Cn Energy Group. Inc 6-K, filed Aug 28, 2023
Cn Energy Group. Inc. (CNEY)
About this 6-K
Cn Energy Group. Inc filed this 6-K on August 28, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the month of August 2023
Commission File Number: 001-39978
Building 2-B, Room 206, No. 268 Shiniu Road
Liandu District, Lishui City, Zhejiang Province
The People’s Republic of China
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
EXPLANATORY NOTE
CN Energy Group. Inc. (the “Company”) is furnishing this report of foreign private issuer on Form 6-K to provide the six-month interim financial statements for the period ended March 31, 2023 and incorporate such financial statements into the Company’s registration statement referenced below.
This report of foreign private issuer on Form 6-K is hereby incorporated by reference into the registration statement on Form F-3 of the Company (File Number 333-264579), as amended, and into the prospectus outstanding under the foregoing registration statement, to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
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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.
| CN Energy Group. Inc. |
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Date: August 28, 2023 | By: | /s/ Xinyang Wang |
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| Name: | Xinyang Wang |
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| Title: | Chief Executive Officer |
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EXHIBIT INDEX | ||
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Exhibit |
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No. |
| Description |
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101 |
| Interactive Data Files (formatted as Inline XBRL) |
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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EXHIBIT 99.1
CN ENERGY GROUP. INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2023 AND 2022
CN ENERGY GROUP. INC.
TABLE OF CONTENTS
Unaudited Condensed Consolidated Financial Statements |
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Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and September 30, 2022 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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| F-1 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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| March 31, |
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| September 30, |
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| 2022 |
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Current Assets: |
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Cash |
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Accounts receivable |
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Inventory |
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Advances to suppliers, net |
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Prepayment for an acquisition of a subsidiary |
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Due from a related party |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, net |
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Prepayment for property and equipment |
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Intangible assets, net |
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Land use right, net |
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Right of use lease assets, net |
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Long-term deposits |
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Biological assets |
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Total Assets |
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LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
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Current Liabilities: |
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Short-term bank loans |
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Long-term bank loans, current |
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Accounts payable |
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Deferred revenue, current |
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Proceeds from private placement |
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Due to related parties |
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Taxes payable |
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Operating lease liabilities, current |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term bank loans, non-current |
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Convertible bonds |
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Deferred revenue, non-current |
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Operating lease liabilities, non-current |
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Deferred tax liabilities |
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Total liabilities |
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Commitments and contingencies |
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Shareholders' Equity: |
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Class A ordinary share, no par value, unlimited number of shares authorized; |
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Class B ordinary share, no par value, unlimited number of shares authorized; |
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Additional paid-in capital |
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Statutory reserves |
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(Accumulated deficits) retained earnings |
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Accumulated other comprehensive loss |
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Total shareholders' equity |
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Total Liabilities and Shareholders' Equity |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
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| For the six months ended, March 31 |
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| 2023 |
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| 2022 |
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Revenue |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Allowance for doubtful debts |
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Selling expenses |
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General and administrative expenses |
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Research and development expenses |
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Total operating expenses |
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Loss from operations |
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Other income (expenses): |
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Interest expenses |
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Government subsidy income |
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Interest income |
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Other income (expenses)1 |
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Total other income, net |
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(Loss) income before income taxes |
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Provision for income taxes |
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Net (loss) income |
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| $ |
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Net (loss) income |
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Other comprehensive (loss) income: |
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Foreign currency translation (loss) gain |
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Comprehensive (loss) income |
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(Loss) earnings per share |
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Basic |
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Diluted |
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Weighted average shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
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| Ordinary Shares |
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| Additional |
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| Retained Earnings |
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| Accumulated Other Comprehensive |
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| Total |
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| Class A |
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| Paid-in |
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| Statutory |
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| Shareholders' |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Reserves |
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| Deficit) |
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| Equity |
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Balance at September 30, 2021 |
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| $ |
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| $ |
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| $ |
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| $ |
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Net income for the period |
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| - |
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| - |
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Appropriation to statutory reserve |
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| - |
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| - |
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Foreign currency translation gain |
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| - |
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| - |
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Balance at March 31, 2022 |
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Balance at September 30, 2022 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Issuance of ordinary shares for private placement, net |
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| - |
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Issuance of ordinary shares for acquisition |
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Issuance of ordinary shares and warrants, net |
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| - |
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Issuance of ordinary share for services |
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Net loss for the period |
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Appropriation to statutory reserve |
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| - |
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| - |
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Foreign currency translation gain |
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Balance at March 31, 2023 |
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| $ |
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| $ | ( | ) |
| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
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| For the six months ended March 31, |
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| 2023 |
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| 2022 |
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Cash flows from operating activities: |
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Net (loss) income |
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| $ |
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Adjustments to reconcile net income to net cash |
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(used in) provided by operating activities: |
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Allowance for accounts receivable |
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Allowance for advances to suppliers |
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Allowance for prepaid expenses and other current assets |
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Depreciation expense |
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Loss on disposal of property and equipment |
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Amortization of operating lease right-of-use assets |
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Amortization of intangible assets and land use right |
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Amortization of biological assets |
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Deferred income taxes |
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Amortization of deferred revenue |
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Amortization of debts issuance costs |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Advances to suppliers |
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Prepaid expenses and other current assets |
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Accounts payable |
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Operating lease liabilities |
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Taxes payable |
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Accrued expenses and other current liabilities |
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Net cash (used in) provided by operating activities |
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Cash flows from investing activities: |
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Other receivables |
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Prepayment for purchase of property, plant and equipment |
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Purchase of property, plant and equipment |
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Proceeds from term deposits |
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Acquisition of a subsidiary, net of cash |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from convertible notes |
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Proceeds from issuance of shares and warrants |
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Repayment of related parties loans |
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Proceeds from related parties loans |
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Repayment of bank loans |
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Proceeds from bank loans |
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Net cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash |
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Net (decrease) increase in cash |
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Cash, beginning of year |
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Cash, end of year |
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| $ |
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Supplemental disclosure information: |
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Cash paid for income tax |
| $ |
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| $ |
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Cash paid for interest |
| $ |
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| $ |
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Supplemental non-cash activities: |
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Issuance of shares for acquisition |
| $ |
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Right of use assets obtained in exchange for operating lease obligations |
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| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-5 |
| Table of Contents |
Note 1 – Organization and nature of business
CN ENERGY GROUP. INC. (“CN Energy”) is a holding company incorporated under the laws of the British Virgin Islands on November 23, 2018. CN Energy, through its subsidiaries (collectively, the “Company”), manufactures and supplies wood-based activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production (“Activated Carbon Production”), and produces of biomass electricity generated in the process of producing activated carbon (“Biomass Electricity Production”).
