted Average Remaining Contractual Term in Years | |
Outstanding as of January 1, 2024 | | | 500 | | | $ | 16.1 | | | | 3.32 | |
Exercisable as of January 1, 2024 | | | 500 | | | $ | 16.1 | | | | 3.32 | |
Granted | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Forfeited | | | - | | | | - | | | | - | |
Outstanding as of June 30, 2024 | | | 500 | | | $ | 16.1 | | | | 2.82 | |
Exercisable as of June 30, 2024 | | | 500 | | | $ | 16.1 | | | | 2.82 | |
12.
INCOME TAX
The
Company’s Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally
subject to tax at 25% on income reported in the statutory financial statements after appropriate tax adjustments. Under Chinese
tax law, the tax treatment of finance and sales-type leases is similar to US GAAP. However, the local tax bureau continues to treat the
Company’s sales-type leases as operating leases. Accordingly, the Company recorded deferred income taxes.
The
Company’s subsidiaries generate all of their income from their PRC operations. All of the Company’s Chinese subsidiaries’
effective income tax rate for 2023 and 2022 was 25%. Yinghua, Shanghai TCH, Xi’an TCH, Huahong, Zhonghong and Erdos TCH file
separate income tax returns.
There
is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company’s CFS do not present any income tax provisions
related to Cayman Islands tax jurisdiction, where Sifang Holding is domiciled.
The
US parent company, SPC is taxed in the US and, as of June 30, 2024, had net operating loss (“NOL”) carry forwards for
income taxes of $5.81 million; for federal income tax purposes, the NOL arising in tax years beginning after 2017 may only reduce 80%
of a taxpayer’s taxable income, and may be carried forward indefinitely. However, the coronavirus Aid, Relief and Economic Security
Act (“the CARES Act”) issued in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a
five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. Management believes
the realization of benefits from these losses uncertain due to the US parent company’s continuing operating losses. Accordingly,
a 100% deferred tax asset valuation allowance was provided.
As
of June 30, 2024, the Company’s PRC subsidiaries had $2.32 million NOL that can be carried forward to offset future taxable
income for five years from the year the loss is incurred. The NOL was mostly from Erdos TCH and Zhonghong. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
After consideration of all the information available, management believes that significant uncertainty exists with respect to future
realization of the deferred tax assets due to the recurring losses from operations of these entities, accordingly, the Company recorded
a 100% deferred tax valuation allowance for the PRC NOL.
The
following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended June 30, 2024
and 2023:
| |
2024 | | |
2023 | |
U.S. statutory rates benefit | |
| (21.0 | )% | |
| (21.0 | )% |
Tax rate difference – current provision | |
| (0.1 | )% | |
| 4.1 | % |
Permanent differences | |
| 0.7 | % | |
| 2.0 | % |
Change in valuation
allowance | |
| 22.5 | % | |
| 37.6 | % |
Tax expense per financial
statements | |
| 2.1 | % | |
| 22.7 | % |
The
provision for income tax expense (benefit) for the six months ended June 30, 2024 and 2023 consisted of the following:
| |
2024 | | |
2023 | |
Income
tax expense – current | |
$ | 14,176 | | |
$ | 62,492 | |
Total income tax expense | |
$ | 14,176 | | |
$ | 62,492 | |
The
following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2024
and 2023:
| |
2024 | | |
2023 | |
U.S. statutory rates benefit | |
| (21.0 | )% | |
| (21.0 | )% |
Tax rate difference – current provision | |
| (0.3 | )% | |
| 4.4 | % |
Permanent differences | |
| - | % | |
| 0.5 | % |
Change in valuation
allowance | |
| 21.3 | % | |
| 46.6 | % |
Tax expense per financial
statements | |
| - | % | |
| 30.5 | % |
The
provision for income tax expense (benefit) for the three months ended June 30, 2024 and 2023 consisted of the following:
| |
2024 | | |
2023 | |
Income
tax expense – current | |
$ | - | | |
$ | 57,958 | |
Total income tax expense | |
$ | - | | |
$ | 57,958 | |
13.
STATUTORY RESERVES
Pursuant
to the corporate law of the PRC effective January 1, 2006, the Company is only required to maintain one statutory reserve by appropriating
from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Surplus
Reserve Fund
The
Company’s Chinese subsidiaries are required to transfer 10% of their net income, as determined under PRC accounting rules
and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.
The
surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any,
and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance
after such issue is not less than 25% of the registered capital.
The
maximum statutory reserve amount has not been reached for any subsidiary. The table below discloses the statutory reserve amount in the
currency type registered for each Chinese subsidiary as of June 30, 2024 and December 31, 2023:
Name of Chinese Subsidiaries | | Registered Capital | | | Maximum Statutory Reserve Amount | | | Statutory reserve at June 30, 2024 | | | Statutory reserve at December 31, 2023 | |
Shanghai TCH | | $ | 29,800,000 | | | $ | 14,900,000 | | | ¥ | 6,564,303 ($1,003,859) | | | ¥ | 6,564,303 ($1,003,859) | |
| | | | | | | | | | | | | | | | |
Xi’an TCH | | ¥ | 202,000,000 | | | ¥ | 101,000,000 | | | ¥ | 73,947,819 ($11,272,948) | | | ¥ | 73,947,603 ($11,272,917) | |
| | | | | | | | | | | | | | | | |
Erdos TCH | | ¥ | 120,000,000 | | | ¥ | 60,000,000 | | | ¥ | 19,035,814 ($2,914,869) | | | ¥ | 19,035,814 ($2,914,869) | |
| | | | | | | | | | | | | | | | |
Xi’an Zhonghong | | ¥ | 30,000,000 | | | ¥ | 15,000,000 | | | | Did not accrue yet due to accumulated deficit | | | | Did not accrue yet due to accumulated deficit | |
| | | | | | | | | | | | | | | | |
Shaanxi Huahong | | $ | 2,500,300 | | | $ | 1,250,150 | | | | Did not accrue yet due to accumulated deficit | | | | Did not accrue yet due to accumulated deficit | |
| | | | | | | | | | | | | | | | |
Zhongxun | | ¥ | 35,000,000 | | | ¥ | 17,500,000 | | | | Did not accrue yet due to accumulated deficit | | | | Did not accrue yet due to accumulated deficit | |
Common
Welfare Fund
The
common welfare fund is a voluntary fund to which the Company can transfer 5% to 10% of its net income. This fund can only be
utilized for capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria
facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation. The Company does not participate
in this fund.
14.
CONTINGENCIES
China
maintains a “closed” capital account, meaning companies, banks, and individuals cannot move money in or out of the country
except in accordance with strict rules. The People’s Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) regulate
the flow of foreign exchange in and out of the country. For inward or outward foreign currency transactions, the Company needs to make
a timely declaration to the bank with sufficient supporting documents to declare the nature of the business transaction. The Company’s
sales, purchases and expense transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated
in RMB. The RMB is not freely convertible into foreign currencies under the current law. Remittances in currencies other than RMB may
require certain supporting documentation in order to make the remittance.
The
Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies
in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments
and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect
to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among
other things.
Litigation
1)
In November 2019, Beijing Hongyuan Recycling Energy Investment Center (“BIPC”), or Hongyuan, filed a lawsuit with the Beijing
Intermediate People’s Court against Xi’an TCH to compel Xi’an TCH to repurchase certain stock pursuant to a stock repurchase
option agreement. On April 9, 2021, the court rendered a judgment in favor of Hongyuan. Xi’an TCH filed a motion for retrial to
High People’s Court of Beijing on April 13, 2022, because Xi’an TCH paid RMB 261 million ($37.58 million)
principal and interest to Hongyuan as an out-of-court settlement. On April 11, 2022, Xi’an Zhonghong New Energy Technology Co.
