Cn Energy Group. Inc 20-F for FY2025
Cn Energy Group. Inc. (CNEY)
About this 20-F
Cn Energy Group. Inc filed this 20-F on January 30, 2026, covering the fiscal year ended September 30, 2025 (FY2025).
Headline figures
Fiscal year ended September 30, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $35.57M
- down 30.2% from $50.96M a year earlier
- Net loss
- $11.14M
- compared with a net loss of $14.04M a year earlier
- Diluted EPS
- -$21.46
- compared with -$103.27 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For the fiscal year ended
OR
OR
Date of event requiring this shell company report
For the transition period from to
Commission file number:
(Exact name of Registrant as specified in its charter) |
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
The People’s Republic of
Telephone: + 86‑
Email:
At the address of the Company set forth above
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
|
| The |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
An aggregate of
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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.
* | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
* | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐ |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes
TABLE OF CONTENTS
| 2 |
| ||
|
|
|
| |
| 6 |
| ||
|
|
|
|
|
| 6 |
| ||
|
|
|
|
|
| 6 |
| ||
|
|
|
|
|
| 6 |
| ||
|
|
|
|
|
| 42 |
| ||
|
|
|
|
|
| 66 |
| ||
|
|
|
|
|
| 67 |
| ||
|
|
|
|
|
| 83 |
| ||
|
|
|
|
|
| 90 |
| ||
|
|
|
|
|
| 92 |
| ||
|
|
|
|
|
| 92 |
| ||
|
|
|
|
|
| 93 |
| ||
|
|
|
|
|
| 99 |
| ||
|
|
|
|
|
| 100 |
| ||
|
|
|
| |
| 101 |
| ||
|
|
|
|
|
| 101 |
| ||
|
|
|
|
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
| 101 |
| |
|
|
|
|
|
| 101 |
| ||
|
|
|
|
|
| 102 |
| ||
|
|
|
|
|
| 102 |
| ||
|
|
|
|
|
| 102 |
| ||
|
|
|
|
|
| 103 |
| ||
|
|
|
|
|
| 103 |
| ||
|
|
|
|
|
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
| 103 |
| |
|
|
|
|
|
| 103 |
| ||
|
|
|
|
|
| 103 |
| ||
|
|
|
|
|
| 104 |
| ||
|
|
|
|
|
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
| 104 |
| |
|
|
|
|
|
| 104 |
| ||
|
|
|
|
|
| 104 |
| ||
|
|
|
| |
| 105 |
| ||
|
|
|
|
|
| 105 |
| ||
|
|
|
|
|
| 105 |
| ||
|
|
|
|
|
| 105 |
| ||
| 2 |
| Table of Contents |
INTRODUCTION
In this annual report on Form 20‑F, unless the context otherwise requires, references to:
| · | “China” or the “PRC” means the People’s Republic of China; |
|
|
|
| · | “Class A ordinary shares” mean the Class A ordinary shares, no par value, of CN Energy (as defined below); |
|
|
|
| · | “Class B ordinary shares” mean the Class B ordinary shares, no par value, of CN Energy. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. In respect of matters requiring a vote of all shareholders, each holder of Class A ordinary shares will be entitled to one vote per one Class A ordinary share and each holder of Class B ordinary shares will be 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; |
|
|
|
| · | “CN Energy,” “we,” “us,” “our,” “our Company,” and the “Company” means CN ENERGY GROUP. INC. (also referred to as 中北能源集团有限公司 in Chinese), a business company limited by shares incorporated under the laws of British Virgin Islands; |
|
|
|
| · | “CN Energy Development” means CN Energy Industrial Development Co., Ltd. (also referred to as 中北能源产业发展有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which was previously jointly owned by Zhejiang CN Energy and Manzhouli CN Technology (as defined below). On September 25, 2024, all of the equity interests in CN Energy Development were transferred to Shanghai Xinbaocheng Industrial Group Co., Ltd.; |
|
|
|
| · | “CN Energy USA” means CN Energy USA Inc., a Delaware corporation, which is wholly owned by CN Energy; |
|
|
|
| · | “Energy Holdings” means CLEAN ENERGY HOLDINGS LIMITED (also referred to as 全球清洁能源控股有限公司 in Chinese), a Hong Kong corporation, which was previously wholly owned by CN Energy. On January 20, 2025, all of the equity interests in Energy Holdings were transferred to Asia Rubber Resources Limited; |
|
|
|
| · | “Ewforest” means Ewforest Group Limited, a company incorporated in Hong Kong, which is wholly owned by CN Energy; |
|
|
|
| · | “Exchange Act” means the Securities Exchange Act of 1934, as amended; |
|
|
|
| · | “Hangzhou Forasen” means Hangzhou Forasen Technology Co., Ltd. (also referred to as 杭州富来森科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which was previously wholly owned by CN Energy Development. On September 12, 2024, all of the equity interests in Hangzhou Forasen were transferred to Zhejiang Sentuo Industrial Holding Group., Ltd; |
|
|
|
| · | “Khingan Forasen” means Greater Khingan Range Forasen Energy Technology Co., Ltd. (also referred to as 大兴安岭富来森能源科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by CN Energy Development; |
|
|
|
| · | “Manzhouli CN Energy” means Manzhouli CN Energy Industrial Co., Ltd. (also referred to as 满洲里市中北能实业有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Energy Holdings; |
|
|
|
| · | “Manzhouli CN Technology” means Manzhouli CN Energy Technology Co., Ltd. (also referred to as 满洲里市中北能科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is jointly owned by Zhejiang CN Energy (as defined below) and Manzhouli CN Energy and indirectly wholly owned by Energy Holdings; |
|
|
|
| · | “MZ HK” means MZ Mining International Co., Ltd, a Hong Kong company acquired by the Company on November 11, 2022; |
|
|
|
| · | “MZ Pintai” means MZ Pintai Mining (Zhejiang) Co., Ltd (also referred to as 美中品泰矿业（浙江）有限公司 in Chinese), a company incorporated under the laws of the PRC which is wholly owned by MZ HK; |
|
|
|
| · | “Ningbo Nadoutong” means Ningbo Nadoutong Trading Co., Ltd. (also referred to as 宁波哪都通贸易有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which was previously wholly owned by Zhejiang New Material and has been deregistered; |
|
|
|
| · | “operating entities” means Zhejiang New Material and its subsidiaries; |
|
|
|
| · | “Pathenbot” means Pathenbot Group Inc, a California corporation, which is wholly owned by CN Energy USA; |
|
|
|
| · | “PGIF” means PT Grand Indonesia Forestmates, an Indonesian entity, of which 90% of the equity interest is owned by Ynong; |
|
|
|
| · | “PWAN” means PT Wana Arga Nusantara, an Indonesian entity, of which 90% of the equity interest is owned by PGIF; |
|
|
|
| · | “RMB” or “Renminbi” means the legal currency of China; |
| 3 |
| Table of Contents |
| · | “SEC” means the U.S. Securities and Exchange Commission; |
|
|
|
| · | “Securities Act” means the Securities Act of 1933, as amended; |
|
|
|
| · | “Tanmulai” means Hangzhou Tanmulai Xin Activated Carbon Co., Ltd, a company incorporated in the PRC with limited liability, which is wholly owned by Zhejiang New Material; |
|
|
|
| · | “Ynong” means Ynong International Group Limited, a Hong Kong company, in which Ewforest acquired a 45% equity interest on March 31, 2025; |
|
|
|
| · | “Yunnan Honghao” means Yunnan Honghao Forestry Development Co., Ltd. (also referred to as 云南宏灏林业发展有限公司 in Chinese), a company incorporated in the PRC with limited liability, which was previously wholly owned by Yunnan Yuemu (as defined below); |
|
|
|
| · | “Yunnan Yuemu” means Yunnan Yuemu Agriculture and Forestry Technology Co., Ltd (also referred to as 云南岳沐农林科技有限公司 in Chinese), a company incorporated in the PRC and wholly owned by MZ Pintai; |
|
|
|
| · | “Zhejiang CN Energy” means Zhejiang CN Energy Technology Development Co., Ltd. (also referred to as 浙江中北能源科技开发有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Energy Holdings; |
|
|
|
| · | “Zhejiang New Material” means Zhejiang CN Energy New Material Co., Ltd. (also referred to as 浙江中北能新材料有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Meizhong Pintai Mining (Zhejiang) Co. Ltd; |
|
|
|
| · | “Zhejiang Yongfeng New Material” means Zhejiang Yongfeng New Material Technology Co., Ltd. (also refers to as 浙江咏丰新材料科技有限公司 in Chinese), a company with limited liability organized under the PRC, which was previously wholly owned by Hangzhou Forasen; |
|
|
|
| · | “Zhongxing Energy” means Manzhouli Zhongxing Energy Technology Co., Ltd. (also referred to as 满洲里市众兴能源科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by CN Energy Development; and |
|
|
|
| · | “Zhoushan Xinyue” means Zhoushan Xinyue Trading Co., Ltd. (also referred to as 舟山信跃贸易有限公司in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Zhejiang New Material. |
This annual report on Form 20‑F includes our audited consolidated financial statements for the fiscal years ended September 30, 2025, 2024, and 2023. In this annual report, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations and the value of our assets.
This annual report contains translations of certain RMB amounts into U.S. dollars at specified rates. Unless otherwise stated, the following exchange rates are used in this annual report:
|
| September 30, | ||||
US$ Exchange Rate |
| 2025 |
| 2024 |
| 2023 |
At the end of the year – RMB |
| RMB7.1190 to $1 |
| RMB7.0176 to $1 |
| RMB7.2960 to $1 |
Average rate for the year - RMB |
| RMB7.2125 to $1 |
| RMB7.2043 to $1 |
| RMB7.0533 to $1 |
| 4 |
| Table of Contents |
FORWARD LOOKING STATEMENT
This annual report contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements are made under the “safe harbor” provision under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. All statements other than statements of historical fact in this annual report constitute forward-looking statements. We have used words or phrases such as “may,” “would,” “will,” “expect,” “anticipate,” “intend,” “seek,” “estimate,” “plan,” “believe,” “is/are likely to” or other similar expressions in this annual report to identify some of these forward-looking statements. These forward-looking statements, including, among others, those relating to our future business prospects, product development, revenues, profits, costs, capital expenditures, cash flows and working capital, are necessarily estimates reflecting the best judgment of directors and management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. As a consequence, these forward-looking statements should be considered in light of various important factors, including those set forth in this annual report.
These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this annual report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this annual report include, but are not limited to, statements about:
| ● | our future business development, financial condition and results of operations; |
| ● | the expected growth of the sectors that we operate in; |
| ● | our expectations regarding demand for and market acceptance of our products and services; |
| ● | competition in our industries; |
| ● | our mission, goals and strategies; |
| ● | our proposed use of proceeds; and |
| ● | relevant government policies and regulations relating to our industries. |
You should read this annual report, including the risk factors disclosed in “Item 3. Key Information-D. Risk Factors” and the documents that we refer to in this annual report thoroughly and with the understanding that our actual future results may be materially different from and worse than what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
Market data and certain industry forecasts used in this annual report were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and we make no representation as to the accuracy of such information.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to the registration statement, of which this annual report is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
| 5 |
| Table of Contents |
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Item 3. KEY INFORMATION
We are incorporated in the British Virgin Islands and conduct our operations primarily in China. As a holding company with no material operations of our own, our operations are mainly conducted in China through the operating entities. Our ordinary shares are shares of CN Energy, the offshore holding company in the British Virgin Islands, instead of shares of our operating companies in China. Therefore, our shareholders will not directly hold any equity interests in our operating companies.
Wholly owned subsidiaries of MZ HK include MZ Pintai, Yunnan Yuemu, and Zhejiang New Material and its subsidiaries, all of which were incorporated as companies with limited liabilities in pursuant to PRC laws. MZ HK is a holding company with no business operation; MZ Pintai is engaged in sales of minerals, stone, metal materials, construction materials, wood, chemical materials and products, rubber products, and paper products; Yunnan Yuemu is engaged in management and conversion of forest and natural ecosystem; and Zhejiang New Material and its subsidiaries are engaged in manufacturing and supplying wood-based activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production.
| 6 |
| Table of Contents |
We also operate our intelligent robotics and automation business through our wholly owned subsidiary, PATHENBOT Group Inc. (“PATHENBOT”). PATHENBOT develops and provides customizable robotics products, automation tools, and related software solutions for small and medium-sized industrial, logistics, and service businesses in North America.
The following diagram illustrates our corporate structure as of the date of this annual report.
| 7 |
| Table of Contents |
Recent Developments
Proposed Acquisition of a Canadian oil trading company
On January 25, 2026, the Company entered into a framework agreement (the "Framework Agreement") with the shareholders of Blessing Logistics Ltd. ("Blessing Logistics"), an oil trading company incorporated in Alberta, Canada, regarding a potential acquisition transaction.
Pursuant to the Framework Agreement, the parties have agreed to negotiate in good faith toward a definitive share purchase agreement to which CNEY would acquire approximately 82% of the equity interests in Blessing Logistics, representing equity with voting rights, in consideration for the issuance of the Company's Class A ordinary shares. The aggregate value of consideration is currently expected to be approximately US$2.0 million, based on assumptions to be agreed by the parties, and is subject to change based on, among other things, due diligence results, final valuation, market conditions, and the terms of the definitive agreement. If the parties do not enter into a definitive share purchase agreement within 60 days following the execution date of the Framework Agreement, either party may terminate the Framework Agreement upon written notice.
Note purchase with Streeterville
On January 16, 2026, the Company entered into a Note Purchase Agreement with Streeterville Capital, LLC, an institutional investor (“Streeterville”), pursuant to which Streeterville purchased from the Company a secured promissory note in the principal amount of $7,510,000.00 (the “Note”), which included an original issue discount of $490,000.00 and reimbursement of Streeterville’s transaction expenses of $20,000, for gross proceeds to the Company of $7,000,000.
The Note bears interest at a rate of 7% per annum, was issued on January 16, 2026 and matures 24 months after its Issuance Date. The Note is secured by a collateral package that includes (i) a pledge of equity interests and (ii) cash collateral maintained by CNEY Holdings, LLC, a wholly owned subsidiary of the Company.
Class B Ordinary Shares Voting Agreement
On September 16, 2025, Weastfinace and Ms. Yefang Zhang, both holders of Class B Ordinary Shares, entered into a Voting Agreement. Pursuant to the Voting Agreement, Weastfinace granted Ms. Zhang an irrevocable proxy to vote 631,391 Class B Ordinary Shares owned by Weastfinace. As a result, Ms. Zhang controls approximately 86.4% of the aggregate voting power of our issued and outstanding Ordinary Shares. The Company, as a limited-purpose signatory, agreed to certain obligations and acknowledged the grant of the irrevocable proxy. See “Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS - Material Transactions with Related Parties - Voting Agreement with Weastfinace Group Inc.”
Transaction with Class A Investors
On August 1, 2025, we entered into a securities purchase agreement (the “Class A Purchase Agreement”) with certain investors (the “Class A Investors”). Pursuant to the Class A Purchase Agreement, we sold an aggregate of 1,977,302 Class A Ordinary Shares, no par value, at a purchase price of $2.30 per share, for aggregate gross proceeds of approximately $4,547,800. The offering was conducted as a private placement pursuant to Section 4(a)(2), Regulation D and/or Regulation S under the Securities Act of 1933, as amended. The purchase price was paid in immediately available funds, and the shares were issued in restricted book-entry form through the Company’s transfer agent at closing.
Transaction with Weastfinace
On August 1, 2025, we also entered into a securities purchase agreement (the “ Weastfinace Purchase Agreement ”) with Weastfinace Group Inc. (“Weastfinace”), an entity controlled by one of our directors. Pursuant to the Weastfinace Purchase Agreement, we issued 631,391 Class B Ordinary Shares, no par value, at a purchase price of $2.30 per share, for aggregate gross proceeds of approximately $1,452,200. The transaction was conducted as a private placement pursuant to Section 4(a)(2), Regulation D and/or Regulation S under the Securities Act of 1933, as amended. The shares were issued in restricted book-entry form through the Company’s transfer agent at closing.
Transactions with Streeterville
On April 4, 2025, the Company, entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, (the “Investor”). Pursuant to the Purchase Agreement, the Investor agreed to purchase from the Company, and the Company agreed to issue and sell to the Investor, securities in the form of one or more pre-paid purchases (the “Pre-Paid Purchases”) with an aggregate purchase amount of up to $20,000,000, for the purchase (the “Purchase Shares”) of Class A ordinary shares of the Company, upon the terms and subject to the limitations and conditions set forth in such Pre-Paid Purchase.
Upon the initial closing under the Purchase Agreement, on April 8, 2025, the Company issued to the Investor an initial Pre-Paid Purchase in the principal amount of $3,230,000, with an original issue discount (the “OID”) of $210,000 and a transaction expense amount of $20,000 (the “Initial Pre-Paid Purchase”). The OID for each subsequent Pre-Paid Purchase after the Initial Pre-Paid Purchase will be seven percent (7%) of the amount set forth in the applicable Request (as defined in the Purchase Agreement) and each subsequent Pre-Paid Purchase will accrue interest at the annual rate of seven percent (7%). Additionally, the Company issued 1,597,444 Class A ordinary shares to the Investor as a commitment fee.
Pursuant to the Purchase Agreement and a registration rights agreement entered into between the Company and the Investor, the Company agreed to file a registration statement with the Securities and Exchange Commission within 45 days from the initial closing, for registration of the resale of the Commitment Shares, Purchase Shares, and any other Class A ordinary shares issuable pursuant to the Purchase Agreement.
| 8 |
| Table of Contents |
On June 18, 2025, the Company entered into a certain amendment (the “Amendment”) to the Purchase Agreement in accordance with the terms of the Purchase Agreement. Pursuant to the Amendment, the Company and the Investor agreed to amend and restate that (i) Section 11 of the Purchase Agreement shall not apply to floor prices; (ii) the definition of “Floor Price” means $0.626; (iii) the filing deadline of the registration statement on Form F-3 (the “Registration Statement”) is June 30, 2025; and (iv) the effectiveness period of the Registration Statement is extended from 90 days to 115 days.