Reorganization
In connection with its initial public offering, the Company undertook a reorganization of its legal structure (the “Reorganization”). The Reorganization involved: (1) the incorporation of CN Energy, a British Virgin Islands holding company; (2) the incorporation of Clean Energy Holdings Limited (“Energy Holdings”), a Hong Kong holding company; (3) the incorporation of Zhejiang CN Energy Technology Development Co., Ltd. (“Zhejiang CN Energy”) and Manzhouli CN Energy Industrial Co., Ltd. (“Manzhouli CN Energy”), two new wholly foreign-owned enterprises (the “WFOEs,” and each a “WFOE”) formed by Energy Holdings under the laws of the People’s Republic of China (“China” or the “PRC”); (4) the incorporation of Manzhouli CN Energy Technology Co., Ltd. (“Manzhouli CN Technology”), a PRC company, of which 90% of the equity interests are owned by Manzhouli CN Energy, and the remaining 10% by Zhejiang CN Energy; (5) the incorporation of CN Energy Industrial Development Co., Ltd. (“CN Energy Development”), a PRC company, of which 70% of the equity interests are owned by Manzhouli CN Technology and the remaining 30% by Zhejiang CN Energy; (6) the acquisition of 100% of the equity interests of Greater Khingan Range Forasen Energy Technology Co., Ltd. (“Khingan Forasen”) by CN Energy Development; and (7) the issuance of
In accordance with Accounting Standards Codification (“ASC”) 805-50-25, the Reorganization has been accounted for as a recapitalization among entities under common control since the same shareholders controlled all these entities prior to the Reorganization. The consolidation of CN Energy and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the Reorganization, those results will be on substantially the same basis as the results of operations for the period after the date of Reorganization.
The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.
In May and June 2021, the Company conducted another reorganization in order to simplify its corporate structure and make use of supportive government policies. The reorganization consisted of (i) the transfer of
| F-6 |
| Table of Contents |
Note 1 – Organization and nature of business (Continued)
Reorganization (Continued)
CN Energy, the ultimate holding company, currently owns
On March 31, 2022, CN Energy USA Inc (“CN Energy USA”) was incorporated under the laws of the State of Delaware, the United States of America. CN Energy owns
On April 8, 2022, Zhoushan Xinyue Trading Co., Ltd (“Zhoushan Trading”) was incorporated under the laws of the PRC. Hangzhou Forasen owns
On April 13, 2022, Ningbo Nadoutong Trading Co., Ltd (“Ningbo Trading”) was incorporated under the laws of the PRC. CN Energy Development owns
On October 11, 2022, Zhejiang Yongfeng New Material Technology Co., Ltd. (“Zhejiang Yongfeng New Material”) was incorporated under the laws of the PRC. Hangzhou Forasen owns
On November 11, 2022, CN Energy completed an acquisition of MZ Mining International Co., Ltd (“MZ HK”), a Hong Kong company that wholly owns MZ Pintai Mining (Zhejiang) Co., Ltd (“MZ Pintai”), which is a Chinese company that wholly owns Yunnan Yuemu Agriculture and Forestry Technology Co., Ltd (“Yunnan Yuemu”), pursuant to an equity transfer agreement (the “Equity Transfer Agreement”) dated September 30, 2022 with Shenzhen Xiangfeng Trading Co., Ltd. (the “Seller”). The Seller is independent from all directors and officers of CN Energy, and the Company itself. Pursuant to the Equity Transfer Agreement, the Seller first transferred
Currently, CN Energy has subsidiaries in countries and jurisdictions including the PRC, Hong Kong, the British Virgin Islands, and the State of Delaware. Details of the subsidiaries of CN Energy are set out below:
| Date of |
| Place of |
| % of |
| ||
Name of Entity |
| Incorporation |
| Incorporation |
| Ownership |
| Principal Activities |
CN Energy |
| November 23, 2018 |
| British Virgin Islands |
| Parent |
| Holding company |
Energy Holdings |
| August 29, 2013 |
| Hong Kong, China |
|
| Holding company | |
Zhejiang CN Energy |
| January 14, 2019 |
| Zhejiang, China |
|
| Holding company | |
Manzhouli CN Energy |
| January 24, 2019 |
| Inner Mongolia, China |
|
| Holding company | |
Manzhouli CN Technology |
| June 10, 2019 |
| Inner Mongolia, China |
|
| Holding company | |
CN Energy Development |
| April 18, 2019 |
| Zhejiang, China |
|
| Holding company | |
Khingan Forasen |
| March 5, 2009 |
| Heilongjiang, China |
|
| Produces and distributes activated carbon and biomass electricity | |
Hangzhou Forasen |
| March 16, 2006 |
| Zhejiang, China |
|
| Distributes activated carbon products | |
Zhongxing Energy |
| May 21, 2018 |
| Inner Mongolia, China |
|
| Produce activated carbon and steam for heating | |
Zhejiang New Material |
| May 24, 2021 |
| Zhejiang, China |
|
| Produce and sell wading activated carbon in the future | |
CN Energy USA |
| March 31, 2022 |
| Delaware, U.S. |
|
| Investment, consultation and trading, inactive. | |
Zhoushan Trading |
| April 8, 2022 |
| Zhejiang, China |
|
| Trading. | |
Ningbo Trading |
| April 13, 2022 |
| Zhejiang, China |
|
| Trading. | |
Zhejiang Yongfeng New Material |
| October 11, 2022 |
| Zhejiang, China |
|
| Trading. | |
MZ HK |
| December 6, 2018 |
| Hong Kong, China |
|
| Holding company | |
MZ Pintai |
| January 22, 2019 |
| Zhejiang, China |
|
| Holding company | |
Yunnan Yuemu |
| September 2, 2022 |
| Yunnan, China |
|
| Holding company | |
Yunnan Honghao |
| May 6, 2013 |
| Yunnan, China |
|
| Forestry project investment and development | |
Zhejiang Yongfeng |
| October 11, 2022 |
| Zhejiang, China |
|
| Holding company |
| F-7 |
| Table of Contents |
Note 2 – Summary of significant accounting policies
Basis of presentation and principles of consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended September 30, 2022 and 2021. Operating results for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023.