Ltd., filed an application for retrial and provided relevant evidence to the Beijing High People’s Court on the Civil Judgment
No. 264, awaiting trial. On August 10, 2022, Beijing No. 1 Intermediate People’s Court of Beijing issued a Certificate of Active
Performance, proving that Xi’an Zhonghong New Energy Technology Co., Ltd. had fulfilled its buyback obligations as disclosed in
Note 9 that, on April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination
of Fulfillment Agreement (termination agreement). Under the termination agreement, the original buyback agreement entered on December
19, 2019 was terminated upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any
additional payment from the buyers other than keeping the CDQ WHPG station.
As
of this report date, Xi’an Zhonghong is waiting for Court’s decision on retrial petition that was submitted in April 2022.
During this waiting period, BIPC entered the execution procedure, and there is a balance of RMB 14,204,317 ($2.20 million)
between the amount executed by the court and the liability recognized by Xi ‘an TCH, which was mainly the enforcement fee, legal
and penalty fee for the original judgement, and was automatically generated by the toll collection system of the People’s court.
The Company accrued $2.10 million litigation expense as of June 30, 2024.
2)
On June 28, 2021, Beijing No.4 Intermediate People’s Court of Beijing entered into a judgement that Xi’an Zhonghong Technology
Co., Ltd. should pay the loan principal of RMB 77 million ($11.06 million) with loan interest of RMB 2,418,449 ($0.35 million)
to Beijing Hongyuan Recycling Energy Investment Center (Limited Partnership). In the end of 2022, Beijing No.4 Intermediate People’s
Court of Beijing entered into the judgment enforcement procedure, which, in addition to the loan principal with interest amount, Xi’an
Zhonghong Technology Co., Ltd. was to pay judgment enforcement fee, late fee and other fees of RMB 80,288,184 ($11.53 million)
in total, the Company recorded these additional fees in 2022. There was no update for this case as of this report date.
15. LEASE
On
November 20, 2017, Xi’an TCH entered into a lease for its office from December 1, 2017 through November 30, 2020. The monthly
rent was RMB 36,536 ($5,600) with quarterly payment in advance. This lease expired in November 2020. The Company
entered a new lease for the same location from January 1, 2021 through December 31, 2023 with monthly rent of RMB 36,536 ($5,600),
to be paid every half year in advance. Upon expiration of the lease, the Company entered a new lease agreement for the same location
from January 1, 2024 through December 31, 2026 with monthly rent of RMB 36,536 ($5,600), to be paid every half year in
advance.
The Company’s operating
ROU assets and lease liabilities were as follows:
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
| | |
| |
Right-of-use assets, net | |
$ | 152,357 | | |
$ | - | |
| |
| | | |
| | |
Current operating lease liabilities | |
| 61,520 | | |
| - | |
Non-current operating lease liabilities | |
| 90,837 | | |
| - | |
Total lease liabilities | |
$ | 152,357 | | |
$ | - | |
The
components of lease costs, lease term and discount rate with respect of the office lease with an initial term of more than 12 months
are as follows:
| | Six Months Ended | |
| | June 30, 2024 | |
Operating lease cost – amortization of operating lease right-of-use asset | | $ | 30,167 | |
Operating lease cost – interest expense on lease liability | | $ | 687 | |
Weighted Average Remaining Lease Term - Operating leases | | | 2.50 | |
Weighted Average Discount Rate - Operating leases | | | 5 | % |
| | Six Months Ended | |
| | June 30, 2023 | |
Operating lease cost – amortization of operating lease right-of-use asset | | $ | 30,863 | |
Operating lease cost – interest expense on lease liability | | $ | 774 | |
Weighted Average Remaining Lease Term - Operating leases | | | 0.5 | |
Weighted Average Discount Rate - Operating leases | | | 5 | % |
| |
Three Months
Ended | |
| |
June
30, 2024 | |
Operating
lease cost – amortization of operating lease right-of-use asset | |
$ | 15,095 | |
Operating lease cost
– interest expense on lease liability | |
$ | 327 | |
| |
Three Months
Ended | |
| |
June
30, 2023 | |
Operating
lease cost – amortization of operating lease right-of-use asset | |
$ | 15,245 | |
Operating lease cost
– interest expense on lease liability | |
$ | 385 | |
The
following is a schedule, by years, of maturities of the office lease liabilities as of June 30, 2024:
For the year ended June 30,
2025, | |
$ | 61,520 | |
For the year ended June 30, 2026 | |
| 61,520 | |
For the year ended June 30, 2027 | |
| 30,760 | |
Total undiscounted
cash flows | |
| 153,800 | |
Less: imputed interest | |
| (1,442 | ) |
Present value of lease
liabilities | |
$ | 152,358 | |
Employment
Agreement
On
May 6, 2022, the Company entered another employment agreement with Mr. Shi for 24 months with monthly salary of RMB 18,000 ($2,500).
The Company will grant the CFO no less than 5,000 shares of the Company’s common stock annually; however, as of this
report date, the Board of Directors and Compensation Committee have not approved the number of shares to be given to the CFO, nor any
stock reward agreement has been signed.
On
May 6, 2024, the Company entered another employment agreement with Mr. Shi for 24 months with monthly salary of RMB 18,000 ($2,500).
The Company will grant the CFO no less than 5,000 shares of the Company’s common stock annually; however, as of this
report date, the Board of Directors and Compensation Committee have not approved the number of shares to be given to the CFO, nor any
stock reward agreement has been signed.
16. COMMITMENTS
Lease
Commitments
The total future minimum lease payments under
the non-cancellable operating lease with respect to the office as of June 30, 2024 are payable as follows:
| |
Lease Commitment | |
Within 1 year | |
$ | 6,756 | |
| |
| | |
2-5 years | |
$ | 10,134 | |
Total | |
$ | 16,890 | |
17.
SUBSEQUENT EVENTS
The
Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through
the date the unaudited financial statements were issued and determined the Company had the following subsequent event need to be disclosed.
On
July 23, 2024, the Company entered into an Exchange Agreement with the lender. Pursuant to the Agreement, the Company and Lender partitioned
a new Promissory Notes of $250,000 from the original Promissory Note entered on April 2, 2021. The Company and Lender exchanged
this Partitioned Note for the delivery of 249,500 shares of the Company’s Common Stock.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report
on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or
may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, Company’s
management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance
on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words
“may”, “will”, “should”, “would”, “anticipate”, “believe”, “estimate”,
“expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions
as they relate to Company or Company’s management identify forward-looking statements. Such statements reflect the current view
of Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the statements
in the section “results of operations” below), and any businesses that Company may acquire. Should one or more of these risks
or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended, or planned.
Although
the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot
guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities
laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to
actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of annual report,
which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations,
and prospects.
Our financial
statements are prepared in US Dollars and in accordance with accounting principles generally accepted in the United States. See “Foreign
Currency Translation and Comprehensive Income (Loss)” below for information concerning the exchange rates at which Renminbi (“RMB”)
were translated into US Dollars (“USD”) at various pertinent dates and for pertinent periods.