Warrant Inducement
On December 5, 2024, we entered into Warrant Inducement Agreements (the “Warrant Inducement Agreement”) with certain holders of the Company's existing ordinary share purchase warrants issued in January 2023 (the “Existing Warrants”), covering up to an aggregate of 263,051 Class A Ordinary Shares of the Company, pursuant to which (i) the exercise price of the Existing Warrants will be reduced from $36.3225 per share to $8.00 per share (the “Reduced Exercise Price”) to the extent exercised by each holder, and (ii) in exchange for each holder’s cash payment of the Reduced Exercise Price of the Existing Warrants in part or whole, the Company will issue new unregistered ordinary share purchase warrants (the “New Warrants”), to incentivize the holders to exercise the Existing Warrants in cash. The holders had until January 5, 2025 (the “Termination Date”) to exercise such Existing Warrants at the Reduced Exercise Price and receive New Warrants. The Company also agreed to file a registration statement covering the resale of the Class A Ordinary Shares issued or issuable upon the exercise of the New Warrants.
On January 7, 2025, the Company and the holders entered into the extension letter (the “Extension Letter”) to extend the Termination Date for the Holders to exercise such Existing Warrants and receive New Warrants from January 5, 2025, to February 7, 2025.
Appointment of New Director
On December 3, 2024, Jian Chen notified the Company that she resigned as the Chairperson of the Audit Committee of the board of directors of the Company, effective December 3, 2024. Ms. Chen’s decision to resign as the Chairperson was not the result of any disagreement with the Company on any matters relating to the Company’s operations, accounting policies or practices. Ms. Chen will remain as an independent director on the Board.
On December 12, 2024, the Board approved the nomination of Mr. Ming Yi as an independent director on the Board and the Chairperson of the Audit Committee.
Unsecured Promissory Note Issuance
On October 10, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC (the “Investor”), pursuant to which the Company issued to the Investor an unsecured promissory note, on October 10, 2024, in the principal amount of $3,149,750 (the “Note”), convertible into Class A ordinary shares, no par value, of the Company, for a purchase price of $2,925,000. The Note bears interest at a rate of 7% per annum. All outstanding principal and accrued interest on the Note will become due and payable twelve months after the purchase price of the Note is delivered by the Investor to the Company. The Note includes an original issue discount of $204,750.00 along with $20,000.00 for the Investor’s legal fees, accounting costs, due diligence, monitoring, and other transaction costs incurred in connection with the purchase and sale of the Note. The Company may prepay all or a portion of the Note at any time by paying 105% of the outstanding principal balance elected for pre-payment. The Note contains a floor price of $0.10412 for the possible future conversions into Class A Ordinary Shares.
Nasdaq Deficiency
On May 28, 2024, we received a deficiency notice from Nasdaq notifying us that, for the last 30 consecutive business days, the closing bid price for our Class A Ordinary Shares had been below the minimum of $1.00 per share and did not meet the Bid Price Rule. We were provided 180 calendar days, or until November 25, 2024, to regain compliance with the Bid Price Rule.
On November 26, 2024, we received a written notice from Nasdaq notifying us that, while we have not regained compliance with the bid price requirement rule, Nasdaq has determined that we are eligible for an additional 180 calendar day period, or until May 27, 2025 (the “Second Compliance Period”), to regain compliance. Nasdaq's determination was based on (i) the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on The Nasdaq Capital Market, with the exception of the Bid Price Rule, and (ii) the Company’s written notice to Nasdaq of its intention to cure the deficiency during the Second Compliance Period by effecting a reverse stock split, if necessary. If at any time during the Second Compliance Period, the closing bid price of the Company’s Class A Ordinary Shares meets or exceeds US$1.00 per share for at least ten consecutive business days, Nasdaq will provide written confirmation of compliance, and this matter will be closed. The Company intends to continue to actively monitor its compliance with the Bid Price Rule and, as appropriate, will consider available options to resolve any deficiencies and regain compliance.
| 9 |
| Table of Contents |
On May 19, 2025, the Company effected the 1:25 reverse stock split (the “Reverse Stock Split”). Beginning May 19, 2025, our Class A Ordinary Shares traded on The Nasdaq Capital Market on a split adjusted basis. The Reverse Stock Split had no impact on the par value of our Class A Ordinary Shares or the authorized number of ordinary shares.
On June 4, 2025, Nasdaq provided written confirmation to the Company that for the last 10 consecutive business days, from May 19 through June 3, 2025, the closing bid price of the Company’s Ordinary Shares has been at $1.00 per share or greater. Accordingly, the Company has regained compliance with Nasdaq Listing Rule 5550(a)(2), and the matter is now closed.
On January 16, 2026, the Company received a written notice from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that Nasdaq has determined to delist the Company’s Class A ordinary shares from The Nasdaq Capital Market (the “Staff Determination”). The Staff Determination was issued because the bid price of the Company’s Class A ordinary share has closed at less than $1.00 per share for the previous 30 consecutive business days from December 3, 2025 through January 15, 2026 and, as a result, the Company does not comply with Listing Rule 5550(a)(2). In addition, pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period or extension specified in Rule 5810(c)(3)(A) because the Company has effected a reverse stock split over the prior one-year period and has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more. As noted in the Staff Determination, the Company effected a 1-for-30 reverse stock split on January 19, 2024 and a 1-for-25 reverse stock split on May 19, 2025, resulting in a cumulative 1-for-750 reverse stock split ratio for the Class A ordinary shares.
On January 21, 2026, the Company submitted a hearing request to appeal the Staff Determination to a hearings penal (the “Panel”). The hearing request automatically stays the suspension of trading in the Company’s securities and the filing of the Form 25-NSE with the Securities and Exchange Commission, in each case pending the Panel’s decision. In connection with the hearing, the Company intends to present a plan to the Panel seeking an exception or other relief to address the deficiencies identified in the Staff Determination. During the appeal process with the Panel, the Company’s Class A ordinary shares will continue to be listed and trade on Nasdaq.
As of the date of this annual report, our Class A Ordinary Shares continue to be listed and traded on Nasdaq. However, the Panel may not grant our hearing request, and we may be unable to maintain compliance with Nasdaq continued listing requirements in the future. If our securities are subsequently delisted from trading, we could face significant consequences, including:
| · | a limited availability for market quotations for our securities; |
|
|
|
| · | reduced liquidity with respect to our securities; |
|
|
|
| · | a determination that our Class A Ordinary Shares is a “penny stock,” which will require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Class A Ordinary Shares; |
|
|
|
| · | limited amount of news and analyst coverage; and |
|
|
|
| · | a decreased ability to issue additional securities or obtain additional financing in the future. |
Risks Associated with Our Corporate Structure
Our holding company structure involves certain risks in terms of dividend distribution, direct investment in PRC entities, and obtaining benefits under relevant tax treaty. See “—D. Risk Factors—Risks relating to Doing Business in the PRC—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirement we may have, and any limitation on the ability of our subsidiaries to make payments to us and any tax we are required to pay could have a materially adverse effect on our ability to conduct our business,” “—D. Risk Factors—Risks relating to Doing Business in the PRC—PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using proceeds from our future financing activities to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business,” “—D. Risk Factors—Risks relating to Doing Business in the PRC—PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or otherwise expose us or our PRC resident shareholders to liabilities or penalties,” and “—D. Risk Factors—Risks relating to Doing Business in the PRC—Under the EIT Law, we may be classified as a ‘resident enterprise’ of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.” See also “Item 4. Information on the Company—B. Business Overview—Regulations—PRC Regulations Relating to Foreign Exchange.”
| 10 |
| Table of Contents |
Risks Associated with Doing Business in the PRC
We are subject to certain legal and operational risks associated with having the majority of our operations in China, which could significantly limit or completely hinder our ability to offer securities to investors and cause the value of our securities to significantly decline or be worthless. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—Any actions by the Chinese government, including any decision to intervene or influence the operating entities’ operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause them to make material changes to their operations, may limit or completely hinder their ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless.”
Recently, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. As of the date of this annual report, we and our subsidiaries have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice or sanction. As confirmed by our PRC counsel, Universal Law Offices of Hangzhou, as of the date of this annual report, we are not subject to cybersecurity review by the Cyberspace Administration of China (the “CAC”), since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures. We are not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security Administration (Draft for Comments) (the “Security Administration Draft”) are enacted as proposed, because we currently do not have over one million users’ personal information, we do not collect data that affect or may affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data that affect or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Security Administration Draft. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—Greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact the operating entities’ business and our offerings.”
| 11 |
| Table of Contents |
On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which came into effect on March 31, 2023. Article 15 of the "Interim Measures" defines the behavior of "indirect overseas offering and listing by domestic enterprises." Specifically, an issuer is considered to be engaged in indirect overseas offering and listing by a domestic enterprise if it meets both of the following conditions:(i) The operating revenue, total profit, total assets, or net assets of the domestic enterprise in the most recent accounting year exceed 50% of the relevant data in the issuer's audited consolidated financial statements for the same period, based on any one of these indicators;(ii) The principal operational activities are conducted within China, or the primary locations of operations are situated within China, or the majority of senior management personnel responsible for operations and management are Chinese citizens or have their habitual residence within China. Therefore, CNEY meets the definition of "indirect overseas offering and listing by a domestic enterprise." As our registration statement on Form F-1 was declared effective on February 4, 2021 and we completed our initial public offering and listing on February 9, 2021, we qualifies as an "existing company." As such, it is not required to undergo immediate compliance filing at present. Nevertheless, if CNEY engages in future activities such as refinancing, it will be required to fulfill the filing procedures. In such cases, the issuer must designate a primary domestic operating entity as the domestic responsible party to submit the filing to the China Securities Regulatory Commission. Other than the foregoing, as of the date of this annual report, according to our PRC counsel, Universal Law Offices of Hangzhou, no relevant PRC laws or regulations in effect require that we obtain additional permission from any PRC authorities to issue securities to foreign investors, and we have not received any inquiry, notice, warning, sanction, or any regulatory objection to our offerings from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations. The Standing Committee of the National People’s Congress (the “SCNPC”) or PRC regulatory authorities may in the future promulgate additional laws, regulations, or implementing rules that require us and/or our subsidiaries to obtain regulatory approval from Chinese authorities for our continued listing in the U.S. If we do not receive or maintain such approval, or inadvertently conclude that such approval is not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, or an order prohibiting us from conducting a subsequent offering, and these risks could result in a material adverse change in our operations and the value of our Class A ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—Given the Chinese government’s significant oversight and discretion over the conduct of the operating entities’ business, the Chinese government may intervene or influence the operating entities’ operations at any time, which could result in a material change in their operations and/or the value of our ordinary shares.”
Since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (i) establishing the National Anti-Monopoly Bureau; (ii) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law of the PRC (amended on June 24, 2022 and effective on August 1, 2022), the anti-monopoly guidelines for various industries, and the Detailed Rules for the Implementation of the Fair Competition Review System; and (iii) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this annual report, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our or our operating entities’ ability to conduct business, our ability to accept foreign investments or issue our securities to foreign investors because neither we nor our operating entities engage in monopolistic behaviors that are subject to these statements or regulatory actions.
Permissions Required from PRC Authorities
As of the date of this annual report, we and the operating entities (i) are not covered by additional permissions or approval requirements from any governmental agency that is required to approve the operating entities’ operations, (ii) have received from PRC authorities all requisite licenses, permissions, and approvals needed to engage in the businesses currently conducted in the PRC, and (iii) no such permission or approval has been denied.
As advised by our PRC counsel, Universal Law Offices of Hangzhou, other than those requisite for a domestic company in China to engage in the businesses similar to those of the operating entities, the operating entities are not required to obtain any additional permission from Chinese authorities, including the CSRC, the CAC, or any other governmental agency that is required to approve the operating entities’ operations. However, we cannot assure you that the PRC regulatory agencies, including the CAC or the CSRC, would take the same view as we do, and there is no assurance that our operating entities are always able to successfully update or renew the licenses or permits required for the relevant business in a timely manner or that these licenses or permits are sufficient to conduct all of their present or future business. If the operating entities (i) do not receive or maintain required permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and our operating entities are required to obtain such permissions or approvals in the future, they could be subject to fines, legal sanctions, or an order to suspend their relevant services, which may materially and adversely affect our financial condition and results of operations and cause our securities to significantly decline in value or become worthless.
| 12 |
| Table of Contents |
According to the Notice on the Administrative Arrangements for the Filing of the Overseas Securities Offering and Listing by Domestic Companies from the CSRC, or “the CSRC Notice,” the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as existing issuers (the “Existing Issuers”). Existing Issuers are not required to complete the filing procedures immediately, and they shall be required to file with the CSRC for any subsequent offerings. Based on the foregoing, as our registration statement on Form F-1 in connection with our initial public offering was declared effective on February 4, 2021 and we completed our initial public offering and listing on February 9, 2021, we are currently not required to complete the filing procedures pursuant to the Trial Measures. However, in the event that we undertake new offerings or fundraising activities in the future, we may be required to complete the filing procedures.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision over overseas listings by Chinese companies. The Opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirements in the future. Additionally, the Notice on Issues Concerning the Administration of Funds for Overseas Listings of Domestic Enterprises was issued on December 26, 2025, and will come into effect on April 1, 2026. This notice primarily provides clear operational guidelines for fund management to enterprises engaging in direct overseas listings. For companies like CN Energy Group Inc., which qualify as enterprises engaged in indirect overseas offering and listing by domestic enterprises, this notice does not apply directly. Nevertheless, such companies must still comply with the filing administration regulations of the China Securities Regulatory Commission and other general foreign exchange rules. Given the current regulatory environment in the PRC, we are still subject to the uncertainty of different interpretation and enforcement of the rules and regulations in the PRC adverse to us, which may take place quickly with little advance notice. See “—D. Risk Factors—Risks Relating to Doing Business in the PRC—The Opinions issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council may subject the operating entities to additional compliance requirement in the future.”
Transfer of Funds and Other Assets Between Our Company and Our Subsidiaries
As of the date of this annual report, CN Energy has transferred its funds, through Energy Holdings, CN Energy USA and Zhejiang CN Energy, $56.9 million to its subsidiaries.
Our finance department is supervising cash management, following the instructions of our management. Our finance department is responsible for establishing our cash operation plan and coordinating cash management matters among our subsidiaries and departments. Each subsidiary and department initiates a cash request by putting forward a cash demand plan, which explains the specific amount and timing of cash requested, and submits it to our finance department. The finance department reviews the cash demand plan and prepares a summary for the management of our Company. Management examines and approves the allocation of cash based on the sources of cash and the priorities of the needs. Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred.
Dividends or Distributions and Tax Consequences
As of the date of this annual report, none of our subsidiaries have made any dividends or distributions to CN Energy and CN Energy has not made any dividends or distributions to its shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Subject to the passive foreign investment company (“PFIC”) rules, the gross amount of distributions we make to investors with respect to our ordinary shares (including the amount of any taxes withheld therefrom) will be taxable as a dividend, to the extent that the distribution is paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
Pursuant to the BVI Business Companies Act, 2020 as amended from time to time (the “BVI Act”), and our third amended and restated memorandum and articles of association, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think appropriate, if they are satisfied on reasonable grounds that immediately following the dividend payment, the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further British Virgin Islands statutory restriction on the amount of funds which may be distributed by us by dividends.
| 13 |
| Table of Contents |
If we determine to pay dividends on any of our ordinary shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiaries, Ewforest and MZ HK, and our U.S. subsidiary, CN Energy USA Inc.
Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to MZ HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC (excluding the special administrative regions of Hong Kong and Macau). Under the applicable PRC regulations, RMB is freely convertible only to the extent of current account items, such as trade-related receipts and payments, interest, and dividends. Conversion of RMB into a foreign currency such as U.S. dollars for capital account items, such as direct equity investments, loans, and repatriation of investment, requires prior approval from the State Administration of Foreign Exchange or its local branch. Such approval, however, does not guarantee the availability of foreign currency conversion. Furthermore, the value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The RMB may not be stable against the U.S. dollar or other foreign currency. To the extent that we seek to convert RMB into U.S. dollars, depreciation of the RMB against the U.S. dollar would have an adverse effect on the U.S. dollar amount we receive from the conversion. Therefore, we may experience difficulties in complying with the administrative requirements necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenue from our operations, we may be unable to pay dividends on our ordinary shares.
Cash dividends, if any, on our ordinary shares will be paid in U.S. dollars. MZ HK may be considered a non-resident enterprise for PRC tax purposes. Any dividends that our PRC subsidiaries pay to MZ HK may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.”
In order for us to pay dividends to our shareholders, we will rely on payments made from MZ Pintai’s subsidiaries to MZ Pintai, and the distribution of such payments to MZ HK and then to our Company. According to the EIT Law, such payments from subsidiaries to parent companies in China are subject to the PRC enterprise income tax at a rate of 25%. In addition, if MZ Pintai or their subsidiaries incur debt on their own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income (the “Double Tax Avoidance Arrangement”), the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. The 5% withholding tax rate, however, does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Avoidance Arrangement with respect to any dividends paid by our PRC subsidiaries to their immediate holding company, MZ HK. As of the date of this annual report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. MZ HK intends to apply for the tax resident certificate if and when MZ Pintai plans to declare and pay dividends to MZ HK. See “—D. Risk Factors—Risks Relating to Doing Business in the PRC—There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our Hong Kong subsidiaries may not qualify to enjoy certain treaty benefits.”
| 14 |
| Table of Contents |
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Relating to Our Business
Our expansion into the United States through the operations of Pathenbot Group Inc. may not be successful and could expose us to additional risks, which may adversely affect our business, financial condition, and results of operations.
In October 2025, we expanded our business operations into the United States by launching the operations of Pathenbot Group Inc., a U.S.-based subsidiary focused on providing robotic solutions to small and medium-sized enterprises. Pathenbot’s primary products include logistics robots, food service robots, and industrial robots, and its services include localized data storage, after-sales support, and product development, research, and sales. This expansion represents a new geographic market and operating environment for the Company and subjects us to risks and uncertainties that differ from those we have historically encountered.
Operating in the United States requires us to navigate a complex and evolving legal, regulatory, and commercial landscape, including compliance with U.S. federal, state, and local laws and regulations relating to product safety, data protection, labor and employment, taxation, import and export controls, and intellectual property protection. Failure to comply with applicable laws and regulations could result in fines, penalties, litigation, reputational harm, or restrictions on our operations. In addition, differences in business practices, customer preferences, competitive dynamics, and cost structures may make it difficult for us to successfully market and sell our robotic products and services to U.S. small and medium-sized enterprises.
Our success in the United States will also depend on our ability to establish effective local operations, including recruiting and retaining qualified personnel, building reliable after-sales support and service infrastructure, managing localized data storage in compliance with applicable data privacy and cybersecurity requirements, and adapting our products to meet U.S. market and customer requirements. If we are unable to effectively manage these operational challenges, our costs may increase and our anticipated benefits from this expansion may not be realized.