The unaudited condensed consolidated financial statements of the Company reflect the principal activities of CN Energy and its subsidiaries. All significant intercompany balances and transactions are eliminated upon consolidation.
Use of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the valuation of inventory, accounts receivable, advances to suppliers, notes receivable, other receivables, useful lives of property, plant and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition, and realization of deferred tax assets. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. The Company maintains all of its bank accounts in the PRC. As of March 31, 2023 and September 30, 2022, the Company had no cash equivalents.
| F-8 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after efforts at collection prove unsuccessful.
Inventory
The Company values its inventory at the lower of cost, determined on a weighted average basis, or net realizable value. Costs include the cost of raw materials, freight, direct labor, and related production overhead. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products. The Company reviews its inventory periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value. No inventory reserves were recorded as of March 31, 2023 and September 30, 2022.
The costs of forestry inventories are transferred from biological assets at their costs at the point of harvest. The cost of inventories also includes capitalized production costs, including labor, materials, post-harvest costs, and depreciation. Inventoried costs are transferred to cost of goods sold in the same period as when the products are sold.
Forestry inventories, capitalized production costs, and biological asset adjustments are measured at the lower of cost or net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period when the write-down or loss occurs.
Advances to suppliers
Advances to suppliers consist of balances paid to suppliers for services and materials that have not been provided or 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.
Property, plant, and equipment
Property, plant, and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.
| F-9 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:
|
| Useful life |
Property and buildings |
| |
Machinery and equipment |
| |
Vehicles |
| |
Office equipment |
|
Expenditures for maintenance and repair, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments, which substantially extend the useful life of assets, are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in income from operations in the consolidated statements of income and comprehensive income.
Construction-in-progress represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction. Construction-in-progress is not depreciated. Upon completion and ready for intended use, construction-in-progress is reclassified to the appropriate category within property, plant, and equipment.
Prepayment for property and equipment represents payment made for production line equipment to be installed in the new production plant in Manzhouli City. Prepayment for property and equipment is not depreciated. Upon readiness for intended use, prepayment for property and equipment is reclassified to the appropriate category within property, plant, and equipment.
Land use right
Land use right is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful life which is
Intangible assets
Intangible assets consist primarily of patents and software. Intangible assets are stated at cost less accumulated amortization, which are amortized using the straight-line method with the following estimated useful lives:
|
| Useful life |
Patents |
| |
Software |
|
Impairment of long-lived assets
The Company reviews long-lived assets, including definitive-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of March 31, 2023 and September 30, 2022.
Leases
The Company accounts for leases following ASC 842, Leases (“Topic 842”).
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of obligations under operating leases, and obligations under operating leases, non-current on the Company’s consolidated balance sheets.
| F-10 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Biological assets
The Company’s biological assets consist of forests which are not yet harvested. Biological assets are initially measured at cost and subsequently amortized on a straight-line basis over its estimated useful lives. The Company capitalizes all related direct and indirect costs of production to the biological assets atcosts at each reporting date. At the point of harvest, the biological assets are transferred to inventory at their costs.
Goodwill
In accordance with ASC 350, Intangibles - Goodwill and Other, the Company assesses goodwill for impairment annually as of December 31, and more frequently if events and circumstances indicate that goodwill might be impaired.
Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.
Traditionally, goodwill impairment testing is a two-step process. Step one involves comparing the fair value of the reporting units to its carrying amount. If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two involves calculating an implied fair value of goodwill.
The Company determines the fair value of its reporting units using an income approach. Under the income approach, the Company determined fair value based on estimated discounted future cash flows of each reporting unit. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates and EBITDA margins, discount rates and future market conditions, among others.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.
The measurement period is the period from the date of acquisition to the date the Company obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year from acquisition date.
| F-11 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and includes initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses for minimum lease payments are recognized on a straight-line basis over the lease term. See Note 18 for further discussion.
Fair value of financial instruments
The Company applies ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| · | Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. |
| · | Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. |
| · | Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions about what assumptions market participants would use in pricing the asset or liability based on the best available information. |
Any transfers of assets or liabilities between Level 1, Level 2, and Level 3 of the fair value hierarchy will be recognized at the end of the reporting period in which the transfer occurs. There were no transfers between fair value levels in any of the periods presented herein.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, term deposit, notes receivable, accounts receivable, advances to suppliers, other receivables, prepaid expenses and other current assets, short-term bank loans, long-term bank loans, current accounts payable, deferred revenue, current, due to related parties, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities. The fair value of long-term bank loan and operating lease liabilities approximate their recorded values as their stated interest rates approximate the rates currently available.
Revenue recognition
The Company accounts for revenue recognition under Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”). Revenue of the Company is mainly from the sale of two types of products, activated carbon and biomass electricity generated in the process of producing activated carbon. For the sale of activated carbon, the Company recognizes revenue when title and risk of loss passes and the customer accepts the products, which occurs at delivery. Product delivery is evidenced by warehouse shipping log as well as signed shipping bills from the shipping company, or by receipt document signed by the customer upon delivery, depending on the delivery term negotiated between the Company and customers on a customer-by-customer basis. For the sale of biomass electricity, revenue is recognized over time as the biomass electricity is delivered, which occurs when the biomass electricity is transmitted from the power plant of the Company to the provincial power grid company. The amount is based on the reading of meters, which occurs on a systematic basis throughout each reporting period and represents the market value of the biomass electricity delivered.
The Company also provides technical service to customers who purchase activated carbon from the Company. The revenue of technical service is recognized on a straight-line basis over the service period as earned.
| F-12 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
The transaction price of activated carbon and technical services is determined based on fixed consideration in the Company’s customer contracts. Pursuant to the power purchase agreements entered into between the Company and the respective provincial power grid company, the Company’s sales of biomass electricity were made to the power grid company at the tariff rates agreed upon with the provincial power grid company as approved by the relevant government authorities in the PRC. In determining the transaction price, no significant financing components exist since the timing from when the Company invoices its customers to when payment is received is less than one year.