OVERVIEW
The Company
was incorporated on May 8, 1980 as Boulder Brewing Company under the laws of the State of Colorado. On September 6, 2001, the Company
changed its state of incorporation to the State of Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China
Digital Wireless, Inc. and on March 8, 2007, again changed its name from China Digital Wireless, Inc. to its current name, China Recycling
Energy Corporation. On March 3, 2022, the Company changed its name to Smart Powerr Corp. The Company, through its subsidiaries, provides
energy saving solutions and services, including selling and leasing energy saving systems and equipment to customers, project investment,
investment management, economic information consulting, technical services, financial leasing, purchase of financial leasing assets,
disposal and repair of financial leasing assets, consulting and ensuring of financial leasing transactions in the Peoples Republic of
China (“PRC”).
The Company
is in the process of transforming and expanding into an energy storage integrated solution provider business. We plan to pursue disciplined
and targeted expansion strategies for market areas we currently do not serve. We actively seek and explore opportunities to apply energy
storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes, large scale
photovoltaic (“PV”) and wind power stations, remote islands without electricity, and cities with multi-energy supplies.
For the six
months ended June 30, 2024 and 2023, the Company had net loss of $689,554 and $337,346, respectively. For the three months ended
June 30, 2024 and 2023, the Company had a net loss of $409,757 and $247,842, respectively. The Company had an accumulated deficit
of $61.19 million as of June 30, 2024. The Company disposed all of its systems and currently holds five power generating systems through
Erdos TCH, the five power generating systems are currently not producing any electricity. The Company is in the process of transforming
and expanding into an energy storage integrated solution provider business. The Company plans to pursue disciplined and targeted expansion
strategies for market areas the Company currently does not serve. The Company actively seeks and explores opportunities to apply energy
storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes, large scale
photovoltaic (PV) and wind power stations, remote islands without electricity, and smart energy cities with multi-energy supplies.
The Company’s cash flow forecast indicates it will have sufficient cash to fund its operations for the next 12 months from the
date of issuance of these CFS.
Management
also intends to raise additional funds by way of a private or public offering, or by obtaining loans from banks or others. While the
Company believes in the viability of its strategy to generate sufficient revenue and in its ability to raise additional funds on reasonable
terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern depends upon
the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional
funds by way of a public or private offering, or debt financing including bank loans.
Our Subsidiaries
and Projects
Our business
is primarily conducted through our wholly-owned subsidiaries, Yinghua and Sifang, Sifang’s wholly-owned subsidiaries, Huahong and
Shanghai TCH, Shanghai TCH’s wholly-owned subsidiaries, Xi’an TCH, Xi’an TCH’s wholly-owned subsidiary Erdos
TCH and Xi’an TCH’s 90% owned and Shanghai TCH’s 10% owned subsidiary Xi’an Zhonghong New Energy Technology Co.,
Ltd., and Zhongxun. Shanghai TCH was established as a foreign investment enterprise in Shanghai under the laws of the PRC on May 25,
2004, and currently has registered capital of $29.80 million. Xi’an TCH was incorporated in Xi’an, Shaanxi Province under
the laws of the PRC in November 2007. Erdos TCH was incorporated in April 2009. Huahong was incorporated in February 2009. Xi’an
Zhonghong New Energy Technology Co., Ltd. was incorporated in July 2013. Xi’an TCH owns 90% and Shanghai TCH owns 10% of Zhonghong.
Zhonghong provides energy saving solutions and services, including constructing, selling and leasing energy saving systems and equipment
to customers.
Zhongxun
was incorporated in March 2014 and is a wholly owned subsidiary of Xi’an TCH. Zhongxun will be mainly engaged in project
investment, investment management, economic information consulting, and technical services. Zhongxun has not yet commenced operations
nor has any capital contribution been made as of the date of this report.
Yinghua was
incorporated on February 11, 2015 by the U.S. parent company. Yinghua will be mainly engaged in financial leasing, purchase of financial
leasing assets, disposal and repair of financial leasing assets, consulting and ensuring of financial leasing transactions, and related
factoring business. Yinghua has not yet commenced operations nor has any capital contribution been made as of the date of this report.
The Company’s
organizational chart as of June 30, 2024 is as follows:
Erdos
TCH – Joint Venture
On April
14, 2009, the Company formed a joint venture (the “JV”) with Erdos Metallurgy Co., Ltd. (“Erdos”) to recycle
waste heat from Erdos’ metal refining plants to generate power and steam to be sold back to Erdos. The name of the JV was Inner
Mongolia Erdos TCH Energy Saving Development Co., Ltd. (“Erdos TCH”) with a term of 20 years. Erdos contributed 7%
of the total investment of the project, and Xi’an TCH Energy Technology Co., Ltd. (“Xi’an TCH”) contributed 93%.
On June 15, 2013, Xi’an TCH and Erdos entered into a share transfer agreement, pursuant to which Erdos sold its 7% ownership
interest in the JV to Xi’an TCH for $1.29 million (RMB 8 million), plus certain accumulated profits. Xi’an
TCH paid $1.29 million in July 2013 and, as a result, became the sole stockholder of the JV. Erdos TCH currently has two power generation
systems in Phase I with a total of 18 MW power capacity, and three power generation systems in Phase II with a total of 27 MW power capacity.
On April 28, 2016, Erdos TCH and Erdos entered into a supplemental agreement, effective May 1, 2016, whereby Erdos TCH cancelled monthly
minimum lease payments from Erdos, and started to charge Erdos based on actual electricity sold at RMB 0.30 / KWH. The selling price
of each KWH is determined annually based on prevailing market conditions. In May 2019, Erdos TCH ceased its operations due to renovations
and furnace safety upgrades of Erdos, and the Company initially expected the resumption of operations in July 2020, but the resumption
of operations was further delayed due to government’s mandate for Erdos to significantly lower its energy consumption per unit
of GDP by implementing a comprehensive technical upgrade of its ferrosilicon production line to meet the City’s energy-saving targets. Erdos
is currently researching the technical rectification scheme. Once the scheme is determined, Erdos TCH will carry out supporting technical
transformation for its waste heat power station project. During this period, Erdos will compensate Erdos TCH RMB 1 million ($145,460)
per month, until operations resume. The Company has not recognized any income due to the uncertainty of collection.
In addition,
Erdos TCH has 30% ownership in DaTangShiDai (BinZhou) Energy Savings Technology Co., Ltd. (“BinZhou Energy Savings”), 30%
ownership in DaTangShiDai DaTong Recycling Energy Technology Co., Ltd. (“DaTong Recycling Energy”), and 40% ownership
in DaTang ShiDai TianYu XuZhou Recycling Energy Technology Co, Ltd. (“TianYu XuZhou Recycling Energy”). These companies were
incorporated in 2012 but have not had any operations since then nor has any registered capital contribution been made.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our management’s
discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements (“CFS”),
which were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
The preparation of these CFS requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and
expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical
experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
While our
significant accounting policies are more fully described in Note 2 to our CFS, we believe the following accounting policies are the most
critical to assist you in fully understanding and evaluating this management discussion and analysis.
Basis
of Presentation
These accompanying
CFS were prepared in accordance with US GAAP and pursuant to the rules and regulations of the SEC for financial statements.
Principle
of Consolidation
The CFS include
the accounts of CREG and, its subsidiary, Sifang Holdings and Yinghua; Sifang Holdings’ wholly-owned subsidiaries, Huahong and
Shanghai TCH; Shanghai TCH’s wholly-owned subsidiary Xi’an TCH; and Xi’an TCH’s subsidiaries, Erdos TCH, Zhonghong,
and Zhongxun. Substantially all of the Company’s revenues are derived from the operations of Shanghai TCH and its subsidiaries,
which represent substantially all of the Company’s consolidated assets and liabilities as of June 30, 2024. All significant inter-company
accounts and transactions were eliminated in consolidation.