Furthermore, the U.S. robotics market is highly competitive and characterized by rapid technological change. Competitors with greater brand recognition, longer operating histories, more established customer relationships, or greater financial and technical resources may be better positioned to respond to market demands or technological developments. If we are unable to compete effectively or if customer adoption of our robotic solutions is slower than expected, the operating results of Pathenbot Group Inc. could be materially and adversely affected.
As a result of these risks, our expansion into the United States through Pathenbot Group Inc. may not achieve the anticipated growth or profitability, and any failure to successfully execute our U.S. expansion strategy could have a material adverse effect on our business, financial condition, and results of operations.
| 15 |
| Table of Contents |
The operating entities’ financial results could be materially and adversely affected by an interruption of supply of raw materials.
The operating entities are dependent on a variety of raw materials that support their manufacturing activities. The operating entities’ ability to meet their customers’ needs depends heavily on an uninterrupted supply of these materials. Although the operating entities source strategic raw materials from multiple suppliers whenever possible and have instituted back-up procedures or contracted with a secondary supplier for any raw material that is sourced primarily from one location or supplier, production problems, lack of capacity, breach of contractual obligations by their third-party suppliers, changes in third-party suppliers’ financial or business condition, or planned and unplanned shutdowns of their production facilities that affect their ability to supply the operating entities with raw materials that meet the operating entities’ specifications, or at all, could disrupt the operating entities’ ability to supply products to their customers. In addition, interruptions in raw material supply caused by events outside their suppliers’ control, such as wildfires, labor disputes, or transportation disruptions, could also disrupt the operating entities’ ability to meet customer demand. These supply disruptions could cause the operating entities to miss deliveries and breach their contracts, which could damage their relationships with their customers and subject the operating entities to claims for damages under their contracts. If any of these events were to occur for more than a temporary period, the operating entities may not be able to make arrangements for transition supply and qualified replacement suppliers on terms acceptable to the operating entities or at all, which could have a material adverse effect on their business and financial results.
Increases in the prices of raw materials could materially and adversely affect the operating entities’ financial results.
If the prices the operating entities they have to pay for raw materials under their existing supply contracts or under replacement supply contracts increase, they could face significantly higher production costs. Although the operating entities’ long-term supply contracts typically provide for a specific price, increases in raw material prices could adversely affect their ability to renew these contracts on similar terms or at all. Similarly, increases in raw material prices could adversely affect their ability to enter into shorter-term supply agreements at favorable prices. The operating entities may not be able to pass the whole price increase through to their customers, which could have a material adverse effect on their financial results.
A majority of the operating entities’ activated carbon sales are currently derived from a small number of customers. If any of these customers experiences a material business disruption, the operating entities would likely incur substantial losses of revenue.
For the fiscal year ended September 30, 2025, one major customer accounted for 59% of the Company’s total sales. For the fiscal year ended September 30, 2024, two major customers accounted for approximately 38%, and 14% of the operating entities’ total sales, respectively. For the fiscal year ended September 30, 2023, three major customers accounted for 13%, 13%, and 10% of the Company’s total sales, respectively. The operating entities’ major customers may change as they adjust marketing strategies, and any material business disruption affecting the operating entities’ major customers or any decrease in sales to their major customers may negatively impact their operations and cash flows if they fail to increase sales to other customers.
The operating entities have sourced their raw materials primarily from a limited number of suppliers. If they lose one or more of their suppliers, their operations may be disrupted, and their results of operations may be adversely and materially impacted.
For the fiscal year ended September 30, 2025, the operating entities sourced 20% of their raw materials and activated carbon from their top one supplier. For the fiscal year ended September 30, 2024, the operating entities sourced 37%,12% and 9% of their raw materials and activated carbon from their top three suppliers, respectively. For the fiscal year ended September 30, 2023, the operating entities sourced 14% and 12% of their raw materials and activated carbon manufacturing service from their top two suppliers, respectively. If they lose one or more of these suppliers and are unable to swiftly engage new suppliers, the operating entities’ production operations may be disrupted or even suspended, and they may not be able to deliver products to their customers on time. The operating entities may also have to pay a higher price to source from a different supplier on short notice. While the operating entities are actively searching for and negotiating with new suppliers, there is no guarantee that they will be able to locate appropriate new suppliers in their desired timeline. As a result, the operating entities’ results of operations may be adversely and materially impacted.
| 16 |
| Table of Contents |
A disruption or delay in production at the operating entities’ existing production facilities could have a material adverse effect on their financial results.
If the operating entities’ production facilities were to cease production unexpectedly in whole or in part, their sales and financial results could be materially and adversely affected. Such a disruption could be caused by a number of different events, including:
| · | maintenance outages; |
|
|
|
| · | prolonged power failures; |
|
|
|
| · | equipment failures or malfunctions; |
|
|
|
| · | fires, floods, tornadoes, earthquakes, or other catastrophes; |
|
|
|
| · | potential unrest or terrorist activities; |
|
|
|
| · | labor difficulties; or |
|
|
|
| · | other construction, design, or operational problems, including those related to the granting, or the timetable for granting, of permits. |
If any of these or other events were to result in a material disruption of the operating entities’ current manufacturing operations, production of their products may be delayed and their ability to meet the production capacity targets and satisfy customer requirements may be materially adversely affected or the operating entities may be required to recognize impairment charges, any of which could have a material adverse effect on their financial results. In addition, a prolonged shutdown of any of the operating entities’ production facilities could cause them to miss deliveries and breach their contracts, which could damage their relationships with their customers and subject them to claims for damages under their contracts. Any of these events could have a material adverse effect on the operating entities’ business and financial results.
| 17 |
| Table of Contents |
The operating entities rely on third-party manufacturers to produce some of their activated carbon products and problems with, or loss of, these manufacturers could harm the operating entities’ business and operating results.
The operating entities have outsourced some of their customer orders to third-party manufacturers to keep up with the demand for the operating entities’ activated carbon products. The operating entities face the risk that these third-party manufacturers may not produce and deliver activated carbon products on a timely basis, or at all. The operating entities may also experience difficulties with their third-party manufacturers since they do not have the same manufacturing processes or quality control as the operating entities do. These difficulties include reductions in the availability of production capacity, errors in complying with product specifications and regulatory and customer requirements, failures to meet production deadlines, failure to achieve the operating entities’ product quality standards, increases in costs of materials, and manufacturing or other business interruptions. The ability of the operating entities’ third-party manufacturers to effectively satisfy their production requirements could also be impacted by manufacturer financial difficulty or damage to their operations caused by fire, a terrorist attack, natural disasters, or other events. Although the operating entities carefully select third–party manufacturers, the failure of any manufacturer to perform to the operating entities’ expectations could result in supply shortages or delays for the operating entities’ activated carbon products and harm their business. If the operating entities experience significantly increased demand, or if they need to replace an existing manufacturer due to lack of performance, the operating entities may be unable to supplement or replace their manufacturing capacity on a timely basis, or identify manufacturers with the same or similar quality controls in place as the existing manufacturers do, or on terms that are acceptable to the operating entities, which may increase their costs, reduce their margins, and harm their ability to deliver activated carbon products on time.
The operating entities may incur delays and budget overruns with respect to any facilities they construct. Any such delays or cost overruns may have a material adverse effect on the operating entities’ operating results.
The operating entities currently have no construction projects. If the operating entities launch any construction projects in the future, such projects may entail significant risks that can give rise to delays or cost overruns, including the following:
| · | insufficient capital to complete construction; |
|
|
|
| · | shortage of material or skilled labor; |
|
|
|
| · | unforeseen engineering, environmental, or geological problems; |
|
|
|
| · | work stoppages; |
|
|
|
| · | weather interference; |
|
|
|
| · | floods, typhoons, and other natural disasters; |
|
|
|
| · | delays or failures in obtaining the requisite construction licenses, permits, and certificates; |
|
|
|
| · | unanticipated cost increases; and |
|
|
|
| · | legal or political challenges. |
The anticipated costs and construction periods are based upon budgets, conceptual design documents, and construction estimates prepared by the operating entities in consultation with their architects and contractors. Construction, equipment, staffing requirements, and problems or difficulties in obtaining and maintaining any of the requisite licenses, permits, allocations, or authorizations from regulatory authorities can increase the costs or delay the construction or commencement of production or otherwise affect the planned design and features of the facility. We cannot be sure that the operating entities will not exceed the budgeted costs of the facility or that the facility will commence production within the contemplated time frame, if at all. Budget overruns and delays with respect to the construction could have a material adverse impact on the operating entities’ results of operations.
| 18 |
| Table of Contents |
Uncertainties as to the future of existing and planned environmental and health and safety laws and regulations, as well as delays of or changes to these laws and regulations, could have a material adverse effect on demand for the operating entities’ products.
The operating entities’ strategic growth initiatives rely significantly upon the enactment of restrictive environmental and health and safety laws and regulations, particularly those that would require industrial facilities to reduce the quantity of air and water pollutants they release. If stricter regulations are delayed, are not enacted as proposed, are enacted but subsequently repealed or amended to be less strict, or are enacted with prolonged phase-in periods, demand for the operating entities’ products could be materially and adversely affected and they may not be able to meet sales growth and return on invested capital targets, which could materially and adversely affect the operating entities’ financial results.
For example, a significant market driver for the operating entities’ activated carbon products is the Notice on Issuing the Work Plan for Greenhouse Gas Emission Control During the 14th Five-Year Plan Period (the “Work Plan”) of the State Council of the PRC (the “State Council”), which supports the development of clean energy, including biomass electricity, and restricts the emission of industrial pollutants. Although the Work Plan would potentially promote the use of activated carbon products, we are unable to predict with certainty when and how the Work Plan will affect demand for the operating entities’ products. Changes to, or delays in implementing, the Work Plan could reduce or delay an expected increase in future demand for the operating entities’ products, which could have a material adverse effect on the operating entities’ business and financial results.
On the other hand, increased costs to utilities and other potential customers in complying with environmental regulations could limit production and reduce or delay an expected increase in demand for the operating entities’ products, which could also have a material adverse effect on the operating entities’ business and financial results.
Disclosure of the operating entities’ trade secrets and other proprietary information, or a failure to adequately protect these or the operating entities’ other intellectual property rights, could result in increased competition and have a material adverse effect on the operating entities’ business and financial results.
The operating entities’ ability to compete effectively depends in part on their ability to obtain, maintain, and protect their trade secrets, proprietary information, and other intellectual property rights. The operating entities rely on a combination of trade secret, patent, trademark, and copyright laws, as well as contractual restrictions and physical security measures, to protect the operating entities’ proprietary information and other intellectual property rights.
| 19 |
| Table of Contents |
Where we believe patent protection is not appropriate or obtainable, the operating entities rely on trade secret laws and practices to protect their proprietary technology and processes, including physical security, limited dissemination and access, and confidentiality agreements with their employees, customers, consultants, business partners, potential licensees and others, to protect their trade secrets and other proprietary information. However, trade secrets are difficult to protect, and courts outside the PRC may be less willing to protect their trade secrets. There can be no assurance that the operating entities’ protective measures will effectively prevent disclosure or unauthorized use of proprietary information or provide an adequate remedy in the event of misappropriation, infringement, or other violations of the operating entities’ proprietary information and other intellectual property rights.
Existing laws afford only limited protection for the operating entities’ intellectual property rights. Despite the operating entities’ efforts, they may not be able to protect some of their technology, or the protection that they receive may not be sufficient. The operating entities face additional risks that their protective measures, including their patents and trademarks, could prove to be inadequate, including:
| · | the steps the operating entities take to prevent circumvention, misappropriation, or infringement of the operating entities’ proprietary rights may not be successful; |
|
|
|
| · | confidentiality agreements may be intentionally or unintentionally breached, be deemed unenforceable, or not provide adequate recourse against the disclosing party; |
|
|
|
| · | intellectual property laws may not sufficiently support the operating entities’ proprietary rights or may change in the future in a manner adverse to them; |
|
|
|
| · | patent or trademark rights may not be granted or construed as they expect, or may be challenged, narrowed, or invalidated; |
|
|
|
| · | intellectual property protection, including patents, may lapse or expire which may result in key technology becoming widely available which may hurt the operating entities’ competitive position; |
|
|
|
| · | effective protection of intellectual property rights may be unavailable or limited in some countries in which they operate or plan to do business; |
|
|
|
| · | third parties may independently develop or obtain comparable information and technology, and in some jurisdictions, obtain intellectual property protection for such technology; and |
|
|
|
| · | third parties may commercialize the operating entities’ products in countries in which they do not have adequate intellectual property protection. |
From time to time, the operating entities may seek to enforce their intellectual property and proprietary rights against third parties. Policing unauthorized use of intellectual property can be difficult and expensive. The operating entities may not be successful in their attempts to enforce their intellectual property rights against third parties. Any such litigation may result in substantial diversion of financial and management resources and, if decided unfavorably to us, could have a material adverse effect on the operating entities’ business and financial results.
Third parties may claim that the operating entities’ products or processes infringe their intellectual property rights, which may cause them to pay unexpected litigation costs or damages or prevent them from selling their products.
It is the operating entities’ intention to avoid infringing, misappropriating, or otherwise violating the intellectual property rights of others. We cannot, however, be certain that the conduct of the operating entities’ business or their products or processes do not infringe or otherwise violate these rights. From time to time, the operating entities may become subject to legal proceedings, including allegations and claims of alleged infringement or misappropriation by them of the patents and other intellectual property rights of third parties. As the operating entities’ business expands and faces increasing competition, the number of such claims may grow. In addition, attempts to enforce the operating entities’ own intellectual property claims may subject them to counterclaims that their intellectual property rights are invalid, unenforceable, or are licensed to the party against whom they are asserting the claim or that they are infringing that party’s alleged intellectual property rights.
| 20 |
| Table of Contents |
Legal proceedings involving intellectual property rights, regardless of merit, are highly uncertain and can involve complex legal and scientific analyses, can be time consuming, expensive to litigate or settle, and can significantly divert resources. The operating entities’ failure to prevail in such matters could result in loss of intellectual property rights or judgments awarding substantial damages and injunctive or other equitable relief against us. If the operating entities were to be held liable or discover or be notified that their products or processes potentially infringe or otherwise violate the intellectual property rights of others, they may face a loss of reputation, may not be able to exploit some or all of the operating entities’ intellectual property rights or technology, and may need to obtain licenses from third parties or substantially re-engineer the operating entities’ products or processes in order to avoid infringement. The operating entities might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer the operating entities’ products or processes successfully or cost effectively and these efforts may cause them to delay or stop selling and marketing their products or processes.
Any of the foregoing may require considerable effort and expense, result in substantial increases in operating costs, delay or inhibit sales, and may preclude them from effectively competing in the marketplace, which in turn could have a material adverse effect on the operating entities’ business and financial results.
Compliance with environmental and other laws and regulations could result in significant costs and liabilities.
The operation and expansion of the operating entities’ manufacturing facilities are subject to strict environmental laws and regulations at the state, provincial, and local level in various jurisdictions, and, over the next several years, we expect that the operating entities and the industry in general will become subject to new or more stringent environmental requirements. These laws and regulations generally require the operating entities to obtain and comply with various environmental registrations, licenses, permits, inspections, and other approvals. .
Under certain environmental, health, and safety laws, the operating entities could be held responsible for any and all liabilities and consequences arising out of past or future releases of hazardous materials, human exposure to these substances, and other environmental damage, in some cases, without regard to fault. The discovery of contamination at any of the operating entities’ current site or at locations at which they dispose of waste may expose them to clean-up expenditures and other damages imposed by government agencies. In addition, private parties may have the right to pursue legal action to enforce compliance as well as to seek damages for non-compliance with such laws and regulations or for personal injury or property damage. Currently, the operating entities do not carry insurance that covers environmental risks and costs. Although the operating entities intend to procure environmental insurance in the future, such insurance may not cover all environmental risks and costs or may not provide sufficient coverage in the event an environmental claim is made against us.
The operating entities’ operations emit carbon dioxide and other greenhouse gases. Currently, the operating entities are subject to the PRC environmental laws and regulations on air pollution prevention in general. Additionally, businesses within the activated carbon industry are mandated to adhere to specific industrial standards, including the Comprehensive Emission Standards for Air Pollutants (GB 16297-1996), Emission Standards for Air Pollutants from Industrial Furnace Kilns (GB 9078-1996) and Comprehensive Wastewater Emission Standards (GB 8978-1996). A number of other legislative and regulatory measures to address greenhouse gas emissions, including the Kyoto Protocol and the Draft Emission Standards of Activated Carbon Industrial Pollutants, are in various phases of implementation or discussion. Future Chinese regulations on corporate environmental protection and pollutant emission management will become more stringent. Among these, the Regulations on Ecological and Environmental Monitoring require enterprises to conduct monitoring of pollutants and greenhouse gas emissions in accordance with the law, with strict penalties for data fraud. These regulations took effect on January 1, 2026. The Discharge Standard of Pollutants for Municipal Wastewater Treatment Plants introduces instantaneous emission limits for key water pollutants and updates monitoring requirements. This standard will be implemented on March 1, 2026. Additionally, the Carbon Measurement Review Guidelines for Key Emitting Entities provide unified review standards for carbon emission measurement management and data quality for key emitting entities, effective from March 8, 2026. The systems and measures could result in increased costs for them to install new controls to reduce hazardous air emissions from the operating entities’ facilities, to purchase air emissions credits or allowances, or to monitor and inventory greenhouse gas emissions from the operating entities’ operations.
Even though the operating entities devote considerable efforts to comply with environmental laws, regulations, and permits, there can be no assurance that the operating entities’ operations will at all times be in compliance with them. The enactment of new environmental laws and regulations, the more stringent interpretation or enforcement of existing requirements, or the imposition of liabilities under environmental laws could force them to incur costs for compliance, capital upgrades, or liabilities relating to damage claims or limit the operating entities’ current or planned operations, any of which could have a material adverse effect on the operating entities’ business and financial results.
The operating entities’ operations are subject to various litigation risks that could increase the operating entities’ expenses and have a material adverse effect on their business and financial results.
The nature of the operating entities’ operations exposes them to possible litigation claims, including environmental damage and remediation, intellectual property, workers’ compensation and other employee-related matters, insurance coverage, and property rights and easements. Any claim could be adversely decided against us, which could have a material adverse effect on the operating entities’ business and financial results. Similarly, the costs associated with defending claims could dramatically increase the operating entities’ expenses as litigation is often very expensive, divert management’s attention, and impact their profitability. If the operating entities become involved in any litigation, they may be forced to direct their resources to defending or prosecuting the claim, which in turn could have a material adverse effect on the operating entities’ business and financial results.
| 21 |
| Table of Contents |
The operating entities may not be able to keep up with competitive changes affecting the activated carbon industry.