Revenue is reported net of all value added taxes. The Company generally does not permit customers to return products and historically, customer returns have been immaterial. In the event the Company receives an advance from a customer, such advance is recorded as a liability to the Company. The Company reduces the liability and recognizes revenue after the delivery of goods occurs.
The core principle underlying ASC 606 is that the Company recognizes revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s sales contracts of activated carbon have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Therefore, the sale of activated carbon is recognized at a point in time. The Company’s sales contracts of biomass electricity have a single performance obligation that represents a promise to transfer to the customer a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. The Company’s performance obligation is satisfied over time as biomass electricity is delivered.
There were no contract assets as of March 31, 2023 and September 30, 2022. For the six months ended March 31, 2023 and 2022, revenue recognized from performance obligations related to prior periods was insignificant. Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant.
Revenue recognition (Continued)
The Company has elected the following practical expedients in applying ASC 606:
| · | Unsatisfied Performance Obligations – for all performance obligations related to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606, and therefore is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. |
|
|
|
| · | Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration. |
|
|
|
| · | Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. |
|
|
|
| · | Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer. |
|
|
|
| · | Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation. |
| F-13 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Refer to Note 20—Segment reporting for details of revenue disaggregation.
Cost of revenue
Cost of revenue includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense, and other overhead. Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenue.
Research and development expenses
Research and development expenses include costs directly attributable to the conduct of research and development projects, including the cost of salaries and other employee benefits. All costs associated with research and development are expensed as incurred.
Shipping and handling
All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $
Government subsidy income
The Company receives various government grants from time to time. There is no guarantee that the Company will continue to receive such grants in the future. For the six months ended March 31, 2023 and 2022, the Company had subsidy income of $
In January 2014, April 2014, and December 2019, the Company received government subsidies of approximately $
Income taxes
CN Energy’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong, respectively. No taxable income was generated outside the PRC for the six months ended March 31, 2023 and 2021. The Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain.
ASC 740-10-25 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. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2023 and September 30, 2022. As of March 31, 2023, the tax returns for the calendar years ended December 31, 2016 through December 31, 2022 for CN Energy’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.
| F-14 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Value added tax (“VAT”)
Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to
Each local tax authority at times may grant tax holidays to local enterprises as a way to encourage entrepreneurship and stimulate local economy. Khingan Forasen and its branch office, Greater Khingan Range Forasen Energy Technology Co., Ltd. Tahe Biopower Plant (“Biopower Plant”), are entitled to
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, term deposit, notes receivable, accounts receivable, advances to suppliers, and other receivables. All of the Company’s cash is maintained with banks within the PRC. Cash maintained in banks within the PRC of less than RMB0.5 million ($
Comprehensive income
Comprehensive income consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under U.S. GAAP are recorded as elements of shareholders’ equity but are excluded from net income. Other comprehensive income (loss) consists of foreign currency translation adjustment from the Company not using U.S. dollar as its functional currency.
Foreign currency translation
The Company’s financial information is presented in U.S. dollars. The functional currency of the Company is the Renminbi (“RMB”), the currency of the PRC. Any transactions denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of income as foreign currency transaction gain or loss. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity.
The exchange rate in effect as of March 31, 2023 and September 30, 2022 was US$
| F-15 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Earnings Per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, Earnings per Share. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is computed by dividing net income attributable to all classes of ordinary shareholders of the Company by the weighted average number of shares of all classes of ordinary shares outstanding during the applicable period, and is the same amount for the Company’s Class A ordinary shares and Class B ordinary shares. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential ordinary shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There was no anti-dilutive effect for the six months ended March 31, 2023 and 2022.
Statement of cash flows
In accordance with ASC 230, Statement of Cash Flows, cash flows from the Company’s operations are formulated based upon the local currencies, and then translated at average translation rates for the periods. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Risks and uncertainties
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, in addition to the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and 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.
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. RMB is not freely convertible into foreign currencies under the current law. In the PRC, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of the PRC. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.
The Company does not carry any business interruption insurance, product liability insurance, or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.
| F-16 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more useful to users of the financial statements. This ASU is effective for annual and interim periods beginning after December 15, 2019 for issuers and December 15, 2020 for non-issuers. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. This ASU adds optional transition relief for entities to elect the fair value option for certain financial assets previously measured at amortized cost basis to increase comparability of similar financial assets. The ASUs should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified retrospective approach). On November 19, 2019, the FASB issued ASU 2019-10 to amend the effective date for ASU 2016-13 to be fiscal years beginning after December 15, 2022 and interim periods therein. The Company will adopt this ASU within the annual reporting period of September 30, 2024 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of operations, cash flows, and disclosures.
| F-17 |
| Table of Contents |
Note 3 – Accounts receivable, net
Accounts receivable consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Trade accounts receivable |
| $ |
|
| $ |
| ||
Less: allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Accounts receivable, net |
| $ |
|
| $ |
| ||
The Company’s accounts receivable primarily include balances due from customers when the Company’s activated carbon products and biomass electricity are sold and delivered to customers.