Use of
Estimates
In preparing
the CFS, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets
as well as revenues and expenses during the year reported. Actual results may differ from these estimates.
Concentration
of Credit Risk
Cash includes
cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions within China are not covered
by insurance. The Company has not experienced any losses in such accounts.
Certain other
financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company
does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’
financial condition and customer payment practices to minimize collection risk on accounts receivable.
The operations
of the Company are located in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC.
Revenue
Recognition
Sales-type
Leasing and Related Revenue Recognition
The Company
follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842 (See
Operating lease below as relates to the Company as a lessee). The Company’s sales type lease contracts for revenue recognition
fall under ASC 842.
The Company
constructs and leases waste energy recycling power generating projects to its customers. The Company typically transfers ownership of
the waste energy recycling power generating projects to its customers at the end of the lease.
The Company
finances construction of waste energy recycling power generating projects. The sales and cost of sales are recognized at the inception
of the lease, which is when the control is transferred to the lessee. The Company accounts for the transfer of control as a sales type
lease in accordance with ASC 842-10-25-2. The underlying asset is derecognized, and revenue is recorded when collection of payments is
probable. This is in accordance with the revenue recognition principle in ASC 606 -Revenue from contracts with customers. The investment
in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and estimated executory
cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The
discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist
of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest is amortized to income over the
lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception
of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction
of receivables. Revenue is recognized net of value-added tax.
Contingent
Rental Income
The Company
records income from actual electricity generated of each project in the period the income is earned, which is when the electricity is
generated. Contingent rent is not part of minimum lease payments.
Foreign
Currency Translation and Comprehensive Income (Loss)
The Company’s
functional currency is RMB. For financial reporting purposes, RMB figures were translated into USD as the reporting currency. Assets
and liabilities are translated at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the
average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates
from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income.”
Gains and losses from foreign currency transactions are included in income. There has been no significant fluctuation in exchange rate
for the conversion of RMB to USD after the balance sheet date.
The Company
uses “Reporting Comprehensive Income” (codified in FASB ASC Topic 220). Comprehensive income is comprised of net income and
all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital
and distributions to stockholders.
RESULTS
OF OPERATIONS
Comparison
of Results of Operations for the six months ended June 30, 2024 and 2023
The following
table sets forth the results of our operations for the periods indicated as a percentage of net sales. Certain columns may not add due
to rounding.
| |
2024 | | |
%
of Sales | | |
2023 | | |
%
of Sales | |
Sales | |
$ | - | | |
| - | % | |
$ | - | | |
| - | % |
Cost of sales | |
| - | | |
| - | % | |
| - | | |
| - | % |
Gross profit | |
| - | | |
| - | % | |
| - | | |
| - | % |
Interest income on
sales-type leases | |
| - | | |
| - | % | |
| - | | |
| - | % |
Total
operating expenses | |
| 559,237 | | |
| - | % | |
| 459,235 | | |
| - | % |
Loss from operations | |
| (559,237 | ) | |
| - | % | |
| (459,235 | ) | |
| - | % |
Total non-operating
income (expenses), net | |
| (116,141 | ) | |
| - | % | |
| 184,381 | | |
| - | % |
Loss before income tax | |
| (675,378 | ) | |
| - | % | |
| (274,854 | ) | |
| - | % |
Income tax expense | |
| 14,176 | | |
| - | % | |
| 62,492 | | |
| - | % |
Net loss | |
$ | (689,554 | ) | |
| - | % | |
$ | (337,346 | ) | |
| - | % |
SALES. Total
sales for the six months ended June 30, 2024 and 2023 were $0.
COST OF
SALES. Cost of sales (“COS”) for the six months ended June 30, 2024 and 2023 were $0.
GROSS
PROFIT. Gross profit for the six months ended June 30, 2024 and 2023 were nil with gross margin of nil.
OPERATING
EXPENSES. Operating expenses consisted of general and administrative expenses (“G&A”) totaling $559,237 for
the six months ended June 30, 2024, compared to $459,235 for the six months ended June 30, 2023, an increase of $100,002 or 21.78%. The
increase in operating expenses was mainly due to increased stock compensation expense by approximately $139,066 and increased legal expense
by approximately $13,025, which was partly offset by decreased audit expense by approximately $28,910.
NET NON-OPERATING
INCOME (EXPENSES). Net non-operating expenses consisted of gain or loss on note conversion, interest income, interest expenses,
and miscellaneous expenses. For the six months ended June 30, 2024, net non-operating expenses was $116,141 compared to non-operating
income of $184,381 for six months ended June 30, 2023. For the six months ended June 30, 2024, we had $81,281 interest income, and $28,152
other income, which was partly offset by $21,243 loss on note conversion and $204,331 interest expense. For six months ended June 30,
2023, we had $170,441 interest income, gain on note conversion of $5,602 and other income of $228,618, which was partly offset by $220,280
interest expense on note payable.
INCOME
TAX EXPENSE. Income tax expense was $14,176 for the six months ended June 30, 2024, compared with $62,492 for the six months
ended June 30, 2023. The consolidated effective income tax rate for the six months ended June 30, 2024 and 2023 were 2.1% and 22.7%,
respectively.
NET LOSS.
Net loss for the six months ended June 30, 2024 was $689,554 compared to $337,346 for the six months ended June 30, 2023, an increase
of net loss of $352,208. This increase in net loss was mainly due to increased operating expenses by $100,002, increased loss on note
conversion by $26,845, decreased other income by $200,466 and decreased interest income by $89,160, which was partly offset by decreased
interest expense by $15,949 and decreased income tax expense by $48,316 as described above.
Comparison
of Results of Operations for the three months ended June 30, 2024 and 2023
The following
table sets forth the results of our operations for the periods indicated as a percentage of net sales. Certain columns may not add due
to rounding.
| |
2024 | | |
%
of Sales | | |
2023 | | |
%
of Sales | |
Sales | |
$ | - | | |
| - | % | |
$ | - | | |
| - | % |
Cost of sales | |
| - | | |
| - | % | |
| - | | |
| - | % |
Gross profit | |
| - | | |
| - | % | |
| - | | |
| - | % |
Interest income on
sales-type leases | |
| - | | |
| - | % | |
| - | | |
| - | % |
Total
operating expenses | |
| 350,803 | | |
| - | % | |
| 374,407 | | |
| - | % |
Loss from operations | |
| (350,803 | ) | |
| - | % | |
| (374,407 | ) | |
| - | % |
Total non-operating
income (expenses), net | |
| (58,954 | ) | |
| - | % | |
| 184,523 | | |
| - | % |
Loss before income tax | |
| (409,757 | ) | |
| - | % | |
| (189,884 | ) | |
| - | % |
Income tax expense | |
| - | | |
| - | % | |
| 57,958 | | |
| - | % |
Net loss | |
$ | (409,757 | ) | |
| - | % | |
$ | (247,842 | ) | |
| - | % |
SALES. Total
sales for the three months ended June 30, 2024 and 2023 were $0.
COST OF
SALES. Cost of sales (“COS”) for the three months ended June 30, 2024 and 2023 were $0.
GROSS
PROFIT. Gross profit for the three months ended June 30, 2024 and 2023 were $0 with gross margin of 0%.
OPERATING
EXPENSES. Operating expenses consisted of general and administrative expenses (“G&A”) totaling $350,803 for
the three months ended June 30, 2024, compared to $374,407 for the three months ended June 30, 2023, a decrease of $23,604 or 6.30%.