The activated carbon industry is characterized by evolving industry and end-market standards, changing regulation, frequent enhancements to existing products and technologies, introduction of new products and changing customer demand, all of which can result in unpredictable product transitions, shortened lifecycles and increased importance of being first to market with new products. The success of the operating entities’ new products depends on their initial and continued acceptance by their customers. If the operating entities are not able to anticipate changes or develop and introduce new and enhanced products that are accepted by the operating entities’ customers on a timely basis and compete with new technologies, their ability to remain competitive may be adversely affected. In addition, the operating entities may experience difficulties in the research, development, production, or marketing of new products, which may delay them in bringing new products to market and prevent them from recouping or realizing a return on the operating entities’ investments. Any of the foregoing could have a material adverse effect on the operating entities’ business and financial results.
The activated carbon industry is highly competitive, and if the operating entities are unable to compete effectively with existing competitors, or with new entrants, the operating entities’ business and financial results could be materially and adversely affected.
The operating entities compete in the PRC market with producers and importers of activated carbon. The operating entities’ business faces significant competition from other PRC producers of activated carbon, some of which may from time to time have revenue and capital resources exceeding ours, which they may use to develop more advanced or more cost-effective technologies, increase market share, or leverage their distribution networks. In addition, new competitors and alliances may emerge to take market share away from us. The operating entities’ competitive position in the market in which they operate depends upon the relative strength of these competitors in the market and the relative resources they devote to competing in the market. The operating entities could experience reduced sales and loss of market share, which could lead to lower prices and decreased revenue, gross margins, and profits, any of which could have a material and adverse effect on the operating entities’ results of operations.
Development of competitive technologies could materially and adversely affect the operating entities’ business and financial results.
Activated carbon is utilized in various applications as a cost-effective solution to address the operating entities’ customers’ needs. If other competitive technologies or alternative processes or combinations of technologies or processes, such as alternate sorbents, resins, certain types of membranes, ozone, and ultraviolet, are advanced to the stage at which they could compete on a cost-effective basis with activated carbon technologies, they could experience a decline in demand for the operating entities’ products, which could have a material adverse effect on the operating entities’ business and financial results.
Competitive technologies and new regulations may also affect the operating entities’ customers, and therefore us. For example, a shift away from coal-burning technology due to environmental trends and regulations or new technologies could diminish future demand for the operating entities’ activated carbon products, which could have a material adverse effect on the operating entities’ business and financial results.
If the operating entities fail to hire, train, and retain qualified managerial and other employees, the operating entities’ business and results of operations could be materially and adversely affected.
The operating entities place substantial reliance on the activated carbon market experience and knowledge of their senior management team as well as their relationships with other industry participants. The operating entities do not carry, and do not intend to procure, key person insurance on any of their senior management team. The loss of the services of one or more members of their senior management team due to their departure, or otherwise, could hinder the operating entities’ ability to effectively manage their business and implement their growth strategies. Finding suitable replacements for the operating entities’ current senior management could be difficult, and competition for such personnel of similar experience is intense. If the operating entities fail to retain their senior management, the operating entities’ business and results of operations could be materially and adversely affected.
The market for engineers and other individuals with the required technical expertise to succeed in the operating entities’ business is highly competitive. There may be a limited supply of qualified individuals in some of the cities in China where the operating entities have operations and other cities into which they intend to expand. The operating entities must hire and train qualified managerial and other employees on a timely basis to keep pace with the operating entities’ rapid growth while maintaining consistent quality of services across the operating entities’ operations in various geographic locations. The operating entities must also provide continuous training to their managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of the operating entities’ operations and can meet the operating entities’ demand for high-quality products. If they fail to do so, the quality of their products may decrease in one or more of the markets where they operate, which in turn, may cause a negative perception of the operating entities’ brand and adversely affect the operating entities’ business.
| 22 |
| Table of Contents |
The lease agreements of the operating entities’ leased properties have not been registered with the relevant PRC government authorities as required by PRC laws, which may expose them to potential fines.
Under PRC laws, all lease agreements are required to be registered with the local land and real estate administration bureau. Although failure to do so does not in itself invalidate the leases, the lessees may not be able to defend these leases against bona fide third parties and may also be exposed to potential fines if they fail to rectify such non-compliance within the prescribed time frame after receiving notice from the relevant PRC government authorities.
The penalty ranges from RMB1,000 to RMB10,000 for each unregistered lease, at the discretion of the relevant authority. In the event that any fine is imposed on the operating entities for their failure to register their lease agreements, the operating entities may not be able to recover such losses from the lessors. However, as the fines, if any, will be minor, the operating entities’ business and financial results will not be materially affected.
Unexpected termination of leases or other arrangements, failure to negotiate satisfactory terms for or duly perform leases or other arrangements, failure to renew the leases or other arrangements of the existing premises of the operating entities or to renew such leases or other arrangements at acceptable terms could materially and adversely affect our business, financial condition, results of operations and prospects.
The operating entities currently lease real estate for all of their facilities. The ability of the operating entities to increase the number of spaces and to operate these spaces profitably depends on the due execution and performance of the leases or other arrangements the operating entities enter into with lessors and whether the operating entities are able to negotiate these leases and other arrangements on satisfactory terms. Lessors may also not duly perform their obligations under the leases or other arrangements due to various reasons, such as lessors’ failure to deliver the possession of the premises as agreed.
In addition, the increases in rental rates, particularly those markets where initial terms under the leases are shorter, could adversely affect the operating entities’ business, financial condition, results of operations and prospects. Additionally, the ability of the operating entities to negotiate favorable terms to extend a lease agreement or in connection with an alternate space will depend on then-prevailing conditions in the real estate market, such as overall changes in lease expenses, competition from other would-be tenants for desirable leased spaces and the relationships of the operating entities with current and prospective building owners and landlords, or other factors that are not within their control. If the operating entities are not able to renew or replace an expiring lease agreement, they will incur significant costs related to vacating that space or redeveloping the space, which could result in loss of customers who may have chosen that space based on the design, location or other attributes of that particular space.
The operating entities depend on third parties for certain construction, maintenance, engineering, transportation, warehousing, and logistics services.
The operating entities contract with third parties, typically for a period of six to 18 months, for certain services relating to the design, construction, and maintenance of various components of the operating entities’ production facilities and other systems. If these third parties fail to comply with their obligations, the operating entities may experience delay in the completion of new facilities or expansions of existing facilities or the facilities may not operate as intended, which may result in delays in the production of the operating entities’ products and materially and adversely affect the operating entities’ ability to meet their production capacity targets and satisfy customer requirements or they may be required to recognize impairment charges. In addition, production delays could cause the operating entities to miss deliveries and breach the operating entities’ contracts, which could damage their relationships with their customers and subject them to claims for damages under their contracts. Any of these events could have a material adverse effect on the operating entities’ business and financial results.
The operating entities also rely primarily on third parties for the transportation of the products they manufacture. The operating entities’ contracts with these third parties are usually for one to two years. If any of the third parties that the operating entities use to transport products are unable to deliver the goods they manufacture in a timely manner, they may be unable to sell these products at full value, or at all, which could cause them to miss deliveries and breach their contracts, which could damage their relationships with their customers and subject them to claims for damages under the contracts. Any of these events could have a material adverse effect on the operating entities’ business and financial results.
Future acquisitions may have an adverse effect on the operating entities’ ability to manage their business.
The operating entities may acquire businesses, technologies, services, or products which are complementary to their core activated carbon business. Future acquisitions may expose them to potential risks, including risks associated with: the integration of new operations, services, and personnel; unforeseen or hidden liabilities; the diversion of resources from their existing business and technology; their potential inability to generate sufficient revenue to offset new costs; the expenses of acquisitions; or the potential loss of or harm to relationships with both employees and customers resulting from their integration of new businesses.
Any of the potential risks listed above could have a material and adverse effect on the operating entities’ ability to manage their business, revenue, and net income. The operating entities may need to raise additional debt funding or sell additional equity securities to make such acquisitions. The raising of additional debt funding by us, if required, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on the operating entities’ assets, that would restrict their operations. The sale of additional equity securities could result in additional dilution to the operating entities’ shareholders.
Risks Relating to Doing Business in the PRC
A severe or prolonged slowdown in the Chinese economy could materially and adversely affect the operating entities’ business and financial condition.
The rapid growth of the Chinese economy has slowed down since 2021 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China; the withdrawal of these expansionary monetary and fiscal policies could lead to a contraction. There are also concerns about the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the Chinese economy would likely materially and adversely affect the operating entities’ business, results of operations, and financial condition. In addition, continued turbulence in the international markets may adversely affect the operating entities’ ability to access capital markets to meet liquidity needs.
| 23 |
| Table of Contents |
Changes in the policies, regulations, rules, and the enforcement of laws of the PRC government may be quick with little advance notice and could have a significant impact upon the operating entities’ ability to operate profitably in the PRC.
The operating entities currently conduct substantially all of their operations and all of their revenue is generated in the PRC. Accordingly, economic, political, and legal developments in the PRC will significantly affect the operating entities’ business, financial condition, results of operations, and prospects. Policies, regulations, rules, and the enforcement of laws of the PRC government can have significant effects on economic conditions in the PRC and the ability of businesses to operate profitably. The operating entities’ ability to operate profitably in the PRC may be adversely affected by changes in policies, regulations, rules, and the enforcement of laws by the PRC government, which changes may be quick with little advance notice.
Given the Chinese government’s significant oversight and discretion over the conduct of the operating entities’ business, the Chinese government may intervene or influence the operating entities’ operations at any time, which could result in a material change in their operations and/or the value of our ordinary shares.
The Chinese government has significant oversight and discretion over the conduct of the operating entities’ business and may intervene or influence their operations at any time as the government deems appropriate to further regulatory, political, and societal goals, which could result in a material change in their operations and/or the value of our ordinary shares.
The Chinese government has published new policies that significantly affected certain industries, such as the education and Internet industries, and the operating entities cannot rule out the possibility that it will in the future release regulations or policies regarding the operating entities’ industry that could adversely affect their business, financial condition, and results of operations. Furthermore, if China adopts more stringent standards with respect to certain areas, such as environmental protection or corporate social responsibilities, the operating entities may incur increased compliance costs or become subject to additional restrictions in their operations. Certain areas of the law in China, including intellectual property rights and confidentiality protections, may also not be as effective as in the United States or other countries. In addition, we cannot predict the effects of future developments in the PRC legal system on the operating entities’ business operations, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to our Company and subsidiaries as a whole and our investors.
Any actions by the Chinese government, including any decision to intervene or influence the operating entities’ operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause them to make material changes to their operations, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. The operating entities’ ability to operate in China may be impaired by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, foreign investment limitations, and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. As such, the operating entities may be subject to various government and regulatory interference in the provinces in which they operate. The operating entities could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The operating entities may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply.
Furthermore, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future. According to the CSRC Notice, the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures immediately, and they shall be required to file with the CSRC for any subsequent offerings. Based on the foregoing, as our registration statement on Form F-1 in connection with our initial public offering was declared effective on February 4, 2021 and we completed our initial public offering and listing on February 9, 2021, we are currently not required to complete the filing procedures pursuant to the Trial Measures. However, in the event that we undertake new offerings or fundraising activities in the future, we may be required to complete the filing procedures. We cannot assure you that we will be able to timely obtain such permission, and even if such permission is obtained, there are certain risks that it will be denied or rescinded. Although we believe our Company and our PRC subsidiaries are currently not required to obtain permission from any Chinese authorities and has not received any notice of denial of permission to list on the U.S. stock exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry, particularly in the event permission to list on U.S. exchanges may be later required, or withheld or rescinded once given.
| 24 |
| Table of Contents |
Accordingly, government actions in the future, including any decision to intervene or influence the operating entities’ operations at any time or to exert control over an offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause the operating entities to make material changes to their operation, may limit or completely hinder our ability to offer or continue to offer securities to investors, and/or may cause the value of such securities to significantly decline or be worthless.
Greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact the operating entities’ business and our offerings.
On December 28, 2021, the CAC, together with 12 other governmental departments of the PRC, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provides that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, data processing operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures further requires that CIIOs and data processing operators that possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting listings in foreign countries.
On November 14, 2021, the CAC published the Security Administration Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC.
As of the date of this annual report, we have not received any notice from any authorities identifying any of the operating entities as a CIIO or requiring any of the operating entities to go through cybersecurity review or network data security review by the CAC. As the Cybersecurity Review Measures became effective and if the Security Administration Draft is enacted as proposed, we believe that the operating entities’ operations and our listing will not be affected and that the operating entities are not subject to cybersecurity review or network data security review by the CAC, given that: (i) as a company that mainly manufactures and sells wood-based activated carbon, our operating entities are unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) the operating entities’ customers are enterprises in Jiangsu Province, Zhejiang Province, Shanghai, and Guangdong Province in China and the operating entities do not have individual customers; as a result, the operating entities possess personal data of fewer than one million individual clients in the operating entities’ business operations as of the date of this annual report and do not anticipate that the operating entities will be collecting over one million users’ personal information in the near future, which the operating entities understand might otherwise subject the operating entities to the Cybersecurity Review Measures; and (iii) since the operating entities are in the activated carbon industry, data processed in their business is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the authorities. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, the operating entities will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on them. We cannot guarantee, however, that the operating entities will not be subject to cybersecurity review and network data security review in the future. During such reviews, the operating entities may be required to suspend their operations or experience other disruptions to their operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of the operating entities’ managerial and financial resources, which could materially and adversely affect the operating entities’ business, financial conditions, and results of operations and our future offerings.
| 25 |
| Table of Contents |
The Opinions issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council may subject the operating entities to additional compliance requirement in the future.
The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject the operating entities to additional compliance requirement in the future. As official guidance and interpretation of the Opinions remain unclear in several respects at this time, we cannot assure you that the operating entities will remain fully compliant with all new regulatory requirements of the Opinions or any future implementation rules on a timely basis, or at all.
The tariffs by the U.S. government and the trade war between the U.S. and China, and on a larger scale, internationally, may dampen global growth. If the U.S. government, in the future, subjects the products that the operating entities produce to tariffs, the operating entities’ business operations and revenue may be negatively impacted.
The U.S. government has, among other actions, imposed new or higher tariffs on specified products imported from China to penalize China for what it characterizes as unfair trade practices and China has responded by imposing new or higher tariffs on specified products imported from the United States. Based on our analysis of the list of products affected by the tariffs, we expect that the tariffs will not have a material direct impact on the operating entities’ business operations, as currently, the operating entities are based in the PRC, and deliver products to customers exclusively located within the PRC market. However, the imposed tariffs may cause the depreciation of the RMB currency and a contraction of certain PRC industries that will likely be affected by the tariffs. As such, there is the potential for a decrease in the spending powers of activated carbon customers, which in turn, may lead to a contraction of the PRC activated carbon market. As such, the operating entities may have access to fewer business opportunities and the operating entities’ operation may be negatively impacted. In addition, future actions or escalations by either the United States or China that affect trade relations may cause global economic turmoil and potentially have a negative impact on the operating entities’ business and we cannot provide any assurances as to whether such actions will occur or the form that they may take.
Increases in labor costs in the PRC may adversely affect the operating entities’ business and profitability.
China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China are expected to continue to grow. The average wage level for the operating entities’ employees has also increased in recent years. We expect that the operating entities’ labor costs, including wages and employee benefits, will continue to increase. Unless the operating entities are able to pass on these increased labor costs to their customers by increasing prices for their products, the operating entities’ profitability and results of operations may be materially and adversely affected.
In addition, pursuant to the PRC Labor Contract Law, or the “Labor Contract Law,” that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation, and unilaterally terminating labor contracts. In the event that the operating entities decide to terminate some of their employees or otherwise change their employment or labor practices, the Labor Contract Law and its implementation rules may limit the operating entities’ ability to effect those changes in a desirable or cost-effective manner, which could adversely affect the operating entities’ business and results of operations. Besides, pursuant to the Labor Contract Law and its amendments, dispatched employees are intended to be a supplementary form of employment and the fundamental form should be direct employment by enterprises and organizations that require employees.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that the operating entities’ employment practice does not and will not violate labor-related laws and regulations in China, which may subject them to labor disputes or government investigations. If the operating entities are deemed to have violated relevant labor laws and regulations, the operating entities could be required to provide additional compensation to their employees and the operating entities’ business, financial condition and results of operations could be materially and adversely affected.
| 26 |
| Table of Contents |
The operating entities are not in compliance with the PRC’s regulations relating to employee benefit plans, and as a result, they may be subject to penalties if they are not able to remediate the non-compliance.
Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds, and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of their employees up to a maximum amount specified by the local government from time to time at locations where they operate their businesses. 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. Our PRC subsidiaries have not paid adequate social insurance and housing provident fund payments for all their employees. The relevant PRC authorities may order the operating entities to make up the contributions to these plans. In addition, failure to make adequate social insurance payments may subject them to 0.05% late fees per day starting from the date of underpayment, and fines equal to one to three times the underpaid amount if the operating entities cannot make up the payments within the prescribed time. For failure to open the housing provident fund accounts for all the operating entities’ employees within the prescribed time, they may be ordered to open the accounts within the prescribed time, and if they cannot do so, they may be fined RMB10,000 to RMB50,000. For failure to make the adequate housing provident fund contributions, the operating entities may be ordered by the competent authorities to make such contributions within the prescribed time and any delay in doing so may subject them to a court order to make up the contributions. If the operating entities are subject to late fees or fines in relation to underpaid employee benefits, their financial condition and results of operations may be adversely affected. However, the risk of regulatory penalty that the relevant authorities may impose on the operating entities for their failure to make adequate contributions to the employee benefit plans for all their employees as required is remote, because they have not received any order from the relevant local authorities requiring the operating entities to make up the payments for employee benefit plans, and the relevant local authorities confirmed in writing that no records of violation were found on the operating entities for social insurance plan.
Because we are a British Virgin Islands corporation and substantial all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.
We are incorporated in the British Virgin Islands and conduct our operations primarily in China. Substantially all of our assets are located outside of the United States. In addition, five out of our seven directors and officers, namely Xinyang Wang, Jinwu Huang, Wenhua Liu, Wenbiao Zhang and Ming Yi, reside in the PRC; the other directors, namely, Phillip Connelly and Jian Chen, reside in the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the British Virgin Islands and of China may not permit you to enforce a judgment against our assets or the assets of our directors and officers.