The movement of allowance for doubtful accounts was as follows:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Balance at beginning of period |
| $ |
|
|
|
| ||
Addition to allowance for doubtful accounts |
|
|
|
|
|
| ||
Translation adjustments |
|
| ( | ) |
|
| ( | ) |
Balance at end of period |
| $ |
|
| $ |
| ||
Note 4 – Inventory
Inventory consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Raw materials |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
Note 5 – Advances to suppliers, net
Advances to suppliers represent prepayments made to ensure continuous high-quality supply and favorable purchase prices. Advances to suppliers consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Advances for raw materials purchase |
| $ |
|
| $ |
| ||
Less: allowance for doubtful accounts |
|
| ( | ) |
|
| ( | ) |
Advances to suppliers, net |
| $ |
|
| $ |
| ||
The movement of allowance for doubtful accounts was as follows:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Balance at beginning of period |
| $ |
|
| $ |
| ||
Addition to allowance for doubtful accounts |
|
|
|
|
|
| ||
Translation adjustments |
|
|
|
|
| ( | ) | |
Balance at end of period |
| $ |
|
| $ |
| ||
| F-18 |
| Table of Contents |
Note 6 – Property, plant, and equipment, net
Property, plant, and equipment, stated at cost less accumulated depreciation, consisted of the following:
March 31, | September 30, | |||||||
2023 | 2022 | |||||||
(unaudited) | ||||||||
Machinery and equipment | $ | $ | ||||||
Property and buildings | ||||||||
Vehicles | ||||||||
Office equipment | ||||||||
Subtotal | ||||||||
Construction in progress | ||||||||
Less: accumulated depreciation | ( | ) | ( | ) | ||||
Property, plant, and equipment, net | $ | $ | ||||||
Depreciation expense was $
Note 7 – Prepayment for property and equipment
As of March 31, 2023, the Company had prepayment in the amount of $
| F-19 |
| Table of Contents |
Note 8 – Land use right, net
Land use right, net consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Land use right |
| $ |
|
| $ |
| ||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Land use right, net |
| $ |
|
| $ |
| ||
Amortization expense was $
Estimated future amortization expense is as follows:
|
| Amortization |
| |
|
| expense |
| |
Reminder of fiscal 2023 |
| $ |
| |
Fiscal 2024 |
|
|
| |
Fiscal 2025 |
|
|
| |
Fiscal 2026 |
|
|
| |
Fiscal 2027 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
| |
Note 9 – Intangible assets, net
Intangible assets, net consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Software |
| $ |
|
| $ |
| ||
Purchased patents |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Intangible assets, net |
| $ |
|
| $ |
| ||
Amortization expenses were $
Estimated future amortization expenses are as follows:
|
| Amortization |
| |
|
| expenses |
| |
Reminder of fiscal 2023 |
| $ |
| |
Fiscal 2024 |
|
|
| |
Fiscal 2025 |
|
|
| |
Fiscal 2026 |
|
|
| |
Fiscal 2027 |
|
|
| |
Thereafter |
|
|
| |
Total |
| $ |
| |
| F-20 |
| Table of Contents |
Note 10 – Long-term deposits
Long-term deposits consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Construction deposit (a) |
| $ |
|
| $ |
| ||
Deposit for acquisition of land use rights (b) |
|
|
|
|
|
| ||
Long-term deposits |
| $ |
|
| $ |
| ||
(a) | On June 25, 2020, the Company entered into a construction agreement with a third party, Manzhouli Lancheng Project Management Co., Ltd., for the first stage of construction of the Company’s new facility in Manzhouli City, China. Pursuant to the agreement, the Company made a payment of RMB |
(b) | The Company paid a deposit of RMB |
Note 11 – Biological assets
Biological assets mainly consist forest for future wood harvest and sales, of which the
Amortization expenses were $
| F-21 |
| Table of Contents |
Note 12 – Acquisition of subsidiaries
Through the acquisition of 100% shares of MZ HK, CN Energy indirectly acquired 100% of the equity interests in Yunnan Honghao. See Note 1 for details.
The allocation of the purchase price as of the date of acquisition is summarized as follows:
|
| For the six |
| |
|
| months ended |
| |
|
| March 31, |
| |
|
| 2023 |
| |
|
| (unaudited) |
| |
Cash |
| $ |
| |
Biological assets |
|
|
| |
Land use rights |
|
|
| |
Total assets |
| $ |
| |
|
|
|
|
|
Other payables |
| $ | ( | ) |
Total liabilities |
| $ | ( | ) |
|
|
|
|
|
Net tangible assets |
| $ |
| |
Goodwill |
|
|
| |
Total fair value of purchase price allocation |
| $ |
| |
|
|
|
|
|
Consideration in the form of shares |
| $ |
| |
Consideration in the form of cash |
|
|
| |
Total consideration |
| $ |
| |
| F-22 |
| Table of Contents |
Note 13 – Short-term and long-term bank loans
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Short-term bank loans |
|
|
|
|
|
| ||
Industrial and Commercial Bank of China (Tahe Branch) |
| $ |
|
| $ |
| ||
China Zheshang Bank Co., Ltd. |
|
|
|
|
|
| ||
Bank of Beijing (Yangzhou Branch) |
|
|
|
|
|
| ||
Pingan Bank Co., Ltd. |
|
|
|
|
|
| ||
Total short-term bank loans |
| $ |
|
| $ |
| ||
Long-term bank loans |
|
|
|
|
| - |
| |
Long-term bank loan, current portion |
|
|
|
|
|
|
|
|
WeBank Co., Ltd. |
|
|
|
| $ |
| ||
Long-term bank loan, non-current portion |
|
|
|
|
|
|
|
|
Xiaoshan Rural Commercial Bank |
| $ |
|
| $ |
| ||
Kincheng Bank Co., Ltd. |
|
|
|
|
|
| ||
Total long-term loans |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Total short-term and long-term loans |
| $ |
|
| $ |
| ||
| F-23 |
| Table of Contents |
Note 13 – Short-term and long-term bank loans
The following table summarizing the loan commencement date, loan maturity date, loan amount in RMB and its equivalent to the United States dollar, and the effective interest rate of each secured and unsecured short-term and long-term bank loan:
|
| Loan |
| Loan |
| Loan |
|
| Loan |
|
| Effective |
|
|
| |||||
|
| commencement |
| maturity |
| amount |
|
| amount |
|
| interest |
|
|
| |||||
As of March 31, 2023 |
| date |
| date |
| in RMB |
|
| in USD |
|
| rate |
|
| Note |
| ||||
Secured short-term bank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial and Commercial Bank of China (Tahe Branch) |
| May 25, 2022 |
| May 25, 2023 |
|
|
|
| $ |
|
|
| % |
|
| 1 |
| |||
Industrial and Commercial Bank of China (Tahe Branch) |
| June 24, 2022 |
| June 24, 2023 |
|
|
|
|
|
|
|
| % |
|
| 2 |
| |||
Bank of Beijing (Yangzhou Branch) |
| December 9, 2022 |
| December 8, 2023 |
|
|
|