The decrease in operating expenses was mainly due to decreased audit expense by approximately $73,410, decreased NASDAQ annual fee by
$47,000, decreased Broadridge service fee by $9,784, decreased legal expense by approximately $8,975 and decreased other G&A expenses
by $23,500, which was partly offset by increased stock compensation expense by approximately $139,066.
NET NON-OPERATING
INCOME (EXPENSES). Net non-operating expenses consisted of gain or loss on note conversion, interest income, interest expenses,
and miscellaneous expenses. For the three months ended June 30, 2024, net non-operating expenses was $58,954 compared to non-operating
income of $184,523 for the three months ended June 30, 2023. For the three months ended June 30, 2024, we had $41,297 interest income,
which was partly offset by $100,251 interest expense on note payable. For the three months ended June 30, 2023, we had $82,246 interest
income, and other income of $216,333, which was partly offset by $109,176 interest expense on note payable, and loss on note conversion
of $4,880.
INCOME
TAX EXPENSE. Income tax expense was $nil for the three months ended June 30, 2024, compared with $57,958 for the three months
ended June 30, 2023. The consolidated effective income tax rate for the three months ended June 30, 2024 and 2023 were nil and 30.5%,
respectively.
NET LOSS.
Net loss for the three months ended June 30, 2024 was $409,757 compared to $247,842 for the three months ended June 30, 2023, an increase
of net loss of $161,915. This increase in net loss was mainly due to decreased other income by $216,333, decreased interest income by
$40,949, which was partly offset by decreased operating expenses by $23,604, decreased loss on note conversion by $4,880, decreased interest
expense by $8,925, and decreased income tax expense by $57,958 as described above.
LIQUIDITY
AND CAPITAL RESOURCES
Comparison
of Six Months Ended June 30, 2024 and 2023
As of June
30, 2024, the Company had cash and equivalents of $68.10 million, other current assets (excluding cash and equivalents) of $67.24 million,
current liabilities of $23.81 million, working capital of $111.53 million, a current ratio of 5.68:1 and a liability-to-equity ratio
of 0.25:1.
The following
is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, 2024 and 2023:
| |
2024 | | |
2023 | |
Cash provided by (used in): | |
| | |
| |
Operating Activities | |
$ | (248,132 | ) | |
$ | (69,042,292 | ) |
Investing activities | |
| 68,542,364 | | |
| (69,994,412 | ) |
Financing activities | |
| – | | |
| – | |
Net cash
used in operating activities was $248,132 during the six months ended June 30, 2024, compared to $69,042,292 for the six months ended
June 30, 2023. The decrease in net cash outflow for the six months ended June 30, 2024 was mainly due to decreased cash outflow on advance
to supplier by $68.9 million, and increased cash inflow on accrued liabilities and other payables by $136,247, which was partly offset
by increased net loss by $352,208.
On June 19,
2023, the Company entered a purchase agreement with Hubei Bangyu New Energy Technology Co., Ltd. (“Bangyu”). The total contract
amount was $82.3 million (RMB 595.0 million) for purchasing the energy storage battery systems. As of June 30, 2024, the Company made
a prepayment to Bangyu of $66.8 million (RMB 476.0 million). The Company is in the process of transforming and expanding into energy
storage integrated solution provider business. The Company actively seeks and explores opportunities to apply energy storage technologies
to new industries or segments with high growth potential, including industrial and commercial complexes, large scale photovoltaic (PV)
and wind power stations, remote islands without electricity, and smart energy cities with multi-energy supplies.
Net cash
provided by investing activities was $68,542,364 for the six months ended June 30, 2024, compare with net cash used in investing activities
of $69,994,412 for the six months ended June 30, 2023, respectively. For the six months ended June 30, 2024, investing activities mainly
consisted of receipt of repayment of short-term loan receivable of $68,542,364. For the six months ended June 30, 2023, investing activities
mainly consisted of short-term loan receivable of $69,994,412.
On March
31, 2023, the Company had $140,576,568 (RMB 966.0 million) short term loan to Jinan Youkai Engineering Consulting Co.,
Ltd (“Youkai”), an unrelated party of the Company. The short-term loan was for five days with a capital utilization fee of
$43,657 (RMB 300,000) per day for total of $218,287 (RMB 1.5 million). To ensure the safety of the funds, before
money was transferred to Youkai, Youkai handed over the official seal, financial seal and bank account UK to the Company for custody
and management until repayment of the loan. The Company received the repayment of $140.6 million in full plus capital utilization
fee on April 3, 2023.
On June 30,
2023, the Company loaned $67,120,596 (RMB 485.0 million) to Youkai again, an unrelated party of the Company. The short-term
loan was for five days with a capital utilization fee of $13,839 (RMB 100,000) per day for total of $69,196 (RMB 500,000).
To ensure the safety of the funds, before money was transferred to Youkai, Youkai handed over the official seal, financial seal and bank
account UK to the Company for custody and management until repayment of the loan. The Company received the repayment of $67.2 million
in full plus capital utilization fee on July 3, 2023.
As of December
31, 2023, the Company had $68,730,851 (RMB 486.1 million) short term loan to Jinan Youkai Engineering Consulting Co.,
Ltd (“Youkai”), an unrelated party of the Company. The short-term loan was for five days with a capital utilization fee of
$14,119 (RMB 100,000) per day for total of $70,595 (RMB 500,000). To ensure the safety of the funds, before money
was transferred to Youkai, Youkai handed over the official seal, financial seal and bank account UK to the Company for custody and management
until repayment of the loan. The Company received the repayment of $68.7 million in full plus capital utilization fee in January
2024.
There was
no cash provided by or use in financing activities during the six months ended June 30, 2024 and 2023.
We do not
believe inflation has had or will have a significant negative impact on our results of operations in 2024.
Transfers
of Cash to and from Our Subsidiaries
The PRC has
currency and capital transfer regulations that require us to comply with certain requirements for the movement of capital. The Company
is able to transfer cash (USD) to its PRC subsidiaries through: (i) an investment (by increasing the Company’s registered capital
in a PRC subsidiary), or (ii) a stockholder loan. The Company’s subsidiaries in the PRC have not transferred any earnings or cash
to the Company to date. The Company’s business is primarily conducted through its subsidiaries. The Company is a holding company
and its material assets consist solely of the ownership interests held in its PRC subsidiaries. The Company relies on dividends paid
by its subsidiaries for its working capital and cash needs, including the funds necessary: (i) to pay dividends or cash distributions
to its stockholders, (ii) to service any debt obligations and (iii) to pay operating expenses. As a result of PRC laws and regulations
(noted below) that require annual appropriations of 10% of after-tax income to be set aside in a general reserve fund prior to payment
of dividends, the Company’s PRC subsidiaries are restricted in that respect, as well as in others respects noted below, in their
ability to transfer a portion of their net assets to the Company as a dividend.
With respect
to transferring cash from the Company to its subsidiaries, increasing the Company’s registered capital in a PRC subsidiary requires
the filing of the local commerce department, while a stockholder loan requires a filing with the state administration of foreign exchange
or its local bureau.