It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the United States may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the State Council and the competent departments of the State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.
| 27 |
| Table of Contents |
Joint statement by the SEC and the PCAOB, rule changes by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offerings.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply a minimum offering size requirement for companies primarily operating in a “Restrictive Market,” (ii) adopt a new requirement relating to the qualification of management or the board of directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditor. On October 4, 2021, the SEC approved Nasdaq’s revised proposal for the rule changes.
On May 20, 2020, the U.S. Senate passed the HFCA Act requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited from trading on a national exchange. On December 2, 2020, the U.S. House of Representatives approved the HFCA Act. On December 18, 2020, the HFCA Act was signed into law.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which was signed into law on December 29, 2022, amending the HFCA Act and requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchange if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the board of directors of a company is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act.
On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions, which determinations were vacated on December 15, 2022.
On August 26, 2022, the CSRC, the MOF, and the PCAOB signed Statement of Protocol (the “Protocol”) governing inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC.
On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination.
| 28 |
| Table of Contents |
Our auditor is an independent registered public accounting firm with the PCAOB, and as an auditor of publicly traded companies in the U.S., is subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards and was not identified in the Determination Report as a firm subject to the PCAOB’s Determination. Our auditor is headquartered in Singapore, and subject to inspect by the PCAOB. However, the recent developments would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as they relate to the audit of our financial statements. To the extent this status changes in the future and our auditor’s audit documentation related to their audit reports for our Company is inaccessible for inspection by the PCAOB or if the PCAOB is unable to inspect or investigate our auditor completely because of a position taken by an authority in a foreign jurisdiction, trading in our shares could be prohibited under the HFCA Act, and, as a result, our shares could be delisted from Nasdaq. Delisting may cause a significant decrease in or a total loss of the value of our securities. Although a shareholder’s ownership of our Company may not decrease directly from delisting, the ownership may become worth much less, or, in some cases, lose its entire value.
PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or otherwise expose us or our PRC resident shareholders to liabilities or penalties.
In July 2014, the State Administration of Foreign Exchange (“SAFE”) promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or the “SAFE Circular 37,” which replaced the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles. According to the SAFE Circular 37, PRC residents or entities are required to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle, known as “SPV,” undergoes material events relating to any changes of basic information (such as change of such PRC residents or entities, name and operation term), increase or decrease of investment amount, transfer or exchanges of shares, and mergers or divisions.
As of the date of this annual report, four of our beneficial owners who are PRC residents have completed the registrations required by the SAFE Circular 37. We have urged all PRC residents or entities who directly or indirectly hold shares in our Company and who are currently known to us as being PRC residents to make the necessary applications, filings, and amendments as required under the SAFE Circular 37 and other related rules. We attempt to comply, and attempt to ensure that our shareholders and beneficial owners who are subject to these rules comply with the relevant requirements. We cannot, however, provide any assurances that all of our shareholders or beneficial owners who are PRC residents will comply with our request to comply with the SAFE Circular 37 requirements, nor can we assure that we will be inform of the identities of all the current and future PRC residents or entities holding direct or indirect interest in our Company. Failure by any of such shareholders or beneficial owners to comply with relevant requirements under these regulations could subject us to fines or sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to pay dividends or make distributions to us and limit our ability to increase our investment in our PRC subsidiaries, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owner of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary fillings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirement we may have, and any limitation on the ability of our subsidiaries to make payments to us and any tax we are required to pay could have a materially adverse effect on our ability to conduct our business.
We are a British Virgin Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
| 29 |
| Table of Contents |
Under PRC laws and regulations, our PRC subsidiary, MZ Pintai, as wholly foreign-owned enterprise in the PRC, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.
In response to the persistent capital outflow and the RMB’s depreciation against U.S. dollar in the fourth quarter of 2016, the People’s Bank of China (“PBOC”) and SAFE have implemented a series of capital control measures, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. For instance, PBOC issued the Circular on Further Clarification of Relevant Matters Relating to Offshore RMB Loans Provided by Domestic Enterprises, or “PBOC Circular 306,” on November 26, 2016, which provides that offshore RMB loans provided by a domestic enterprise to offshore enterprises with which it has an equity relationship shall not exceed 30% of the domestic enterprise’s most recent audited owner’s equity. PBOC Circular 306 may constrain our PRC subsidiaries’ ability to provide offshore loans to us. In addition, the Circular on Promoting the Reform of Foreign Exchange Management and Improving Authenticity and Compliance Review, or the SAFE Circular 3, issued on January 26, 2017, provides that the banks shall, when dealing with dividend remittance transactions from domestic enterprise to its offshore shareholders of more than US$50,000, review the relevant board resolutions, original tax filing form and audited financial statements of such domestic enterprise based on the principle of genuine transaction. The PRC government may continue to strengthen its capital controls, and our PRC subsidiaries’ dividends and other distributions may be subjected to tighter scrutiny in the future. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
In addition, the EIT Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless reduced under treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are tax resident. See “—Under the EIT Law, we may be classified as a ‘resident enterprise’ of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.”
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using proceeds from our future financing activities to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises, or “FIEs,” in China, capital contributions to our PRC subsidiary MZ Pintai, which is FIE, are subject to the approval of or filing with the Ministry of Commerce of the PRC (“MOFCOM”) or its local counterparts and registration with a local bank authorized by SAFE. There is, in effect, no statutory limit on the amount of capital contribution that we can make to our PRC subsidiaries. The reason is that there is no statutory limit on the amount of registered capital for our PRC subsidiaries, and we are allowed to make capital contributions to our PRC subsidiaries by subscribing for their initial registered capital and increased registered capital, provided that the PRC subsidiaries complete the relevant filing and registration procedures.
On the other hand, any foreign loan provided by us to our PRC subsidiaries is required to be registered with SAFE or its local branches or filed with SAFE in its information system, and our PRC subsidiaries may not procure foreign loans which exceed the difference between its total investment amount and registered capital (the “Current Foreign Debt Mechanism”) or, as an alternative, only procure loans subject to the calculation approach and limitations as provided in the PBOC’s Circular on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or “PBOC Notice No. 9” (the “PBOC Notice No. 9 Mechanism”), which shall not exceed 200% of the net asset of the relevant PRC subsidiary. According to PBOC Notice No. 9, after a transition period of one year since its promulgation, PBOC and SAFE will determine the cross-border financing administration mechanism for the FIEs after evaluating the overall implementation of PBOC Notice No. 9. As of the date hereof, neither PBOC nor SAFE has promulgated and made public any further rules, regulations, notices, or circulars in this regard. It is uncertain which mechanism will be adopted by PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC subsidiaries. Currently, our PRC subsidiaries have the flexibility to choose between the Current Foreign Debt Mechanism and the PBOC Notice No. 9 Mechanism. However, if a more stringent foreign debt mechanism becomes mandatory, our ability to provide loans to our PRC subsidiaries may be significantly limited, which may adversely affect our business, financial condition, and results of operations.
If we seek to make capital contribution into our PRC subsidiaries or provide any loan to our PRC subsidiaries in the future, we may not be able to obtain the required government approvals or complete the required registrations on a timely basis, if at all. If we fail to receive such approvals or complete such registrations, our ability to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
| 30 |
| Table of Contents |
Because the operating entities’ business is conducted in RMB and the price of our ordinary shares is quoted in U.S. dollars, changes in currency conversion rates may affect us.
The operating entities’ business is conducted in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in U.S. dollars. Changes in the exchange rate between RMB and U.S. dollar affect the value of our assets and the results of our operations, when presented in U.S. dollars. The value of RMB against the U.S. dollars and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of RMB may materially and adversely affect our cash flows, revenue, and financial condition.
Under the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.
The PRC Enterprise Income Tax Law (the “EIT Law”) and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or the “SAT,” issued a circular known as “SAT Circular 82” (partially abolished on December 29, 2017), which provides certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore are located in China. There are, however, no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” Although our board of directors and management are located in the PRC, it is unclear if the PRC tax authorities would determine that we should be classified as a PRC “resident enterprise.”
If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered a PRC “resident enterprise,” any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our ordinary shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). It is unclear whether holders of our ordinary shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse effect on the value of your investment in us and the price of our ordinary shares.
There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our Hong Kong subsidiaries may not qualify to enjoy certain treaty benefits.
Under the EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC and the Notice of the SAT on Issues Regarding the Implementation of Dividend Provisions in Tax Treaties, or the “SAT Circular 81,” issued by the SAT, such rate may be reduced to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to the distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the China-Hong Kong special arrangement and other applicable PRC laws. Furthermore, under the SAT’s Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties effective in August 2015, non-resident taxpayers shall determine whether they are qualified to enjoy the preferential tax treatment under the tax treaties and file relevant report and materials with the tax authorities. See “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.” In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Avoidance Arrangement with respect to any dividends paid by our PRC subsidiaries to their immediate holding company, MZ HK. As of the date of this annual report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. MZ HK intends to apply for the tax resident certificate if and when MZ Pintai plans to declare and pay dividends to MZ HK.
| 31 |
| Table of Contents |
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or “SAT Bulletin 7,” which was partially abolished in 2017. Pursuant to this bulletin, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.
There is uncertainty as to the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implications of certain future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. We may be subject to filing obligations or taxed if we are transferor in such transactions, and may be subject to withholding obligations if we are transferee in such transactions under SAT Bulletin 7. For transfer of shares in our Company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our Company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
| 32 |
| Table of Contents |
If we become directly subject to the scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price, and reputation.
U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism, and negative publicity by investors, financial commentators, and regulatory agencies, such as the SEC. Much of the scrutiny, criticism, and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism, and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism, and negative publicity will have on us, our business, and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from developing our business. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our stock.
The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.
Our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings, and other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings, or any of our other public pronouncements.
The M&A Rules and certain other PRC regulations establish complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the “M&A Rules,” and recently adopted PRC regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Mergers or acquisitions that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to MOFCOM when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the “Prior Notification Rules,” issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes may delay or inhibit our ability to complete such transactions. It is clear that our business would not be deemed to be in an industry that raises “national defense and security” or “national security” concerns. MOFCOM or other government agencies, however, may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.
| 33 |
| Table of Contents |
Risks Relating to Our Ordinary Shares and the Trading Market
Substantial future sales of our Class A ordinary shares or the anticipation of future sales of our ordinary shares, whether by us or our shareholders, could cause the price of our Class A ordinary shares to decline.
An aggregate of 7,358,421 Class A ordinary shares are outstanding as of the date of this annual report. If our existing shareholders sell, or indicate an intent to sell, substantial amounts of our ordinary shares in the public market, the trading price of our Class A ordinary shares could decline significantly. Similarly, the perception in the public market that our shareholders might sell our ordinary shares could also depress the market price of our shares. A decline in the price of our Class A ordinary shares might impede our ability to raise capital through the issuance of additional Class A ordinary shares or other equity securities. In addition, the issuance and sale by us of additional ordinary shares, or securities convertible into or exercisable for our ordinary shares, or the perception that we will issue such securities, could reduce the trading price for our Class A ordinary shares as well as make future sales of equity securities by us less attractive or not feasible.
Because we do not expect to pay dividends in the foreseeable future, you must rely on the price appreciation of our Class A ordinary shares for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our Class A ordinary shares as a source for any future dividend income.
Pursuant to the BVI Act, and our third amended and restated memorandum and articles of association, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think appropriate, if they are satisfied on reasonable grounds that immediately following the dividend payment, the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions, and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our Class A ordinary shares will likely depend entirely upon any future price appreciation of our Class A ordinary shares. There is no guarantee that our Class A ordinary shares will appreciate in value or even maintain the price at which you purchased the Class A ordinary shares. You may not realize a return on your investment in our Class A ordinary shares and you may even lose your entire investment in our Class A ordinary shares.
We have adopted a share incentive plan and may grant share-based awards in the future, which could lead to share-based compensation expenses and significant dilutive effect to existing shareholders.
In September 2023, our shareholders approved the 2023 Share Incentive Plan (the “2023 Plan”), pursuant to which share-based awards may be granted to our employees, directors, and consultants. Under the 2023 Plan, the maximum aggregate number of Class A ordinary shares that may be issued under the plan is initially approximately 8,240 shares, as adjusted to reflect (i) a 1-for-30 reverse share split effected on January 18, 2024, and (ii) a 1-for-25 share split effected on May 19, 2025. The shares to be issued pursuant to the awards under this plan shall be authorized, but unissued, or reacquired ordinary shares. As of the date of this annual report, none of such awards has been granted. We expect to grant awards under the 2023 Plan in the future. In the future, if we grant additional share incentives to our employees or directors, we will incur additional share-based compensation expenses, and our results of operations will be further adversely affected. Furthermore, the grant of share-based awards and the vesting and exercise thereof could significantly dilute existing shareholders’ ownership and materially and adversely affect the trading price of our Class A ordinary shares.
Securities analysts may not cover our Class A ordinary shares and this may have a negative impact on the market price of our Class A ordinary shares.
The trading market for our Class A ordinary shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over independent analysts (provided that we have engaged various non-independent analysts). We do not currently have and may never obtain research coverage by independent securities and industry analysts. If no independent securities or industry analysts commence coverage of us, the trading price for our Class A ordinary shares would be negatively impacted. If we obtain independent securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our Class A ordinary shares, changes their opinion of our shares, or publishes inaccurate or unfavorable research about our business, the price of our Class A ordinary shares would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class A ordinary shares could decrease and we could lose visibility in the financial markets, which could cause the price and trading volume of our Class A ordinary shares to decline.
| 34 |
| Table of Contents |
The trading price of our Class A ordinary shares is likely to be volatile, which could result in substantial losses to our investors.
The trading price of our Class A ordinary shares may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in their trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our Class A ordinary shares, regardless of our actual operating performance.
In addition, the market price of our Class A ordinary shares may be volatile, both because of actual and perceived changes in our financial results and reports, and because of general volatility in the stock market. The factors that could cause fluctuations in our share price may include, among other factors discussed in this section, the following:
| · | actual or anticipated variations in the financial results and prospects of our Company or other companies in the activated carbon business; |
|
|
|
| · | changes in financial estimates by research analysts; |
|
|
|
| · | mergers or other business combinations involving us; |
|
|
|
| · | additions and departures of key personnel and senior management; |
|
|
|
| · | changes in accounting principles; |
|
|
|
| · | the passage of legislation or other developments affecting us or our industry; |
|
|
|
| · | the trading volume of our Class A ordinary shares in the public market; |
|
|
|
| · | the release of lockup, escrow, or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; |
|
|
|
| · | changes in economic conditions, including fluctuations in global and Chinese economies; |
|
|
|
| · | financial market conditions; |
|
|
|
| · | natural disasters, pandemic, terrorist acts, acts of war, or periods of civil unrest; and |
|
|
|
| · | the realization of some or all of the risks described in this section. |
In addition, the stock markets have experienced significant price and trading volume fluctuations from time to time, and the stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations may materially and adversely affect the market price of our Class A ordinary shares.
Techniques employed by short sellers may drive down the market price of our Class A ordinary shares.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.
| 35 |
| Table of Contents |
Public companies listed in the United States that have a substantial majority of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
We may in the future be the subject of unfavorable allegations made by short sellers. Any such allegations may be followed by periods of instability in the market price of our Class A ordinary shares and negative publicity. If and when we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law, or issues of commercial confidentiality. Such a situation could be costly and time-consuming and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations and shareholder’s equity, and the value of any investment in our could be greatly reduced or rendered worthless.
The requirements of being a public company may strain our resources and divert management’s attention.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of Nasdaq, and other applicable securities rules and regulations. Despite recent reforms made possible by the Jumpstart Our Business Startups Act of 2012, or the “JOBS Act,” compliance with these rules and regulations will nonetheless increase our legal, accounting, and financial compliance costs and investor relations and public relations costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual and current reports with respect to our business and operating results as well as proxy statements.
As a result of disclosure of information in the Form 20‑F and in other filings required of a public company, our business and financial condition are more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.
Being a public company and these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting, and other expenses that we would not incur as a foreign private issuer.
As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we are not required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. While we currently are qualified as a foreign private issuer, we may cease to qualify as a foreign private issuer in the future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of operations.
Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.
As a business company incorporated in the British Virgin Islands company with limited liability that is listed on the Nasdaq, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the British Virgin Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. We have relied on and plan to rely on home country practice with respect to our corporate governance. Specifically, we have elected to be exempt from the requirements under (a) Nasdaq Listing Rule 5635 to obtain shareholder approval for (i) the issuance 20% or more of our outstanding ordinary shares or voting power in a private offering, (ii) the issuance of securities pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended, (iii) the issuance of securities when the issuance or potential issuance will result in a change of control of our Company, and (iv) certain acquisitions in connection with the acquisition of the stock or assets of another company,(b) Nasdaq Listing Rule 5640, which requires that the voting rights of a listed company cannot be disparately reduced or restricted through any corporate action or issuance, and (c) Nasdaq Listing rule 5620, which requires each company with shares listed on Nasdaq hold an annual meeting of shareholders no later than one year after the end of each of the company’s fiscal years. As a result, our shareholders may be afforded less protection than they otherwise would enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
| 36 |
| Table of Contents |
If we cannot satisfy, or continue to satisfy, the continued listing requirements and other rules of the Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.
Our securities are listed on the Nasdaq Capital Market. In order to maintain our listing on the Nasdaq Capital Market, we are required to comply with certain rules, including those regarding minimum stockholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements.
On January 16, 2026, the Company received a written notice from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that Nasdaq has determined to delist the Company’s Class A ordinary shares from The Nasdaq Capital Market (the “Staff Determination”). The Staff Determination was issued because the bid price of the Company’s Class A ordinary share has closed at less than $1.00 per share for the previous 30 consecutive business days from December 3, 2025 through January 15, 2026 and, as a result, the Company does not comply with Listing Rule 5550(a)(2). In addition, pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period or extension specified in Rule 5810(c)(3)(A) because the Company has effected a reverse stock split over the prior one-year period and has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more. As noted in the Staff Determination, the Company effected a 1-for-30 reverse stock split on January 19, 2024 and a 1-for-25 reverse stock split on May 19, 2025, resulting in a cumulative 1-for-750 reverse stock split ratio for the Class A ordinary shares.