|
|
|
|
| % |
|
| 3 |
| |||
China Zheshang Bank Co., Ltd. |
| May 25, 2022 |
| May 23, 2023 |
|
|
|
|
|
|
|
| % |
|
| 4 |
| |||
China Zheshang Bank Co., Ltd. |
| June 1, 2022 |
| May 31, 2023 |
|
|
|
|
|
|
|
| % |
|
| 5 |
| |||
Pingan Bank Co., Ltd. |
| December 7, 2022 |
| December 5, 2023 |
|
|
|
|
|
|
|
| % |
|
| 6 |
| |||
Total secured short-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
Unsecured short-term bank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and Commercial Bank of China (Tahe Branch) |
| December 7, 2022 |
| June 5, 2023 |
|
|
|
|
|
|
|
| % |
|
| 10 |
| |||
Industrial and Commercial Bank of China (Tahe Branch) |
| December 8, 2022 |
| June 6, 2023 |
|
|
|
|
|
|
|
| % |
|
| 10 |
| |||
Total unsecured short-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured long-term bank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loan, non-current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kincheng Bank Co., Ltd. |
| November 30, 2022 |
| December 2, 2024 |
|
|
|
|
|
|
|
| % |
|
| 7 |
| |||
Xiaoshan Rural Commercial Bank |
| July 19, 2022 |
| July 17, 2025 |
|
|
|
|
|
|
|
| % |
|
| 8 |
| |||
Total long-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term and long-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
| F-24 |
| Table of Contents |
Note 13 – Short-term and long-term bank loans
|
| Loan |
| Loan |
| Loan |
|
| Loan |
|
| Effective |
|
|
| |||||
|
| commencement |
| maturity |
| amount |
|
| amount |
|
| interest |
|
|
| |||||
As of September 30, 2022 |
| date |
| date |
| in RMB |
|
| in USD |
|
| rate |
|
| Note |
| ||||
Secured short-term bank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Industrial and Commercial Bank of China (Tahe Branch) |
| May 25, 2022 |
| May 25, 2023 |
|
|
|
| $ |
|
|
| % |
|
| 1 |
| |||
Industrial and Commercial Bank of China (Tahe Branch) |
| June 24, 2022 |
| June 24, 2023 |
|
|
|
|
|
|
|
| % |
|
| 2 |
| |||
Bank of Beijing (Yangzhou Branch) |
| December 21, 2021 |
| December 20, 2022 |
|
|
|
|
|
|
|
| % |
|
| 3 |
| |||
China Zheshang Bank Co., Ltd. |
| May 25, 2022 |
| May 23, 2023 |
|
|
|
|
|
|
|
| % |
|
| 4 |
| |||
China Zheshang Bank Co., Ltd. |
| June 1, 2022 |
| May 31, 2023 |
|
|
|
|
|
|
|
| % |
|
| 5 |
| |||
Total secured short-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured short-term bank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and Commercial Bank of China (Tahe Branch) |
| December 14, 2021 |
| December 9, 2022 |
|
|
|
| $ |
|
|
| % |
|
|
|
| |||
Industrial and Commercial Bank of China (Tahe Branch) |
| December 15, 2021 |
| December 10, 2022 |
|
|
|
|
|
|
|
| % |
|
|
|
| |||
Total unsecured short-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured long-term bank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank loan, current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WeBank Co., Ltd. |
| October 9, 2020 |
| October 9, 2022 |
|
|
|
| $ |
|
|
| % |
|
| 9 |
| |||
Long-term bank loan, non-current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xiaoshan Rural Commercial Bank |
| July 19, 2022 |
| July 17, 2025 |
|
|
|
|
|
|
|
| % |
|
| 8 |
| |||
Total long-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term and long-term bank loans |
|
|
|
|
|
|
|
| $ |
|
|
|
|
|
|
|
|
| ||
(1) | The loan is guaranteed by a third party, Heilongjiang Xinzheng Financing Guarantee Group Co., Ltd., for up to |
(2) | The loan is guaranteed by a third party, Heilongjiang Xinzheng Financing Guarantee Group Co., Ltd., for up to |
(3) | The loan is guaranteed by a third party, Yangzhou High Tech Financing Guarantee Co., Ltd, Ms. Yefang Zhang, principal shareholder, and Mr. Zhengyu Wang, former CEO and spouse of principal shareholder, for up to |
(4) | The loan is collateralized by a property owned by a third party, Sigma Holdings (Hangzhou) Co., Ltd, which has a valuation of RMB |
(5) | This loan is guaranteed by, Ms. Yefang Zhang, a principal shareholder, and by a subsidiary of CN Energy, CN Energy Development. Subsequent to March 31, 2023, the loan was fully repaid. |
(6) | The loan is guaranteed by a director of CN Energy for up to RMB |
(7) | The loan is guaranteed by a director of CN Energy for up to RMB |
(8) | The loan is guaranteed by a subsidiary of CN Energy, CN Energy Development. |
(9) | This line of credit agreement with WeBank Co., Ltd is unconditionally guaranteed by the legal representative of Hangzhou Forasen for a maximum amount of RMB |
(10) | Subsequent to March 31, 2023, the maturity of this loan was renewed to November 22, 2023. |
| F-25 |
| Table of Contents |
Note 14 – Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Payroll payable |
| $ |
|
| $ |
| ||
Other current liabilities |
|
|
|
|
|
| ||
Interest payable |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
| $ |
|
| $ |
| ||
Note 15 – Related party transactions
The relationship and the nature of related party transactions are summarized as follows:
Name of related party | Relationship to the Company | Nature of transactions |
Yefang Zhang | Principal shareholder | Provide a guarantee as an additional security for bank loan |
Zhengyu Wang | Former CEO, spouse of Ms. Yefang Zhang | Provide a guarantee as an additional security for bank loan |
Hangzhou Forasen Energy Technology Co., Ltd. | Controlled by Mr. Zhengyu Wang, spouse of Ms. Yefang Zhang | Lease of office space to the Company |
Feng Zhou | Legal representative of Hangzhou Forasen | Provide a guarantee as an additional security for bank loan |
Wenhua Liu | A director of CN Energy | Provide personal guarantee as an additional security for bank loan |
Due from a related party
As of March 31, 2023 and September 30, 2022, amount due from Yefang Zhang was nil and $
Due to a related party
As of March 31, 2023 and September 30, 2022, the Company owed Yefang Zhang $
Operating lease from related parties
On October 8, 2021, Zhejiang New Material entered into a lease agreement with Zhejiang Forasen Energy Technology Co., Ltd., a PRC company controlled by Mr. Zhengyu Wang, to lease approximately
Guarantees provided by related parties
The Company’s related parties provide guarantees for the Company’s short-term and long-term bank loans (see Note 13).
| F-26 |
| Table of Contents |
Note 16 – Taxes
Corporation Income Tax (“CIT”)
The Company is subject to income taxes on an entity basis on income derived from the location in which each entity is domiciled.