With respect
to the payment of dividends, we note the following:
| 1. | PRC
regulations currently permit the payment of dividends only out of accumulated profits, as
determined in accordance with accounting standards and PRC regulations (an in-depth description
of the PRC regulations is set forth below); |
|
2. |
Our PRC subsidiaries are required
to set aside, at a minimum, 10% of their net income after taxes, based on PRC accounting standards, each year as statutory surplus
reserves until the cumulative amount of such reserves reaches 50% of their registered capital; |
|
|
|
|
3. |
Such reserves may not be distributed
as cash dividends; |
|
4. |
Our PRC subsidiaries may also
allocate a portion of their after-tax profits to fund their staff welfare and bonus funds; except in the event of a liquidation,
these funds may also not be distributed to stockholders; the Company does not participate in a Common Welfare Fund; |
|
|
|
|
5. |
The incurrence of debt, specifically
the instruments governing such debt, may restrict a subsidiary’s ability to pay stockholder dividends or make other cash distributions;
and |
|
|
|
|
6. |
The Company is subject to
covenants and consent requirements. |
If, for the
reasons noted above, our subsidiaries are unable to pay stockholder dividends and/or make other cash payments to the Company when needed,
the Company’s ability to conduct operations, make investments, engage in acquisitions, or undertake other activities requiring
working capital may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions
by our subsidiaries within China, will not be affected as long as the capital is not transferred in or out of the PRC.
PRC Regulations
In accordance
with PRC regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”)
established in the PRC is required to provide statutory reserves, which are appropriated from net profit, as reported in the FIE’s
PRC statutory accounts. A FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve
has reached 50% of its respective registered capital (based on the FIE’s PRC statutory accounts). The aforementioned reserves may
only be used for specific purposes and may not be distributed as cash dividends. Until such contribution of capital is satisfied, the
FIE is not allowed to repatriate profits to its stockholders, unless approved by the State Administration of Foreign Exchange. After
satisfaction of this requirement, the remaining funds may be appropriated at the discretion of the FIE’s board of directors. Our
subsidiary, Shanghai TCH, qualifies as a FIE and is therefore subject to the above-mandated regulations on distributable profits.
Additionally,
in accordance with PRC corporate law, a domestic enterprise is required to maintain a surplus reserve of at least 10% of its annual after-tax
profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts.
The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. Xi’an TCH, Huahong,
Zhonghong and Erdos TCH were established as domestic enterprises; therefore, each is subject to the above-mentioned restrictions on distributable
profits.
As a result
of PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends,
in a general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets
to the Company as a dividend or otherwise.
Chart
of the Company’s Statutory Reserve
Pursuant
to PRC corporate law, effective January 1, 2006, the Company is required to maintain a statutory reserve by appropriating from its after-tax
profit before declaration or payment of dividends. The statutory reserve is restricted retained earnings. Our restricted and unrestricted
retained earnings under US GAAP are set forth below:
| |
As
of | |
| |
June
30, 2024 | | |
December 31,
2023 | |
Unrestricted accumulated deficit | |
$ | (61,186,925 | ) | |
$ | (60,497,371 | ) |
Restricted retained
earnings (surplus reserve fund) | |
| 15,191,645 | | |
| 15,191,645 | |
Total accumulated deficit | |
$ | (45,995,280 | ) | |
$ | (45,305,726 | ) |
OFF-BALANCE
SHEET ARRANGEMENTS
We have not
entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not
entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected
in our CFS. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves
as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
CONTRACTUAL
OBLIGATIONS
The Company’s
contractual obligations as of June 30, 2024 are as follows:
| |
1 year | | |
More than | | |
See Note | |
Contractual
Obligation | |
or
less | | |
1
year | | |
(for details) | |
Notes
payable including accrued interest of $103,545 | |
$ | 5,129,312 | | |
$ | - | | |
| 9 | |
Entrusted
loan including interest payable of $339,346 | |
$ | 11,143,634 | | |
$ | - | | |
| 8 | |
Operating
lease liability | |
$ | 61,520 | | |
$ | 90,838 | | |
| 15 | |
Total | |
$ | 16,334,466 | | |
$ | 90,838 | | |
| | |
The Company
believes it has sufficient cash as of June 30, 2024, and a sufficient channel to commercial institutions to obtain any loans that may
be necessary to meet its working capital needs. Historically, we have been able to obtain loans or otherwise achieve our financing objectives
due to the Chinese government’s support for energy-saving businesses with stable cash inflows, good credit ratings and history.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Exchange Rate Risk
Our operations are conducted mainly in the PRC. As such, our earnings
are subject to movements in foreign currency exchange rates when transactions are denominated in RMB, which is our functional currency.
Accordingly, our operating results are affected by changes in the exchange rate between the U.S. dollar and those currencies.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures which are
designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”)
and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s “disclosure controls and
procedures,” as such term is defined in Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934 (“Exchange
Act”) at the end of the period covered by the report. Based upon that evaluation, our CEO and CFO concluded that, as of June 30,
2024, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial
Reporting
With the participation of the Company’s management, including
its CEO and CFO, the Company also conducted an evaluation of the Company’s internal control over financial reporting to determine
whether any changes occurred during the Company’s fiscal quarter ended as of June 30, 2024, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on such evaluation, management
concluded that, as of the end of the period covered by this report, there have not been any changes in the Company’s internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to
which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our
disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud,
if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to legal
proceedings and claims in the ordinary course of business. We are not currently a party to any material legal proceedings, and to our
knowledge none is threatened. There can be no assurance that future legal proceedings arising in the ordinary course of business or otherwise
will not have a material adverse effect on our financial position, results of operations or cash flows.
In November 2019, Beijing Hongyuan Recycling Energy
Investment Center (“BIPC”), or Hongyuan, filed a lawsuit with the Beijing Intermediate People’s Court against Xi’an
TCH to compel Xi’an TCH to repurchase certain stock pursuant to a stock repurchase option agreement. On April 9, 2021, the court
rendered a judgment in favor of Hongyuan. Xi’an TCH filed a motion for retrial to High People’s Court of Beijing on April
13, 2022, because Xi’an TCH paid RMB 261 million ($37.58 million) principal and interest to Hongyuan as an out-of-court settlement.
On April 11, 2022, Xi’an Zhonghong New Energy Technology Co. Ltd., filed an application for retrial and provided relevant evidence
to the Beijing High People’s Court on the Civil Judgment No. 264, awaiting trial. On August 10, 2022, Beijing No. 1 Intermediate
People’s Court of Beijing issued a Certificate of Active Performance, proving that Xi’an Zhonghong New Energy Technology Co.,
Ltd. had fulfilled its buyback obligations as disclosed in Note 9 that, on April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua
Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement (termination agreement). Under the termination agreement, the
original buyback agreement entered on December 19, 2019 was terminated upon signing of the termination agreement. HYREF will not execute
the buy-back option and will not ask for any additional payment from the buyers other than keeping the CDQ WHPG station.
As of the date of this report, Xi’an Zhonghong
is waiting for Court’s decision on retrial petition that was submitted in April 2022. During this waiting period, BIPC entered the
execution procedure, and there is a balance of RMB 14,204,317 ($2.20 million) between the amount executed by the court and the liability
recognized by Xi ‘an TCH, which was mainly the enforcement fee, legal and penalty fee for the original judgement, and was automatically
generated by the toll collection system of the People’s court. The Company accrued $2.10 million litigation expense as of June 30,
2024.
On June 28, 2021, Beijing No.4 Intermediate People’s
Court of Beijing entered into a judgement that Xi’an Zhonghong Technology Co., Ltd. should pay the loan principal of RMB 77 million
($11.06 million) with loan interest of RMB 2,418,449 ($0.35 million) to Beijing Hongyuan Recycling Energy Investment Center (Limited Partnership).
In the end of 2022, Beijing No.4 Intermediate People’s Court of Beijing entered into the judgment enforcement procedure, which,
in addition to the loan principal with interest amount, Xi’an Zhonghong Technology Co., Ltd. was to pay judgment enforcement fee,
late fee and other fees of RMB 80,288,184 ($11.53 million) in total, the Company recorded these additional fees in 2022. There was no
update for this case as of the date of this report.