On January 21, 2026, the Company submitted a hearing request to appeal the Staff Determination to a hearings penal (the “Panel”). The hearing request automatically stays the suspension of trading in the Company’s securities and the filing of the Form 25-NSE with the Securities and Exchange Commission, in each case pending the Panel’s decision. In connection with the hearing, the Company intends to present a plan to the Panel seeking an exception or other relief to address the deficiencies identified in the Staff Determination. During the appeal process with the Panel, the Company’s Class A ordinary shares will continue to be listed and trade on Nasdaq.
As of the date of this annual report, our Class A Ordinary Shares continue to be listed and traded on Nasdaq. However, the Panel may not grant our hearing request, and we may be unable to maintain compliance with Nasdaq continued listing requirements in the future. If our securities are subsequently delisted from trading, we could face significant consequences, including:
| · | a limited availability for market quotations for our securities; |
|
|
|
| · | reduced liquidity with respect to our securities; |
|
|
|
| · | a determination that our Class A ordinary shares is a “penny stock,” which will require brokers trading in our Class A ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Class A ordinary shares; |
|
|
|
| · | limited amount of news and analyst coverage; and |
|
|
|
| · | a decreased ability to issue additional securities or obtain additional financing in the future. |
Our auditor have included an explanatory paragraph in their opinion regarding our ability to continue as a going concern. If we are unable to continue as a going concern, our securities will have little or no value.
Enrome LLP, our independent registered public accounting firm for the fiscal year ended September 30, 2025, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended September 30, 2025, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position, we may not be able to continue as a going concern.
We anticipate that we will continue to generate operating losses and use cash in operations through the foreseeable future. As further set forth above, we anticipate that we will need significant additional capital, or we may be required to curtail or cease operations.
We do not know whether a market for the Class A ordinary shares will be sustained or what the trading price of the Class A ordinary shares will be and as a result it may be difficult for you to sell your Class A ordinary shares.
Although our Class A ordinary shares trade on Nasdaq, an active trading market for the Class A ordinary shares may not be sustained. It may be difficult for you to sell your Class A ordinary shares without depressing the market price for the Class A ordinary shares. As a result of these and other factors, you may not be able to sell your Class A ordinary shares. Further, an inactive market may also impair our ability to raise capital by selling Class A ordinary shares, or may impair our ability to enter into strategic partnerships or acquire companies or products by using our Class A ordinary shares as consideration.
| 37 |
| Table of Contents |
Anti-takeover provisions in our third amended and restated memorandum and articles of association may discourage, delay, or prevent a change in control.
Our third amended and restated memorandum and articles of association became effective on July 22, 2022. Some provisions of our third amended and restated memorandum and articles of association may discourage, delay, or prevent a change in control of our Company or management that shareholders may consider favorable, including, among other things, the following:
| · | provisions that authorize our board of directors to issue shares with preferred, deferred, or other special rights or restrictions without any further vote or action by our shareholders; and |
|
|
|
| · | provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings. |
The exclusive jurisdiction provision in our third amended and restated articles of association may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our third amended and restated articles provide that, to the fullest extent permitted by applicable law, unless our board of directors consents in writing to the selection of an alternative forum, the courts of the British Virgin Islands shall have exclusive jurisdiction to hear and determine:
| · | (i) any dispute, suit, action, proceedings, controversy, or claim of any kind arising out of or in connection with our memorandum and/or articles, including, without limitation, claims for set-off and counterclaims and any dispute, suit, action, proceedings, controversy, or claim of any kind arising out of or in connection with: (x) the creation, validity, effect, interpretation, performance, or non-performance of, or the legal relationships established by, our memorandum and/or articles; or (y) any non-contractual obligations arising out of or in connection with our memorandum and/or articles; or |
|
|
|
| · | (ii) any dispute, suit, action (including, without limitation, any derivative action or proceeding brought on behalf or in our name or any application for permissions to bring a derivative action), proceedings, controversy, or claim of any kind relating or connected to us, our board of directors, officers, management, or shareholders arising out of or in connection with the BVI Act, the Insolvency Act, 2020 of the British Virgin Islands, as amended from time to time, any other statute, rule, or common law of the British Virgin Islands affecting any relationship between us, our shareholders, and/or our directors and officers (or any of them) or any rights and duties established thereby (including, without limitation, Division 3 of Part VI and Part XI of the BVI Act and section 162(1)(b) of the Insolvency Act, 2020, and fiduciary or other duties owed by any director, officer, or shareholder of the Company to the Company or the Company’s shareholders). |
To the fullest extent permitted by applicable laws, unless our board of directors consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act or the Exchange Act. Notwithstanding the foregoing, we note that holders of our ordinary shares cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, the exclusive jurisdiction provision will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the Securities Act or the Exchange Act, or the respective rules and regulations promulgated thereunder.
Although we believe this provision benefits us by providing consistency in the application of BVI law in the types of lawsuits to which it applies, the provision may impose additional litigation costs on shareholders in pursuing such claims, particularly if the shareholders do not reside in or near the British Virgin Islands. Additionally, the provision may limit our shareholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, or employees, which may discourage the filing of such lawsuits. The courts of the British Virgin Islands may also reach different judgment or results than would other courts, including courts where a shareholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our shareholders. Alternatively, if a court were to find the exclusive jurisdiction provision contained in our third amended and restated articles to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
| 38 |
| Table of Contents |
Our board of directors may refuse or delay the registration of the transfer of ordinary shares in certain circumstances.
Except in connection with the settlement of trades or transactions entered into through the facilities of a stock exchange or automated quotation system on which our ordinary shares are listed or traded from time to time, our board of directors may resolve to refuse or delay the registration of the transfer of our ordinary shares. Where our directors do so, they must specify the reason(s) for this refusal or delay in a resolution of the board of directors. Our directors may also refuse or delay the registration of any transfer of ordinary shares if the transferor has failed to pay an amount due in respect to those ordinary shares. If our directors refuse to register a transfer, they shall, as soon as reasonably practicable, send the transferor and the transferee a notice of the refusal or delay in the approved form.
This, however, will not affect market transactions of the ordinary shares purchased by investors in a public offering. Where the ordinary shares are listed on a stock exchange, the ordinary shares may be transferred without the need for a written instrument of transfer, if the transfer is carried out in accordance with the rules of the stock exchange and other requirements applicable to the ordinary shares listed on the stock exchange.
During the course of the audit of our consolidated financial statements, we identified a material weakness in our internal control over financial reporting. If we fail to establish and maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our ordinary shares may be adversely impacted.
We are subject to reporting obligations under U.S. securities laws. The SEC adopted rules pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of its internal control over financial reporting.
We, in connection with the preparation of our consolidated financial statements for the fiscal year ended September 30, 2025, identified a material weakness in our internal control over financial reporting, that is, we do not have sufficient in-house personnel in our accounting department with sufficient knowledge of the accounting principles generally accepted in the U.S. (“U.S. GAAP”) and SEC reporting rules. See “Item 15. Controls and Procedures—Disclosure Controls and Procedures.” Our management is currently in the process of evaluating the steps necessary to remediate the ineffectiveness, such as (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework, and (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel. Measures that we implement may not fully address the material weakness in our internal control over financial reporting and we may not be able to conclude that the material weakness has been fully remedied.
Failure to correct the material weakness and other control deficiencies or failure to discover and address any other control deficiencies could result in inaccuracies in our consolidated financial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations, and prospects, as well as the trading price of our ordinary shares, may be materially and adversely affected. Due to the material weakness in our internal control over financial reporting as described above, our management concluded that our internal control over financial reporting was not effective as of September 30, 2025. This could adversely affect the market price of our Class A ordinary shares due to a loss of investor confidence in the reliability of our reporting processes.
We are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this will make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This will make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
| 39 |
| Table of Contents |
Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and our Class A ordinary shares.
For as long as we remain an “emerging growth company,” as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our Class A ordinary shares less attractive as a result, there may be a less active trading market for our Class A ordinary shares and our share price may be more volatile.
The laws of the British Virgin Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.
Our corporate affairs are governed by our third amended and restated memorandum and articles of association, by the BVI Act and the common law of the British Virgin Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands. The common law in the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands and from English common law. For example, under the rule established in the English case known as Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors subject to a number of limited exceptions. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the British Virgin Islands) are binding on a court in the British Virgin Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the British Virgin Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the British Virgin Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Economic substance legislation of the British Virgin Islands may adversely impact us or our operations.
The British Virgin Islands, together with several other non-European Union jurisdictions, have introduced legislation aimed at addressing concerns raised by the Council of the European Union (the “EU”) as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Substance Law”) came into force in the British Virgin Islands introducing certain economic substance requirements for British Virgin Islands “relevant entities” which are engaged in certain banking, insurance, fund management, financing and leasing, headquarters, shipping, holding company, intellectual property or distribution and service center business (being “relevant activities”) and are in receipt of gross income arising from relevant activities in any relevant financial period. In the case of business companies incorporated before January 1, 2019, the economic substance requirements apply for financial years commencing June 30, 2019.
The economic substance requirements that are imposed include that in-scope companies be directed and managed in the British Virgin Islands, have core income generating activities in the British Virgin Islands, and have an adequate level of employees, expenditures, and premises in the British Virgin Islands. Business companies that carry on holding company business (which means it only holds equity participations in other entities and only earns dividends and capital gains) will be subject to reduced substance requirements.
Based on the Substance Law and announced guidance currently issued, we are currently subject to limited substance requirements applicable to a holding company. At present, we are only required to confirm we comply with the BVI Business Companies Act, 2020 (as amended) and that we have adequate premises and employees in the British Virgin Islands for passively holding or actively managing the equity participation, but to the extent we are required to increase our substance in the British Virgin Islands due to any regulatory change, it could result in additional costs. Although it is presently anticipated that the Substance Law (including the ongoing EU review of the British Virgin Islands’ implementation of such law), will have minimal material impact on us or our operations, as the legislation and guidance are new and remain subject to further clarification, adjustment, interpretation, and the EU review, it is not currently possible to ascertain the precise impact of these developments on us, for example, whether we could also be treated as carrying out “headquarter business” in the British Virgin Islands (despite our headquarters physically being in China). It is therefore possible that we may be subject to additional requirements under the Substance Law in the future. Should that occur, it is our intention to seek appropriate advice and take appropriate steps to ensure that we (to the extent we fall within the scope of the Substance Law) are fully compliant.
| 40 |
| Table of Contents |
If we are classified as a PFIC, United States taxpayers who own our Class A ordinary shares may have adverse United States federal income tax consequences.
A non-U.S. corporation such as ourselves will be classified as a PFIC, for any taxable year if, for such year, either:
| · | At least 75% of our gross income for the year is passive income; or |
|
|
|
| · | The average percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or which are held for the production of passive income is at least 50%. |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.
If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Class A ordinary shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.
Depending on the amount of cash we have and any other assets held for the production of passive income, it is possible that, for our current taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income, in which case we would be deemed a PFIC, which could have adverse U.S. federal income tax consequences for U.S. taxpayers who are shareholders. We will make this determination following the end of any particular tax year.
Although the law in this regard is unclear, we treat the operating entities as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operations of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their operating results in our consolidated financial statements. For purposes of the PFIC analysis, in general, a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value.
For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—PFIC consequences.”
The dual class structure of our ordinary shares has the effect of concentrating voting control with Ms. Yefang Zhang, and her interests may not be aligned with the interests of our other shareholders.
We have a dual-class voting structure consisting of Class A ordinary shares and Class B ordinary shares. Under this structure, holders of Class A ordinary shares are entitled to one vote per one Class A ordinary share, and holders of Class B ordinary shares are entitled to 50 votes per one Class B ordinary share, which may cause the holders of Class B ordinary shares to have an unbalanced, higher concentration of voting power. As of the date of this annual report, Weastfiance Group, Inc. holds 631,391 Class B Ordinary Shares and Ms. Yefang Zhang indirectly holds 4,028 Class B Ordinary Shares. Pursuant to a Voting Agreement dated September 16, 2025, by and between Weastfinace Group, Inc. and Yefang Zhang, Weastfinace Group granted Ms. Zhang an irrevocable proxy to vote all of its Class B Ordinary Shares. Consequently, Ms. Yefang Zhang indirectly controls 635,419, or 100% of our issued and outstanding Class B ordinary shares, representing approximately 86.4% of the voting rights in our Company. As a result, Ms. Zhang as the principal shareholder has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. She may take actions that are not in the best interests of us or our other shareholders. These corporate actions may be taken even if they are opposed by our other shareholders. Further, such concentration of voting power may discourage, prevent, or delay the consummation of recent change of control transactions that shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. Future issuances of Class B ordinary shares may also be dilutive to the holders of Class A ordinary shares. As a result, the market price of our Class A ordinary shares could be adversely affected.
The dual-class structure of our ordinary shares may adversely affect the trading market for our Class A ordinary shares.
Several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A ordinary shares.
| 41 |
| Table of Contents |
Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
On March 31, 2022, we established a wholly owned subsidiary, CN Energy USA Inc., as a corporation pursuant to the laws of the State of Delaware. CN Energy currently holds 100% of the equity interests in CN Energy USA Inc.
On April 8, 2022, we formed Zhoushan Xinyue, a PRC limited liability company. Zhoushan Xinyue is a wholly owned subsidiary of Hangzhou Forasen.
On April 13, 2022, we formed Ningbo Nadoutong, a PRC limited liability company. Ningbo Nadoutong was deregistered.
On October 11, 2022, we formed Zhejiang Yongfeng New Material, a PRC limited liability company. Zhejiang Yongfeng New Material is a wholly owned subsidiary of Hangzhou Forasen.
On November 11, 2022, we completed the acquisition of MZ HK, which wholly owns Yunnan Yuemu through MZ Pintai, pursuant to an equity transfer agreement (the “Equity Transfer Agreement”) dated September 30, 2022 with Shenzhen Xiangfeng Trading Co., Ltd. (“Shenzhen Xiangfeng”). Pursuant to the Equity Transfer Agreement, Shenzhen Xiangfeng first transferred 100% of its equity interests in Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”) to Yunnan Yuemu, and Shenzhen Xiangfeng then sold and transferred, and we purchased and acquired, 100% of its equity interests in MZ HK for a consideration of $17,706,575.88 and the issuance of 8,819,520 Class A ordinary shares of our Company having a value of $18,373,771, delivered to Shenzhen Xiangfeng and its designees.
2023 Corporate Restructuring
In December 2023, we initiated a strategic reorganization to enhance our corporate framework. This restructuring was carried out through four equity transfer agreements between our subsidiaries, as illustrated below.
On December 12, 2023, Zhejiang CN Energy and CN Energy Development entered into an equity transfer agreement. According to the terms of that agreement, CN Energy Development transferred 100% of the equity of Zhejiang New Material to Zhejiang CN Energy for no consideration. This equity transfer resulted in Zhejiang New Material being a wholly-owned subsidiary of Zhejiang CN Energy.
On December 15, 2023, Hangzhou Forasen and Zhejiang New Material signed an equity transfer agreement. Under this agreement, Hangzhou Forasen agreed to transfer 100% of its equity in Zhoushan Xinyue to Zhejiang New Material for no consideration. Upon the completion of this equity transfer, Zhoushan Xinyue became a wholly-owned subsidiary of Zhejiang New Material. On the same date, Zhejiang New Material and CN Energy Development entered into an equity transfer agreement, pursuant to which CN Energy Development transferred all its equity interest in Ningbo Nadoutong to Zhejiang New Material for no consideration. After this transfer, Ningbo Nadoutong became a wholly-owned subsidiary of Zhejiang New Material.
On December 21, 2023, Hangzhou Forasen and Zhejiang New Material entered into another equity transfer agreement, under which Hangzhou Forasen transferred 100% of its equity in Zhejiang Yongfeng New Material to Zhejiang New Material for no consideration. Upon the completion of this equity transfer, Zhejiang Yongfeng New Material became a wholly-owned subsidiary of Zhejiang New Material.
2024 Corporate Restructuring to dispose of equity interests in CN Energy Development and Hangzhou Forasen
On September 12, 2024, CN Energy, through its wholly owned subsidiary CN Energy Industrial Development Co., Ltd. (“CN Energy Development”), entered into a Share Transfer Agreement with Zhejiang Sentuo Industrial Holding Group., Ltd. Pursuant to the Agreement, CN Energy Development transferred all of its equity interest in Hangzhou Forasen Technology Co., Ltd., which constituted 100% of the issued and outstanding equity of Hangzhou Forasen Technology Co., Ltd, to Zhejiang Sentuo Industrial Holding Group., Ltd.
| 42 |
| Table of Contents |
On September 25, 2024, CN Energy, through its wholly owned subsidiaries in China, Zhejiang CN Energy Technology Development Co., Ltd. and Manzhouli CN Energy Technology Co., Ltd., entered into a Share Transfer Agreement with Xinbaocheng Industrial Group Co., Ltd. Pursuant to the Agreement, Zhejiang CN Energy Technology Development Co., Ltd. transferred 90% of its equity in CN Energy Development and its subsidiaries (Khingan Forasen and Zhongxing Energy), and Manzhouli CN Energy Technology Co., Ltd. transferred its 10% of equity in CN Energy Development and its subsidiaries (Khingan Forasen and Zhongxing Energy) to Shanghai Xinbaocheng Industrial Group Co., Ltd.
On November 29, 2024, the Company incorporated a wholly owned subsidiary, Ewforest Group Limited (“Ewforest”), in Hong Kong.
In January and February 2025, CN Energy conducted a reorganization of its wholly owned subsidiaries, Zhejiang CN Energy New Material Co., Ltd. (“Zhejiang New Material”), Zhoushan Xinyue Trading Co., Ltd (“Zhoushan Xinyue”) and Ningbo Nadoutong Trading Co., Ltd (“Ningbo Nadoutong”), under the holding of MZ Pintai Mining (Zhejiang) Co., Ltd (“MZ Pintai”). Ningbo Nadoutong has been registered.
On January 20, 2025, CN Energy entered into a Share Transfer Agreement with Asia Rubber Resources Limited (“Asia Rubber Resources”). Pursuant to the agreement, CN Energy agreed to transfer 100% of its equity in Clean Energy Holdings Limited (“Energy Holdings”) to Asia Rubber Resources for a total purchase price of HKD10,000 (approximately $1,281). In connection with the agreement, Energy Holdings’ fully owned subsidiaries, Zhejiang CN Energy Technology Development Co., Ltd. (“Zhejiang CN Energy”) and Manzhouli CN Energy Industrial Co., Ltd. (“Manzhouli CN Energy”), Manzhouli CN Energy Technology Co., Ltd. (“Manzhouli CN Technology”) and Zhejiang Yongfeng New Material Technology Co., Ltd. (“Zhejiang Yongfeng New Material”) were altogether disposed to Asia Rubber Resources.