CN Energy is incorporated in the British Virgin Islands as an offshore holding company and is not subject to tax on income or capital gain under the laws of the British Virgin Islands.
Energy Holdings is incorporated in Hong Kong as a holding company with no activities. Under the Hong Kong tax laws, an entity is not subject to income tax if no revenue is generated in Hong Kong.
Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified
The impact of the reduced tax rate noted above decreased the Company’s income taxes by nil and $
The following table reconciles the statutory rate to the Company’s effective tax rate:
|
| For the six months ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
China Statutory income tax rate |
|
| % |
|
| % | ||
Effect of PRC preferential tax rate and tax exemption |
|
| % |
| ( | )% | ||
Research and development (“R&D”) tax credit |
|
| % |
| ( | )% | ||
Effect of non-taxable government subsidy income |
|
| % |
| ( | )% | ||
Non-PRC entities not subject to PRC tax |
| ( | )% |
|
| % | ||
Change in valuation allowance |
|
| % |
| ( | )% | ||
Others |
| ( | )% |
|
| % | ||
Effective tax rate |
|
| % |
|
| % | ||
The provision for income tax consisted of the following:
|
| For the six months ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Current income tax provision |
| $ |
|
| $ |
| ||
Deferred income tax provision |
|
|
|
|
| ( | ) | |
Income tax provision |
| $ |
|
| $ |
| ||
| F-27 |
| Table of Contents |
Note 17 – Concentration of major customers and suppliers
For the six months ended March 31, 2023, two major customers accounted for approximately
As of March 31, 2023, five major customers accounted for
For the six months ended March 31, 2023, three major suppliers accounted for approximately
As of March 31, 2023, five suppliers accounted for approximately
| F-28 |
| Table of Contents |
Note 18 – Leases
On July 1, 2020, Biopower Plant entered into a lease agreement with Tahe Forestry Bureau (the “Landlord”) to lease the manufacturing facility. The lease period is from July 1, 2020 to March 31, 2025, and the annual rent is RMB
On October 8, 2021, Zhejiang New Material entered into a lease agreement with Hangzhou Forasen Energy Technology Co., Ltd., a PRC company controlled by Mr. Zhengyu Wang, spouse of Ms. Yefang Zhang, to lease approximately
On February 15, 2022, Hangzhou Forasen entered into a lease agreement with a third party to lease approximately
As of March 31, 2023 and September 30, 2022, the remaining average lease term was an average of
Supplemental balance sheet information related to operating leases was as follows:
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
| |||
Right-of-use assets under operating leases |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current |
|
|
|
|
|
| ||
Operating lease liabilities, non-current |
|
|
|
|
|
| ||
Total operating lease liabilities |
| $ |
|
| $ |
| ||
|
| As of |
| |
|
| March 31, |
| |
|
| 2023 |
| |
|
| (unaudited) |
| |
Reminder of fiscal 2023 |
| $ |
| |
Fiscal 2024 |
|
|
| |
Total Future minimum lease payments |
|
|
| |
Less: Imputed interest |
|
| ( | ) |
Total |
| $ |
| |
| F-29 |
| Table of Contents |
Note 19 – Commitments and contingencies
The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Biopower Plant has not paid adequate social insurance for all its employees, and CN Energy’s PRC subsidiaries have not made adequate housing provident fund payments for all their employees. The relevant PRC authorities may order the Company to make up the contributions to these plans. In addition, failure to make adequate social insurance payments on time may subject the Company to
Note 20 – Segment reporting
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments, and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker makes operating decisions and assesses performance solely based on activated carbon sales orders received. In addition, the production of activated carbon and the biomass electricity are one integrated process and inseparable. Therefore, the Company has determined that it has only one operating segment and therefore one reportable segment as defined by ASC.
The following table presents revenue by major product categories for the six months ended March 31, 2023 and 2022, respectively:
|
| For the six months ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Activated carbon |
| $ |
|
| $ |
| ||
Biomass electricity |
|
|
|
|
|
| ||
Technical service |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
All of the Company’s long-lived assets are located in the PRC. All of the Company’s products are sold in the PRC.
| F-30 |
| Table of Contents |
Note 21 – Shareholders’ equity
Ordinary shares
CN Energy is a holding company established under the laws of the British Virgin Islands on November 23, 2018. The original authorized and issued number of ordinary shares was
Share re-designation
In July 2022, the shareholders of CN Energy adopted a resolution to authorize the re-designation of CN Energy’s shares
(a) | from (i) an unlimited number of ordinary shares of no par value and an unlimited number of convertible preferred shares of no par value to (ii) an unlimited number of Class A ordinary shares of no par value and an unlimited number of Class B ordinary shares of no par value; and |
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(b) | the issued shares in CN Energy were re-designated and re-classified into Class A or Class B ordinary shares of no par value on a one for one basis, each with the rights and privileges as set forth in the Third Amended and Restated Memorandum and Articles of Association of CN Energy. |
Each holder of Class A ordinary shares is entitled to one vote per one Class A ordinary share and each holder of Class B ordinary shares is entitled to 50 votes per one Class B ordinary share. The Class A ordinary shares are not convertible into shares of any other class. The Class B ordinary shares are convertible into Class A ordinary shares at any time after issuance at the option of the holder on a one-to-one basis.