On October 17, 2022, United States District Court
for the District of Nevada (the “Court”) entered into a default judgment against us and our transfer agent, Securities Transfer
Corporation that the plaintiff, Newbridge Securities Corporation (the “Plaintiff”) was entitled to payment in the amount of
$139,066.0. On May 15, 2024, Securities Transfer Corporation entered into a stipulation with the Plaintiff. Pursuant to this stipulation,
the Court ordered the issuance of 128,765 shares of CREG to the Plaintiff and its assignees. The abovementioned shares were issued to
the Plaintiff and its assignees as of the date of this report.
Item 1A. Risk Factors
There have been no material changes in our risk
factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K as of and for the year ended December 31, 2023. An
investment in our common stock involves various risks. When considering an investment in our company, you should consider carefully all
of the risk factors described in our most recent Form 10-K and the registration statement as referenced above. If any of those risks,
incorporated by reference in this Form 10-Q, occur, the market price of our shares of common stock could decline and investors could lose
all or part of their investment. These risks and uncertainties are not the only ones facing us and there may be additional matters that
we are unaware of or that we currently consider immaterial. All of these could adversely affect our business, financial condition, results
of operations and cash flows and, thus, the value of an investment in our company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information
Nome.
ITEM 6. EXHIBITS
Exhibit No. |
|
Description |
3.1 |
|
Articles of Incorporation (filed as Exhibit 3.05 to the Company’s Form 10-KSB for the fiscal year ended December 31, 2001). |
|
|
|
3.2 |
|
Fifth Amended and Restated Bylaws (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K dated March 9, 2022). |
|
|
|
3.3 |
|
Certificate of Change (filed as Exhibit 3.6 to the Company’s Current Report on Form 8-K dated May 24, 2016). |
|
|
|
3.4 |
|
Certificate of Amendment (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated March 9, 2022). |
|
|
|
4.1 |
|
Common Stock Specimen (filed as Exhibit 4.1 to the Company’s Registration Statement on Form SB-2 dated November 12, 2004; 1934 Act File No. 333-120431). |
|
|
|
10.1 |
|
Supplementary Agreement by and between Inner Mongolia Erdos TCH Energy Saving Development Co., Ltd. and Inner Mongolia Erdos Metallurgy Co., Ltd., dated December 1, 2009 (filed as Exhibit 10.27 to the Company’s Form 10-K for the year ended December 31, 2009). |
|
|
|
10.2 |
|
Joint Operation Agreement by and between Xi’an TCH Energy Technology Co., Ltd., a wholly owned subsidiary of the Company, and Inner Mongolia Erdos Metallurgy Co., Ltd., dated January 20, 2009 (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended June 30, 2009). |
|
|
|
10.3 |
|
Form of Independent Director Agreement. (filed as Exhibit 10.28 on the Company’s Registration Statement on Form 10, filed on February 5, 2010). |
|
|
|
10.4 |
|
English Translation of Employment Agreement between the Company and Guohua Ku, dated December 10, 2020 (filed as Exhibit 10.4 to the Company’s Current Report on Form 10-K dated December 31, 2021). |
|
|
|
10.5 |
|
English Translation of Employment Agreement between the Company and Yongjiang Shi, dated December 16, 2021 (filed as Exhibit 10.5 to the Company’s Current Report on Form 10-K dated December 31, 2021). |
|
|
|
10.6 |
|
Biomass Power Generation Asset Transfer Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 16, 2013). |
|
|
|
10.7 |
|
Biomass Power Generation Project Lease Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 16, 2013). |
|
|
|
10.8 |
|
Partnership Agreement of Beijing Hongyuan Recycling Energy Investment Center, LLP, dated July 18, 2013 (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013). |
|
|
|
10.9 |
|
EPC Contract for Boxing CDQ Waste Heat Power Generation Project, dated July 22, 2013, by and between Xi’an Zhonghong New Energy Technology Co., Ltd and Xi’an Huaxin New Energy Co., Ltd (filed as Exhibit 10.3 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013). |
10.10 |
|
EPC Contract for CDQ Power Generation Project of Xuzhou Tianyu Group, dated July 22, 2013, by and between Xi’an Zhonghong New Energy Technology Co., Ltd and Xi’an H201uaxin New Energy Co., Ltd. (filed as Exhibit 10.4 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013). |
|
|
|
10.11 |
|
Cooperation Agreement, dated July 22, 2013, by and between Xi’an Zhonghong New Energy Technology Co., Ltd. and Jiangsu Tianyu Energy and Chemical Group Co., Ltd (filed as Exhibit 10.5 to the Company’s Form 10-Q for the quarterly period ended September 30, 2013). |
|
|
|
10.12 |
|
Waste Heat Power Generation Energy Management Cooperative Agreement with Zhongtai (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 6, 2013). |
|
|
|
10.13 |
|
CDQ Power Generation Energy Management Cooperative Agreement with Rongfeng (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 17, 2013). |
|
|
|
10.14 |
|
China Recycling Energy Corporation Omnibus Equity Plan (Incorporated by reference from Appendix A to the Company’s Definitive Schedule 14A filed on April 30, 2015). |
|
|
|
10.15 |
|
Transfer Agreement of CDQ & Waste Heat Power Generation, dated November 16, 2015, by and between Xi’an TCH Energy Technology Co., Ltd and Tangshan Rongfeng Iron & Steel Co., Ltd. and Xi’an Huaxin New Energy Co., Ltd. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 20, 2015). |
|
|
|
10.16 |
|
Xuzhou Zhongtai CDQ and Waste Heat Power Generation System Transfer Agreement, dated March 14, 2016, by Xi’an TCH Energy Technology Co., Ltd, Xuzhou Zhongtai Energy Technology Co., Ltd. and Xi’an Huaxin New Energy Co., Ltd. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 18, 2016). |
|
|
|
10.17 |
|
Repurchase Agreement for Coking Coal Gas Power Generation Project, dated June 22, 2016, by and between Xi’an TCH Energy Technology Co., Ltd., and Qitaihe City Boli Yida Coal Selection Co., Ltd. (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated August 15, 2016). |
|
|
|
10.18 |
|
Securities Purchase Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P., dated July 11, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 17, 2018). |
|
|
|
10.19 |
|
Convertible Promissory Note, issued by China Recycling Energy Corporation to Iliad Research and Trading, L.P., dated July 11, 2018 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 17, 2018). |
|
|
|
10.20 |
|
Equity Purchase Agreement by and between Shanghai TCH Energy Technology Co., Ltd. and Jinhua Wang, dated September 30, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 30, 2018). |
|
|
|
10.21 |
|
Agreement of Supplementary and Amendment by and between Shanghai TCH Energy Technology Co., Ltd. and Jinhua Wang, dated November 21, 2018 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 26, 2018). |
|
|
|
10.22 |
|
CDQ WHPG Station Fixed Assets Transfer Agreement, dated December 29, 2018, by and among Xi’an Zhonghong, Xi’an TCH, the HYREF, Guohua Ku and Chonggong Bai (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on April 16, 2019). |
|
|
|
10.23 |
|
Buy-Back Agreement, dated December 29, 2018, by and among HYREF, Xi’an Zhonghong, Xi’an TCH, Guohua Ku, Chonggong Bai and Xi’an Hanneng (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on April 16, 2019). |
10.24 |
|
Equity Transfer Agreement, dated December 29, 2018, by and between Xi’an TCH and Hongyuan Huifu. (filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on April 16, 2019) |
|
|
|
10.25 |
|
Equity Transfer Agreement, dated December 29, 2018, by and between Shanghai TCH and HYREF. (filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on April 16, 2019) |
|
|
|
10.26 |
|
Supplementary Agreement of Equity Transfer Agreement, dated December 29, 2018, by and among Xi’an TCH, Hongyuan Huifu, and the Fund Management Company. (filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on April 16, 2019) |
|
|
|
10.27 |
|
Projects Transfer Agreement by and among Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai, dated January 4, 2019 (filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2018 filed on April 16, 2019). |
|
|
|
10.28 |
|
Securities Purchase Agreement by and between China Recycling Energy Corporation and Great Essential Investment, Ltd, dated February 13, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 19, 2019). |
|
|
|
10.29 |
|
Termination of Equity Purchase Agreement and Supplementary Amendment Agreement by and between Shanghai TCH and Mr. Jihua Wang, dated March 29, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 29, 2019). |
|
|
|
10.30 |
|
Forebearance Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated September 11, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 11, 2019). |
|
|
|
10.31 |
|
Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated September 19, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 19, 2019). |
|
|
|
10.32 |
|
Termination Agreement of Lease Agreement of Biomass Power Generation Project by and between Xi’an TCH Energy Technology Co., Ltd. and Pucheng Xin Heng Yuan Biomass Power Generation Co., Ltd. dated September 29, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 29, 2019). |
|
|
|
10.33 |
|
Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated October 16, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 16, 2019). |
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10.34 |
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Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated October 16, 2019 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 16, 2019). |
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10.35 |