Completion of Ynong Acquisition
On April 30, 2025, we and our wholly owned subsidiary, Ewforest Group Limited (“Ewforest”), closed a transaction involving the acquisition of 4,500 shares of Ynong International Group Limited (“HoldCo”) from Ynong Group Limited (“Ynong Group”), pursuant to the Share Purchase Agreement dated as of March 31, 2025 , as amended by the Amendment to Share Purchase Agreement dated as of April 23, 2025, as amended, the “Ynong Purchase Agreement”), entered into between the Company, Ewforest Group, Ynong Group, and HoldCo, and pursuant to the side letters (the “Side Letters”) entered into between the Ynong Group, an Indonesian entity (“PGIF”) and the operating Indonesian entity (“PWAN”). The total consideration for the 4,500 shares of HoldCo is $40,913,370, which consists of: (i) the 50,000,000 shares, which had an aggregate value of $10,000,000; (ii) the account receivables, which have an aggregate value of $24,548,022; and (iii) the cash payment of $6,365,348 to be paid by the Company to Ynong Group as a post-closing obligation.
| 43 |
| Table of Contents |
Pursuant to the Ynong Purchase Agreement and Side Letters, PWAN will appoint an individual designated by the Company to serve on the board of directors of PWAN on or prior to June 30, 2025, pursuant to a director agreement to be entered into between the individual designated by the Company and PWAN.
On April 24, 2025, the Dali City People’s Court issued a ruling (the “Execution Order”), regarding Yunnan Honghao, a previously wholly owned subsidiary of the Company. The ruling froze the assets of Shenzhen Xiangfeng Trading Co., Ltd. (“Shenzhen Xiangfeng”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honghao by the Company back to Shenzhen Xiangfeng. Shenzhen Xiangfeng will in turn return the cash payments made by the Company and the shares of the Company issued to Shenzhen Xiangfeng in connection with the Equity Transfer Agreement, dated September 30, 2022, back to the Company.
On June 12, 2025, Pathenbot Group Inc. (“Pathenbot”) was incorporated under the laws of the State of California, the United States of America. CN Energy USA owns 100% of the equity interests in Pathenbot.
On July 2, 2025, Hangzhou Tanmulai Xin Activated Carbon Co., Ltd (“Tanmulai”) was incorporated under the laws of the PRC, Zhejiang New Material owns 100% of the equity interests in Tanmulai.
On October 22, 2025, CNEY Holdings, LLC was organized under the laws of the State of Utah. CN Energy owns 100% of the equity interests in CNEY Holdings, LLC.
See “Item 3. Key Information” for our corporate structure.
Share Consolidation
On January 18, 2024, we effected a consolidation of our issued Class A ordinary shares, no par value, and Class B ordinary shares, no par value (“Share Consolidation”), which was approved by our board of directors on December 20, 2023. As a result of the Share Consolidation, every 30 issued Class A ordinary shares automatically consolidated into one Class A ordinary share and every 30 issued Class B ordinary shares automatically consolidated into one Class B ordinary share, without any action on the part of the shareholders. Beginning with the opening of trading on January 19, 2024, our Class A ordinary shares began to trade on a post-Share Consolidation basis on Nasdaq.
On May 19, 2025, the Company effectuated a 1-for-25 reverse stock split of the Company’s Class A ordinary shares with no par value. The reverse stock split reduced the number of Class A ordinary shares issued and outstanding from approximately 75.28 million to approximately 3.01 million.
Corporate Information
Our principal executive offices are located at Building 2-B, Room 206, No. 268 Shiniu Road, Liandu District, Lishui City, Zhejiang Province, the PRC, and our phone number is +86-571-87555823. Our registered office in the British Virgin Islands is located at 2/F, Palm Grove House, P.O. Box 3340, Road Town, Tortola, British Virgin Islands, and the phone number of our registered office is +1 (284) 393-6004. We maintain a corporate website at www.cneny.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report. Our agent for service of process in the United States is CN Energy USA Inc., located at 2400 Chico Ave, South El Monte, CA 91733.
| 44 |
| Table of Contents |
The SEC maintains a website at www.sec.gov that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.
For information regarding our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
B. Business Overview
Overview
The operating entities manufacture and supply 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”). The operating entities’ current facility is located in Lishui City, Zhejiang Province. The operating entities generate revenue primarily from selling activated carbon. The operating entities will focus on the deep processing and activation of activated carbon.
As a manufacturer of wood-based activated carbon, the operating entities’ primary raw materials are raw carbon materials, which the operating entities source from their suppliers.
The operating entities produce wood-based activated carbon that is conformed to their customers’ specifications. The operating entities’ activated carbon customers are mainly activated carbon wholesalers and companies engaged in the activated carbon deep processing business. The operating entities’ activated carbon customers are all based in the PRC and currently mainly located in Jiangsu Province, Zhejiang Province, Shanghai and Guangdong Province. The primary end users of the operating entities’ activated carbon are mainly food and beverage producers, industrial manufacturers, pharmaceutical manufacturers, and companies engaged in environmental protection.
In addition, the operating entities have provided activated carbon related technical services to Hangzhou Lianmu Technology Co., Ltd. (“Lianmu Technology”) from time to time since January 1, 2017. Their technical services included activated carbon mixing ratio adjustments, activated carbon component indicator analyses, absorptive capacity tests, and other technical support. The operating entities expect to provide similar technical services to Lianmu Technology and other customers if requested.
The Company expanded its business operations in the United State by launching the operations of Pathenbot Group Inc. in October 2025. This subsidiary focuses on providing robotic solutions to small and medium-sized enterprises in the United State. Its primary products include logistics robots, food service robots, and industrial robots, among others. The services offered mainly include localized data storage, after-sales support, and product development, research, and sales.
For the fiscal years ended September 30, 2025, 2024, and 2023, the operating entities sold 31,237, 43,989 and 40,251 tons of activated carbon. For the same years, the total revenue was approximately $35.6 million, $51.0 million, and $57.9 million, and the results of operation were at a net loss of $15.9 million, net loss of $14.0 million and $5.6 million, respectively. For the same years, the revenue derived from Activated Carbon Production accounted for 100%, 100%, and 99.9% of the total revenue, respectively; and the revenue derived from technical services accounted for nil, nil, and nil of the total revenue, respectively.
Competition
All of the operating entities’ activated carbon sales are in the PRC market. The operating entities’ major competitors are companies that manufacture and sell activated carbon in the PRC market. The operating entities’ main competitors in Activated Carbon Production include wood-based activated carbon manufacturers, such as Fujian Xinsen Carbon Industry Co., Ltd., and coal-based activated carbon manufacturers, such as Shanxi Xinhua Activated Carbon Co., Ltd., Ningxia Huahui Activated Carbon Company Limited, Shenhua Ningxia Coal Industry Group Co., Ltd., and Xingtai Coal Chemical Co., Ltd. The operating entities compete for customers primarily on the basis of activated carbon prices, activated carbon quality and characteristics, transportation costs, customer relationships, and the reliability of supply. The demand for the operating entities’ activated carbon is significantly dependent on the general economy in the PRC.
| 45 |
| Table of Contents |
Competitive Strengths
We believe the operating entities have the following competitive strengths:
Advanced Activated Carbon Production Technology and Steam-Based Cogeneration Process
Activated carbon is typically produced using either of the following two processes: (i) steam activation, in which raw materials are carbonized and then activated with steam, and (ii) chemical activation, which involves mixing raw materials with an activating agent, usually phosphoric acid, to swell the raw materials and open up the cellulose structure. The operating entities produce wood-based activated carbon and biomass electricity from forestry residues, little fuelwood, and wood wastes through an activated carbon and electricity cogeneration process (the “Cogeneration Process”) they have developed over the years. The operating entities’ Cogeneration Process is based on steam activation, instead of chemical activation, and does not involve mixing raw materials with phosphoric acid. As a result, the activated carbon the operating entities produce does not contain residual phosphate and, unlike activated carbon produced through chemical activation, may be used in industries that require activated carbon with higher purity, such as pharmaceutical manufacturing and food and beverage production. In addition, compared with the traditional steam activation process, which only produces activated carbon and makes no use of the synthesis gas from raw materials being carbonized, the operating entities’ Cogeneration Process uses the synthesis gas to generate biomass electricity. Therefore, we believe the operating entities’ production process is more efficient, results in less pollution, and yields higher profits after selling both activated carbon and biomass electricity when compared with the traditional steam activation process. For details of the production process, please see “—Production Process.”
As of the date of this annual report, the operating entities claim ownership of certain trade secrets and proprietary know-how developed by and used in their business. See “—Intellectual Property” for more information. The operating entities are also constantly looking for new cooperative opportunities with research centers to further improve their method.
High-Quality Wood-Based Activated Carbon Products
The chemical activation process of activated carbon production uses coal as raw material. Coal often contains impurities, metal salt, and ash, and chemicals used in the chemical activation process may cause secondary pollution to the activated carbon products. Therefore, activated carbon products manufactured through the chemical activation process often are of low quality and can only be used in industrial manufacturing. In contrast, the operating entities’ wood-based activated carbon products, manufactured from forestry residues, little fuelwood, and wood wastes and through the physical activation process, are of higher quality than carbon activated products manufactured through the chemical activation process and therefore have a wide range of uses in industries such as pharmaceutical manufacturing, industrial manufacturing, water purification, food and beverage production, and environment protection.
Strong Management and Professional Team with Extensive Industry Experience
Our senior management team, led by Ms. Xinyang Wang, our chairwoman, and Wenhua Liu, our interim CEO, have significant experience in the activated carbon and biomass energy industries. Our management team is comprised of highly-skilled and dedicated professionals with wide ranging experience in research, services, product development, business development, and marketing. We believe that our management and professional team will be able to effectively grow our business through continued operating improvement and research.
Growth Strategies
The operating entities’ goal is to become one of China’s leading wood-based activated carbon producers. Also, the Company intends to integrate robotics, software, and artificial intelligence technologies to provide automation solutions as part of the Company's continued development. Accomplishing this goal requires the successful implementation of the following strategies:
| 46 |
| Table of Contents |
Shirting the Strategic Focus toward North America and Explore Robotics and Energy Sector
The Company is actively pursuing a strategic realignment and business expansion based on its existing operational foundation, with an emphasis on shifting its strategic focus toward North America (specifically the United States and Canada). In particular, the Company is developing and scaling additional business lines in robotics products and technical services and vigorously seeking energy-industry-related opportunities.
Increase the Capacity of Activated Carbon Production
Since the demand for activated carbon in general and orders for the operating entities’ activated carbon products more particularly have been increasing in recent years, the operating entities had to outsource some of their orders to third-party producers to keep up with the demand for the operating entities’ products. These third-party producers do not have the same manufacturing processes or quality control as the operating entities do, nor do the operating entities share technology with them. The operating entities mainly purchase activated carbon from these third-party producers to fulfill orders from customers who do not require the wood-based activated carbon the operating entities produce. See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—The operating entities rely on third-party manufacturers to produce some of their activated carbon products and problems with, or loss of, these manufacturers could harm the operating entities’ business and operating results.”
Expand Customer Base
We plan to explore new markets for the operating entities’ activated carbon products while maintaining the operating entities’ current customer base. The operating entities are considering establishing branch offices in various strategic areas, including Shanghai and Jiangsu Province. These branch offices will focus on increasing activated carbon product sales to existing customers, providing customer support in those areas, and acquiring potential new customers. By increasing the number of customers and optimizing the operating entities’ transportation and sales network, the operating entities aim to reduce the marginal cost of their activated carbon products and increase their profits.
Focus on Products with Growing Demand
Due to the rapid development of industrial technology, stricter environmental protection regulations, and increased attention to food safety, there has been increased demand for activated carbon used in the water, food, and beverage industries, and activated carbon for pharmaceutical raw materials, intermediates, and finished products. We believe the operating entities are well positioned to meet each of these growing areas of demand. The operating entities will seek to continue their innovative approach, while ensuring reliability and efficiency in the delivery supply chain, to the extent the operating entities are able to continue to access a consistent supply of raw materials, by designing and manufacturing activated carbon products for use in a broad range of applications. While maintaining a diversified customer base and product line, the operating entities will seek to focus on their products with growing demand and capitalize opportunities for increasing their sales.
Explore New Business Opportunities
The operating entities have been monitoring possible business opportunities in the downstream sectors of the activated carbon industry, such as environment restoration, water purification, and air cleaning. In the long term, the operating entities plan to strategically establish or acquire companies that use activated carbon as raw materials. By expanding our business vertically in the activated carbon industry, we hope to increase the operating entities’ pricing power and minimize risks in their Activated Carbon Production business.
Production Process
Production of Activated Carbon for Water Purification
The production of activated carbon for water purification involves a detailed and carefully controlled process to ensure the high quality and performance of the final product. A description of the operating entities’ production process for such activated carbon is as below:
| · | Procurement of Semi-finished Activated Carbon: The process begins with the procurement of semi-finished activated carbon from suppliers. This raw material serves as the base for further refinement and customization. |
|
|
|
| · | Quality Testing: Upon receipt, the operating entities test the activated carbon supplied, ensuring it meets the necessary standards for water purification applications. |
|
|
|
| · | Formulation Development: Based on the tailored purification need of each customer, the operating entities develop different formulations and provide customized solutions. |
|
|
|
| · | Refinement: The semi-finished activated carbon then undergoes a series of refinement processes in the workshop, including (a) decontamination to remove impurities and contaminants; (b) mixing different types of activated carbon according to the developed formula; and (c) crushing to reduce the size of the activated carbon particles to the required granularity. |
|
|
|
| · | Quality Control: All activated carbon undergoes a final quality inspection to ensure it meets the standards and customer requirements. |
|
|
|
| · | Packaging and Distribution: Finished activated carbon is then packaged for distribution. |
| 47 |
| Table of Contents |
Products
Activated Carbon
|
|
|
|
| Powdered Activated Carbon | Granular Activated Carbon |
|
Activated carbon, also called activated charcoal, is a carbonaceous, highly porous adsorptive medium that has a complex structure composed primarily of carbon atoms. The networks of pores in activated carbons are channels created within a rigid skeleton of disordered layers of carbon atoms, linked together by chemical bonds, stacked unevenly, creating a highly porous structure of nooks, crannies, cracks and crevices between the carbon layers. Activated carbon is used in methane and hydrogen storage, air purification, decaffeination, gold purification, metal extraction, water purification, medicine, sewage treatment, air filters in gas masks and respirators, filters in compressed air, teeth whitening, and many other applications.
We derived 100%, 100%, and 99.9% of our revenue from the sale of activated carbon products during the fiscal years ended September 30, 2025, 2024, and 2023, respectively.
Methylene blue number is often used as an indicator to evaluate the absorptive capacity of activated carbon. Activated carbon with a higher Methylene blue number usually has a higher absorptive capacity. The operating entities currently mainly produce the following four categories of activated carbon with different Methylene blue number ranges from forestry residues, little fuelwood, and wood wastes through physical activation process:
| · | medium-quality activated carbon, which has a Methylene blue number of less than 11; |
|
|
|
| · | high-quality activated carbon, which has a Methylene blue number of between 11 and 12; |
|
|
|
| · | superior-quality activated carbon, which has a Methylene blue number of between 12 and 13; and |
|
|
|
| · | customized-quality activated carbon, which has a Methylene blue number of more than 13 and meets other special requirements of the operating entities’ customers. |
The operating entities’ medium-quality and high-quality activated carbon are usually used in industrial manufacturing, water purification, and environmental protection. Their superior-quality and customized-quality activated carbon are usually used in pharmaceutical manufacturing and food and beverage production, where higher absorptive capacity is required.
| 48 |
| Table of Contents |
The following table shows the sales for the operating entities’ activated carbon in the fiscal years ended September 30, 2025, 2024, and 2023:
|
| Fiscal year ended September 30, 2025 |
|
| Fiscal year ended September 30, 2024 |
|
| Fiscal year ended September 30, 2023 |
| |||||||||||||||||||||||||||
Category of Activated Carbon |
| Quantity Sold |
|
| Revenue |
|
| Revenue Percentage (%) |
|
| Quantity Sold |
|
| Revenue |
|
| Revenue Percentage (%) |
|
| Quantity Sold |
|
| Revenue |
|
| Revenue Percentage (%) |
| |||||||||
Medium-Quality (in tons) |
|
| 6,790 |
|
| $ | 7,386,746 |
|
|
| 20.8 |
|
|
| 21,027 |
|
| $ | 21,332,813 |
|
|
| 41.9 |
|
|
| 11,935 |
|
| $ | 15,178,726 |
|
|
| 26.2 |
|
High-Quality (in tons) |
|
| 23,035 |
|
|
| 26,564,140 |
|
|
| 74.6 |
|
|
| 12,742 |
|
|
| 15,430,474 |
|
|
| 30.3 |
|
|
| 16,568 |
|
|
| 24,937,352 |
|
|
| 43.1 |
|
Superior-Quality (in tons) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,443 |
|
|
| 6,336,579 |
|
|
| 12.4 |
|
|
| 7,938 |
|
|
| 13,159,587 |
|
|
| 22.7 |
|
Customized-Quality (in tons) |
|
| 1,412 |
|
|
| 1,622,546 |
|
|
| 4.6 |
|
|
| 5,776 |
|
|
| 7,046,661 |
|
|
| 13.8 |
|
|
| 3,810 |
|
|
| 4,603,655 |
|
|
| 8.0 |
|
Total (in tons) |
|
| 31,237 |
|
|
| 35,573,432 |
|
|
|
|
|
|
| 43,989 |
|
|
| 50,146,527 |
|
|
|
|
|
|
| 40,251 |
|
|
| 57,879,320 |
|
|
|
|
|
Air filter carbon (in pieces) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 109,188 |
|
|
| 811,447 |
|
|
| 1.6 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
|
|
|
|
| $ | 35,573,432 |
|
|
| 100.0 |
|
|
|
|
|
| $ | 50,957,974 |
|
|
| 100.0 |
|
|
|
|
|
| $ | 57,879,320 |
|
|
| 100.0 |
|
Feedstock
The operating entities will focus on the deep processing of raw carbon materials as feedstock to produce activated carbon products that meet customer requirements.