The Company believes the re-designation should be accounted for on a retroactive basis pursuant to ASC 260. The Company has retroactively restated all shares and per share data for all periods presented. As a result, there were
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Private placements
On September 27, 2022, CN Energy entered into a series of subscription agreements (collectively, the “2022 Subscription Agreements”) with 15 purchasers, each an unrelated third party to the Company (collectively, the “2022 Purchasers”). Pursuant to the 2022 Subscription Agreements, the 2022 Purchasers agreed to subscribe for and purchase, and CN Energy agreed to issue and sell to the 2022 Purchasers, an aggregate of
Issuance of ordinary shares for acquisition
On November 11, 2022, CN Energy completed an acquisition of MZ HK, a Hong Kong company that wholly owns MZ Pintai, which is a Chinese company that wholly owns Yunnan Yuemu, pursuant to the Equity Transfer Agreement dated September 30, 2022 with the Seller. The Seller is independent from all directors and officers of CN Energy, and the Company itself. Pursuant to the Equity Transfer Agreement, the Seller first transferred 100% of its equity interests in Yunnan Honghao, a wholly owned subsidiary of the Seller, to Yunnan Yuemu, and the Seller then sold and transferred, and CN Energy purchased and acquired, 100% of its equity interests in MZ HK for a consideration of $
Through the acquisition of
Public offering, warrants, and pre-funded warrants
On January 30, 2023, CN Energy entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp. (the “Underwriter”), pursuant to which CN Energy agreed to sell to the Underwriter in a firm commitment public offering (the “Offering”) (i) 10,396,974 units, each consisting of one Class A ordinary share, no par value (collectively, the “Class A ordinary shares”) and one warrant, each exercisable to purchase one Class A ordinary share at an exercise price of $0.55 per share (collectively, the “warrants”), at an offering price of $0.55 per unit; and (ii) 7,786,300 units, each consisting of one pre-funded warrant, each exercisable to purchase one Class A ordinary share at an exercise price of $0.0001 per share (collectively, the “Pre-funded Warrants”), and one warrant, at an offering price of $0.5499 per unit (together with the Class A ordinary shares and the warrants, the “Offered Securities”), to those purchasers whose purchase of Class A ordinary shares in the Offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of CN Energy’s outstanding ordinary shares immediately following the consummation of the Offering. The components of the units were issued separately and are immediately separable upon issuance. The Company received approximately $7.8 million in net proceeds from the Offering, after deducting underwriting discounts and other related offering expenses. In connection with the Offering, 10,396,974 Class A ordinary shares were issued and
The Pre-funded Warrants are exercisable immediately (subject to the beneficial ownership cap) and may be exercised at any time in perpetuity until all of the Pre-funded Warrants are exercised in full. The warrants are exercisable immediately and expire five years, i.e. January 29, 2028, after their issuance date on January 30, 2023.
Services agreement with AA Cornerstone Inc
On March 7, 2023, the board of directors of CN Energy approved the entry of a services agreement (the “Agreement”) with AA Cornerstone Inc (the “Consultant”), pursuant to which the Consultant agreed to provide to the Company certain consulting services in the areas of strategic advisory, sponsored editorial content, and digital marketing, from March 1, 2023 to May 30, 2023 (the “Services”). As consideration for such Services, on March 13, 2023, CN Energy issued
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Note 21 – Shareholders’ equity (Continued)
Statutory reserves and restricted net assets
CN Energy’s ability to pay dividends primarily depends on CN Energy receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by CN Energy’s subsidiaries incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of CN Energy’s subsidiaries.
CN Energy’s PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. CN Energy’s PRC subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves, together with paid in capital of CN Energy’s PRC subsidiaries, are not distributable as cash dividends. As of March 31, 2023 and September 30, 2022, the balance of the required statutory reserves was $
Note 22 – Subsequent events
Management has reviewed events occurring through the date the financial statements were issued and, except as disclosed elsewhere in the financial statements, no subsequent events occurred that require accrual or disclosure.
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EXHIBIT 99.2
CN Energy Group. Inc. Files Financial Results for the First Six Months of Fiscal Year 2023
LISHUI, China, August 28, 2023 /PRNewswire/ -- CN Energy Group. Inc. (Nasdaq: CNEY) (the “Company”), a high-tech enterprise specializing in cogeneration of high-quality wood-activated carbon and clean energy, today filed its unaudited financial statements for the six months ended March 31, 2023. The Company reported $22.67 million in revenue for the first six months of fiscal year 2023, an increase of 66.1% as compared to the first six months of fiscal year 2022. The increase was mainly due to an increase in sales volume of activated carbon during the first half of fiscal year 2023. The Company’s net loss was $4.17 million, resulting in a loss per share of $0.09 in the first six months of fiscal year 2023, as compared to earnings per share of $0.05 in the first six months of fiscal year 2022. The decrease was mainly due to an increase in the cost of research and development and expenses related to the development of new customers. The Company’s expenditure on research and development increased by 69.5% from approximately $0.34 million in the first six months of fiscal year 2022 to approximately $0.58 million in the first six months of fiscal year 2023. Meanwhile, total assets grew by 44.4% from approximately $94.94 million as of March 31, 2022 to approximately $137.17 million as of March 31, 2023.
The Company expanded its customer base beyond pharmaceutical and food industries and into sewage treatment and gas treatment in municipal solid waste incineration power plants. These two new customer segments resulted in an increase of 3,772 tons in sales volume for the six-month period ended March 31, 2023,representing additional sales revenue of approximately $6.04 million.
The Company revamped its marketing strategy by expanding sales channels into diversified subdivided sectors with 19 customers, which are expected to increase to 22 customers by the end of fiscal year 2023. Additionally, the Company expanded the activated carbon business with 10,323 tons in new customer sales for the six months ended March 31, 2023, with sales revenue totaling approximately $14.75 million.
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Management Commentary
Ms. Xinyang Wang, Chairwoman of the Board of the Company, said, “The adjustment in our marketing strategy has enabled us to expand our sales channels while concurrently developing additional customers and diversifying our customer base to reduce economic risk. In the next stage of our business development, we plan to further consolidate operations in our existing markets and strengthen the development of our international business.”
About CN Energy Group. Inc.
With patented proprietary bioengineering and physiochemical technologies, the Company has pioneered and specialized in producing high-quality recyclable activated carbon and renewable energy from abandoned forest and agricultural residues, converting harmful wastes into a valuable product and delivering significant financial, economic, environmental, and ecological benefits. The Company’s products and services have been widely used by food and beverage producers, industrial and pharmaceutical manufacturers, as well as environmental protection enterprises. For more information, please visit the Company's website at www.cneny.com
Forward-Looking Statements
Certain statements, other than statements of historical facts, made in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties, including the further spread of the COVID-19 virus or new variants thereof, or the occurrence of another wave of cases and the impact it may have on the Company's operations and the demand for the Company's products, and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial conditions, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to refer to its filings with SEC, including without limitation, Company's registration statements and other filings with the SEC that set forth certain risks and uncertainties that may have an impact on future results and directions of the Company.
Investor Relations Contact:
TraDigital IR
Kevin McGrath
+1-646-418-7002
kevin@tradigitalir.com
SOURCE: CN Energy Group. Inc.
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