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Amendment to Forebearance Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated December 16, 2019 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 16, 2019). |
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10.36 |
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Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated January 3, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 3, 2020). |
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10.37 |
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Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated January 13, 2020 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 13, 2020). |
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10.38 |
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Exchange Agreement by and between China Recycling Energy Corporation and Iliad Research and Trading, L.P. dated May 4, 2020 (filed as Exhibit 10.30 to the Company’s Current Report on Form 8-K, dated May 4, 2020). |
10.39 |
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Employment Agreement by and between China Recycling Energy Corporation and Yongjiang (Jackie) Shi, dated May 8, 2020 (as Exhibit 10.38 to the Company’s Annual Report on Form 10-K dated for the year ended December 31, 2020 filed on April 15, 2021). |
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10.40 |
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Exchange Agreement dated as of May 15, 2020 by and between China Recycling Energy Corporation and Lliad Research and Trading, L.P. (filed as Exhibit 10.39 to the Company’s Current Report on Form 8-K, dated May 21, 2020). |
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10.41 |
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Forbearance Agreement dated as of May 15, 2020 by and between China Recycling Energy Corporation and Lliad Research and Trading, L.P. (filed as Exhibit 10.40 to the Company’s Current Report on Form 8-K, dated May 21, 2020). |
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10.42 |
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Exchange Agreement dated as of May 29, 2020 by and between China Recycling Energy Corporation and Lliad Research and Trading, L.P. (filed as Exhibit 10.41 to the Company’s Current Report on Form 8-K, dated June 4, 2020). |
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10.43 |
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Equity Acquisition Agreement dated as of December 22, 2020 by and between China Recycling Energy Corporation and Shanghai TCH Energy Technology Co., Ltd., Zheng Feng, Yinhua Zhang, Weidong Xu and Xi’an Taiying Energy Saving Technology Co., Ltd. (filed as Exhibit 10.43 to the Company’s Current Report on Form 8-K, dated December 29, 2020). |
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10.44 |
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Promissory Note dated as of December 4, 2020 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.43 to the Company’s Form S-1/A dated October 6, 2021) |
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10.45 |
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Exchange Agreements dated as of August 24, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.44 to the Company’s Form S-1/A dated October 6, 2021) |
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10.46 |
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Exchange Agreements dated as of August 31, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.45 to the Company’s Form S-1/A dated October 6, 2021) |
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10.47 |
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Exchange Agreements dated as of September 1, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q dated November 12, 2021) |
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10.48 |
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Exchange Agreements dated as of October 8, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q dated November 12, 2021) |
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10.49 |
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Exchange Agreements dated as of October 21, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.3 to the Company’s quarterly report on Form 10-Q dated November 12, 2021) |
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10.50 |
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Exchange Agreements dated as of October 25, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.4 to the Company’s quarterly report on Form 10-Q dated November 12, 2021) |
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10.51 |
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Exchange Agreements dated as of November 9, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit 10.5 to the Company’s quarterly report on Form 10-Q dated November 12, 2021) |
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10.52 |
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Exchange Agreements dated as of November 30, 2021 by and between China Recycling Energy Corporation and Streeterville Capital, LLC. (filed as Exhibit to the Company’s Amendment to Registration Statement on Form S1/A dated December 3, 2021) |
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10.53 |
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Exchange Agreements dated as of November 7, 2022 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. (filed as Exhibit 10.53 to the Company’s Form 10-K for the year ended December 31, 2022). |
10.54 |
|
Exchange Agreements dated as of January 6, 2023 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. (filed as Exhibit 10.54 to the Company’s Form 10-K for the year ended December 31, 2022). |
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10.55 |
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Exchange Agreements dated as of January 18, 2023 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. (filed as Exhibit 10.55 to the Company’s Form 10-K for the year ended December 31, 2022). |
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10.56 |
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Exchange Agreements dated as of February 13, 2023 by and between China Recycling Energy Corporation and Bucktown Capital, LLC.(filed as Exhibit 10.56 to the Company’s Form 10-K for the year ended December 31, 2022). |
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10.57 |
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Exchange Agreements dated as of May 11, 2023 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. (filed as Exhibit 10.57 to the Company’s quarterly report on Form 10-Q dated June 21, 2023). |
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10.58 |
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Exchange Agreements dated as of August 11, 2023 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. (filed as Exhibit 10.58 to the Company’s quarterly report on Form 10-Q dated November 13, 2023). |
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10.59 |
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Exchange Agreements dated as of December 29, 2023 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. (filed as Exhibit 10.57 to the Company’s Form 10-K for the year ended December 31, 2023). |
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10.60* |
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Exchange Agreement dated as of July 23, 2024 by and between China Recycling Energy Corporation and Bucktown Capital, LLC. |
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14.1 |
|
Code of Ethics (filed as Exhibit 14.1 to the Company’s Current Report on Form 8-K dated December 2, 2009). |
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19.1 |
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Insider Trading Policy, dated November 25, 2009. (filed as Exhibit 19.1 to the Company’s annual report on Form 10-K dated May, 8, 2023) |
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21.1 |
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Subsidiaries (filed as Exhibit 21.1 to the Company’s Annual Report on Form 10-K dated May 14, 2020). |
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31.1* |
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Rule 13a-14(a)/15d-14(a) certification of the Chief Executive Officer. |
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31.2* |
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Rule 13a-14(a)/15d-14(a) certification of the Chief Financial Officer. |
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32.1* |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
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32.2* |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
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97 |
|
Compensation Recovery Policy (filed as Exhibit 97 to the Company’s Form 10-K for the year ended December 31, 2023). |
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101.INS* |
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Inline XBRL Instance Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
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101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
|
Inline XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SMART POWERR CORP. |
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Date: August 14, 2024 |
By: |
/s/ Guohua Ku |
|
|
Guohua Ku |
|
|
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer) |
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Date: August 14, 2024 |
By: |
/s/ Yongjiang Shi |
|
|
Yongjiang Shi |
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
42
7643072
7803991
8238106
8360386
0.03
0.04
0.05
0.08