In order to meet orders from their customers, sometimes the operating entities also purchase activated carbon from other producers before shipping it to customers. In the fiscal year ended September 30, 2025, the operating entities purchased 6,303, 2,600, and 2,060 tons of activated carbon from Shanghai Yuxie Industrial Co., Ltd, Jiaxing Guangyue New Material Technology Co., Ltd, and Hangzhou Charcoal New Materials Co., Ltd, respectively. In the fiscal year ended September 30, 2024, the operating entities purchased 17,621, 5,324, and 4,028 tons of activated carbon from Shanghai Yuxie Industrial Co., Ltd., Shanghai Jiabole Commercial and Trading Co., Ltd., and Zhongjian Heneng(Shanghai) Trading Co., Ltd., respectively. In the fiscal year ended September 30, 2023, the operating entities purchased 4,940, 4,743, and 3,828 tons of activated carbon from Zhongjin Boda (Hangzhou) Industrial Co., Ltd., Shanghai Yuxie Industrial Co., Ltd., and Shenzhen Xianghonghui Industrial Co., Ltd., respectively. These third-party producers do not have the same manufacturing processes or quality control as the operating entities do, nor do the operating entities share technology with them. The operating entities mainly purchase activated carbon from these third-party producers to fulfill orders from customers who do not require the wood-based activated carbon the operating entities produce. See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—The operating entities rely on third-party manufacturers to produce some of their activated carbon products and problems with, or loss of, these manufacturers could harm the operating entities’ business and operating results.”
| 49 |
| Table of Contents |
Suppliers
For the fiscal year ended September 30, 2025, the operating entities’ top 10 suppliers in terms of purchasing value contributed 58% of their raw materials sourced, with the top five suppliers providing 20%, 9%, 7%, 5%, and 4% of their raw materials, respectively. For the fiscal year ended September 30, 2024, the operating entities’ top 10 suppliers in terms of purchasing value contributed 92% of their raw materials and activated carbon sourced, with the top five suppliers providing 37%, 12%, 9%, 8%, and 8% of their raw materials and activated carbon, respectively. For the fiscal year ended September 30, 2023, the operating entities’ top 10 suppliers in terms of purchasing value contributed 85% of their raw materials and activated carbon sourced, with the top five suppliers providing 14%, 12%, 9%, 9%, and 8% of their raw materials and activated carbon, respectively. See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—The operating entities have sourced our raw materials primarily from a limited number of suppliers. If they lose one or more of the suppliers, their operation may be disrupted, and their results of operations may be adversely and materially impacted.”
The operating entities enter into supply orders in the ordinary course of business with their forestry residues, little fuelwood, and wood wastes suppliers, pursuant to a form of long-term supply order. Pursuant to the operating entities’ supply orders, which usually do not have an expiration date, their suppliers provide the operating entities with a certain quantity of forestry residues, little fuelwood, and wood wastes for a fixed price until the supply orders are amended or terminated. The price is negotiated with the operating entities’ suppliers on an order-by-order basis and depends on the moisture content and type of wood, and the number of impurities. While the fixed price of short-term orders does not entirely protect us against volatility in feedstock prices, typically the operating entities have been able to and believe that they will continue to be able to transfer the volatility to their customers by renegotiating the prices of their finished products. The operating entities also continue to search for additional suppliers to maintain the consistency of their supply and control the costs of their raw materials.
For information about the operating entities’ suppliers of raw activated carbon, please see “—Feedstock.”
Customers
The operating entities’ activated carbon products customers primarily include activated carbon wholesalers and companies engaging in the activated carbon deep processing business. Their top activated carbon customers for the fiscal year ended September 30, 2025 included Hangzhou Shihang New Material Technology Co., Ltd, Umbrella Dry Gathering (Shanghai) Intelligent Technology Development Co., Ltd, Zhejiang Yuyue Environmental Protection Technology Co., Ltd, Shanghai Baichuang De Trading Co., Ltd, and Jiaxing Tonglun New Material Technology Co., Ltd which collectively accounted for 77% of their total activated carbon sales for that period. Their top activated carbon customers for the fiscal year ended September 30, 2024 included Hangzhou Shihang New Material Technology Co., Ltd (“Hangzhou Shihang”), and Zhoushan Yilong Information Technology Co., Ltd (“Zhoushan Yilong”), which collectively accounted for 52% of their total activated carbon sales for that period. Hangzhou Shihang accounted for 38%, and Zhoushan Yilong accounted for 14% of their total activated carbon sales for the fiscal year ended September 30, 2024, respectively. Their top activated carbon customers for the fiscal year ended September 30, 2023 included Ningbo Juming Youjia Trading Co., Ltd (“Ningbo Juming Youjia”), Zhoushan Yilong, Zhejiang Shuyuan Supply Chain Co., Ltd (“Zhejiang Shuyuan”), Zhejiang Supai New Materials Technology Co., Ltd, and Ningbo Guoning Zhonghao Technology Co., Ltd, which collectively accounted for 51% of their total activated carbon sales for that period. Ningbo Juming Youjia accounted for 13%, Zhoushan Yilong accounted for 13% and Zhejiang Shuyuan accounted for 10% of their total activated carbon sales for the fiscal year ended September 30, 2023, respectively.
From the commencement of their operations in December 2012 to September 30, 2025, a total of 93 activated carbon customers have purchased activated carbon products from the operating entities. The total number of the operating entities’ activated carbon customers was 22, 23, and 35 for the fiscal years ended September 30, 2025, 2024, and 2023, respectively. The operating entities chose to focus on customers with consistent orders and large activated carbon purchases, reducing the costs of customer maintenance and making it easier to manage their customer relations. See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—A majority of the operating entities’ activated carbon sales are currently derived from a small number of customers. If any of these customers experiences a material business disruption, the operating entities would likely incur substantial losses of revenue.”
| 50 |
| Table of Contents |
Marketing and Sales
The operating entities maintain our activated carbon marketing and sales forces in-house in their corporate office with two employees, who are responsible for sales, transportation and distribution, as well as quality control and contract administration. Through market analyses, the operating entities identified potential customers that had high demand for activated carbon but were having difficulties finding suppliers, such as Hangzhou Shihang and Sanqian Huiju. By focusing on these potential customers and tailoring their activated carbon products to their specific needs, the operating entities were able to increase the number of their activated carbon customers. By offering customized activated carbon of specific iodine adsorption number, Methylene blue number, and other characteristics relevant to their customers, the operating entities are able to serve a diverse customer base. The operating entities’ marketing and sales personnel are hard-working, full of passion, and responsive, and the operating entities offer them trainings in marketing and sales, management, and activated carbon products and technology.
Pricing & Backlog
To date, the operating entities price their activated carbon products on an order-to-order basis, primarily based on the Methylene blue number of the activated carbon product, adjusted for its other characteristics. The prices of their activated carbon products range from $1,185.44 to $1,385.10 per ton.
For their activated carbon products, the operating entities usually enter into sales agreements with a customer after agreeing on the specific product characteristics of the activated carbon such as iodine adsorption number and Methylene blue number and making sure that the operating entities have sufficient raw materials and different grades of activated carbon. The operating entities typically enter into separate activated carbon sales agreements, instead of a long-term supply agreement, for orders they receive from their activated carbon customers. This allows the operating entities to be flexible in pricing and adjust prices of their activated carbon products as the prices of their raw materials and the market demand for activated carbon change. The sales agreements typically lay out the quantity, price, specifics, packaging requirements, shipping method and delivery date, and other agreed-upon provisions of the order.
It usually takes us approximately 22 hours to produce the activated carbon product specified in an order, depending on the amount of activated carbon ordered, the supply of raw materials, and the specific product characteristics, among other factors. The operating entities typically begin shipping activated carbon products after they have produced approximately 30 tons, enough to fill up a railway wagon. It usually takes the operating entities three to five days to transport the activated carbon products by rail and by road to the sites of their customers; the transportation time could be delayed by two to three days if there is bad weather. During the fiscal year ended September 30, 2025, 97.46% of the operating entities’ customers chose to pick up activated carbon products by themselves due to cost control reasons. The balance is due within 15 days to 90 days after the date when the customer accepts the shipment. If a customer fails to make payment on time, late interest of 3% per day is levied on the outstanding balance until payment is received in full. The operating entities rely on their long-term business relationships with their customers when collecting payments and do not currently encounter any difficulties in collecting payments.
| 51 |
| Table of Contents |
Awards and Recognition
In 2026, Pathenbot Group Inc. has received the "Best Investment-Ready Innovation Award" from LeaderXport and BossHub, presented during the 2026 Consumer Electronics Show in Las Vegas.
Facilities
The operating entities have currently completed the construction of a new facility in Lishui, dedicated to the R&D, processing, marketing, and sale of activated carbon for water purification. The operating entities lease about 27,147 square feet of office and production space in Lishui for such new facility pursuant to a lease agreement they entered into with Zhejiang Forasen Energy Technology Co., Ltd. on October 8, 2021, with a lease term of five years from October 8, 2021 to October 7, 2026 (unless otherwise terminated by either party) and an annual rent of RMB432,043 (approximately $60,742), payable semi-annually. The operating entities are required to notify the landlord at least three months in advance if they would like to renew the lease agreement. The planned investment for the renovation of factory building and construction of product line is RMB30 Million (approximately $4.61 million). The factory has an inspection and quality control laboratory, and a high-efficiency charcoal separation processing production line, which is expected to run 24 hours per day and 300 days per year with a targeted annual output capacity of 36,000 tons of activated carbon. By September 2023, the operating entities had completed the renovation of factory building and installation of most of the equipment. As of the date of this annual report, the construction has been finalized, and the Lishui facility is now in operation.
We believe the operating entities’ facilities are sufficient for their business operation.
R&D
The Company initiated cost cutting measures and ceased its spending in research and development expenses since November 2023.
Intellectual Property
The operating entities evaluate on a case-by-case basis how best to use patents, trademarks, copyrights, trade secrets, and other available intellectual property protection in order to protect their products and our critical investments in manufacturing and marketing. The operating entities focus on securing and maintaining patents for certain inventions such as equipment used in the production of activated carbon, while maintaining other inventions such as process improvements as trade secrets, derived from their market-based business model, in an effort to maximize the value of their product portfolio and manufacturing capabilities and reinforce their competitive advantage. The operating entities’ policy is to seek appropriate intellectual property protection for significant product and process developments in the major areas where the relevant products are manufactured or sold. Patents may cover products, processes, intermediate products and product uses. Patents extend for varying periods in accordance with the date of patent application filing and the legal life of patents in the various countries in which the patents are registered. The protection afforded, which may also vary from country to country, depends upon the type of subject matter covered by the patent and the scope of the claims of the patent. The operating entities maintain appropriate information security policies and procedures reasonably designed to ensure the safeguarding of confidential information including, where appropriate, data encryption, access controls, and employee awareness training.
| 52 |
| Table of Contents |
The operating entities currently own two trademarks, “CNENY” and “中北能” (China North Energy), in the PRC.
In addition to their registered intellectual property portfolio, the operating entities also claim ownership of certain trade secrets and proprietary know-how developed by and used in their business.
The operating entities own the internet domain name “cneny.com.” PATHENBOT owns the internet domain name “https://www.pathenbot.com/.”
Employees
As of September 30, 2025, 2024, and 2023, we had 25, 24, and 30 employees. The following table sets forth the number of our employees by area of business as of September 30, 2025:
|
| Number |
| |
|
| Employees |
| |
Management |
|
| 4 |
|
Finance |
|
| 3 |
|
R&D |
|
| 0 |
|
Administration |
|
| 1 |
|
Marketing and Sales |
|
| 1 |
|
Quality Control and Statistics |
|
| 1 |
|
Production |
|
| 1 |
|
Contract workers |
|
| 14 |
|
Total |
|
| 25 |
|
| 53 |
| Table of Contents |
Generally, we enter into standard employment contracts with our officers, managers, and other employees. According to these contracts, all of our employees are prohibited from engaging in any other employment during the period of their employment with us. The employment contracts with officers, managers, and employees are subject to renewal in three years and, if renewed, will last another five years before becoming at-will employment contracts. We also enter into non-compete agreements with our employees to protect our trade secrets; the non-compete agreements prohibit competition with us during the employees’ employment and within two years after leaving our Company. None of our employees is a member of a labor union and we consider our relationship with our employees to be good.
Seasonality
The operating entities’ operating results and operating cash flows historically have been subject to seasonal variations. Since the demand from their customers is usually weaker around the Chinese New Year, which usually falls in January or February, the operating entities’ sales in the second fiscal quarter (January to March) are often lower than those of other quarters.
Environmental Matters
The operating entities have taken measures to reduce pollution caused by their activated carbon production, such as installing dust collectors to collect dust created in their activation process. As of the date of this annual report, the operating entities have been in compliance with state and local laws and regulations relating to the environment to date and these laws and regulations have not had a material adverse effect upon their capital expenditures, earnings, or competitive position and we do not anticipate any material adverse effects in the future based on the nature of the operating entities’ future operations. See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—Compliance with environmental and other laws and regulations could result in significant costs and liabilities” and “Regulation—PRC Regulations Relating to Environmental Protection” for details.
Regulations
This section sets forth a summary of the principal PRC laws, regulations, and rules relevant to the operating entities’ business and operations in China.
| 54 |
| Table of Contents |
PRC Regulations Encouraging Our Businesses
Production of activated carbon by using forestry residues are activities supported by various policies of the PRC government. For example, under the 12th Five-Year Plan for Circular Economy Development issued by the State Council in February 2012, all industries are encouraged to attach importance to the reuse of wastes generated in production and daily life. Pursuant to the Catalogue for Guiding Industry Restructuring (2019 Version), promulgated by the State Development and Reform Commission (“SDRC”), last amended on December 27, 2021, and effective on December 30, 2021, the deep processing and product development of forestry residues and wood wastes is listed in the “Encouraged” category. Also, the Law of the PRC on Promoting Circular Economy promulgated by the SCNPC on August 29, 2008, effective on January 1, 2009, and amended on October 26, 2018, encourages enterprises to utilize forestry residues and wood wastes. Further, our activated carbon and electricity cogeneration machinery and core technology have been listed as one of the advanced applicable technology in the Catalogue of Advanced Applicable Technology for the Comprehensive Utilization of Renewable Resources (Second), issued by the Ministry of Industry and Information Technology of the PRC on January 22, 2014, and effective on the same day.
PRC Regulations Relating to Environmental Protection
We are subject to the PRC environmental protection laws and regulations in general. In addition, enterprises operating in activated carbon industry are currently subject to relevant industrial standards, including the Comprehensive Emission Standards for Air Pollutants (GB 16297-1996), Emission Standards for Air Pollutants from Industrial Furnace Kilns (GB 9078-1996) and Comprehensive Wastewater Emission Standards (GB 8978-1996).
| 55 |
| Table of Contents |
Pursuant to the Environmental Protection Law of the PRC (the “Environmental Protection Law”) promulgated by SCNPC on December 26, 1989, amended on April 24, 2014, and effective on January 1, 2015, any entity which discharges or will discharge pollutants during its course of operations or other activities must implement effective environmental protection safeguards and procedures to control and properly treat waste gases, waste water, waste residues, dust, malodorous gases, radioactive substances, noise and vibrations, electromagnetic radiation, and other hazards produced during such activities. Further, the PRC government also enacted various laws and regulations regarding various pollution prevention, including the Air Pollution Prevention and Control Law of the PRC promulgated by SCNPC on August 29, 1995, and last amended and effective on October 26, 2018, and the Water Pollution Prevention and Control Law of the PRC promulgated by SCNPC on May 11, 1984, last amended on June 27, 2017, and effective on January 1, 2018, together with the Environmental Protection Law, the “Environment Laws.” Environmental protection authorities impose various administrative penalties on persons or enterprises in violation of the Environment Laws. Such penalties include warnings, fines, orders to rectify within the prescribed period, orders to cease construction, orders to restrict or suspend production, orders to make recovery, orders to disclose relevant information or make an announcement, imposition of administrative action against relevant responsible persons, and orders to shut down enterprises. Any person or entity that pollutes the environment resulting in damage could also be held liable under the Civil Code of the PRC. In addition, environmental organizations may also bring lawsuits against any entity that discharges pollutants detrimental to the public welfare.
On March 11, 2021, the State Council circulated the Work Plan, which set out the key objectives to reduce, by 2025, energy consumption per GDP unit by 13.5% and carbon dioxide emissions per GDP unit by 18% of the 2020 emission level. The Work Plan also requires the continuous decrease of the emissions of major pollutants and an increase of the forest coverage rate to 24.1%.
On March 2, 2018, the Ministry of Ecology and Environment of the PRC circulated the Draft Emission Standards of Activated Carbon Industrial Pollutants (the “Standards”) for public comments, the commenting period of which ended on April 8, 2018. While the Standards have not been passed, once it is enacted, our production of activated carbon will be subject to high standards on pollution emissions. See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—Compliance with environmental and other laws and regulations could result in significant costs and liabilities.”
PRC Regulations Relating to Work Safety and Fire Control
Work Safety
Under relevant construction safety laws and regulations, including the Work Safety Law of the PRC which was promulgated by the SCNPC on June 29, 2002, last amended on June 10, 2021, and effective as of September 1, 2021, production and operating business entities must establish objectives and measures for work safety and improve the working environment and conditions for workers in a planned and systematic way. A work safety protection scheme must also be set up to implement the work safety job responsibility system. In addition, production and operating business entities must arrange work safety training and provide the employees with protective equipment that meets the national standards or industrial standards. As of the date of this annual report, we have established internal work safety procedures to ensure the work environment and conditions for our workers in the PRC.
Fire Control
Pursuant to the Fire Protection Law of the PRC, which was promulgated by the SCNPC on April 29, 1998 and last amended on April 29, 2021, the construction entity of a large-scale crowded venue (including the construction of a manufacturing factory that is over 2,500 square meters) and other special construction projects must apply for fire prevention design review with fire control authorities, and complete fire assessment inspection and acceptance procedures after the construction project is completed. The construction entity of other construction projects must complete the filing for fire prevention design and the fire safety completion inspection and acceptance procedures within seven business days after obtaining the construction work permit and passing the construction completion inspection and acceptance. If the construction entity fails to pass the fire safety inspection before such venue is put into use, or fails to conform to the fire safety requirements after such inspection, it shall be subject to (i) orders to suspend the construction of the projects, use of such projects, or operation of relevant business; and (ii) a fine ranging between RMB30,000 and RMB300,000.
| 56 |
| Table of Contents |
PRC Regulations Relating to Land and the Development of Construction Projects
Land Use Rights
Under the Interim Regulations on Assignment and Transfer of the Rights to Use the State-owned Urban Land, promulgated by the State Council on May 19, 1990, and amended on November 29, 2020, a system of assignment and transfer of the right to use state-owned land was adopted. A land user must pay land premiums to the state as consideration for the assignment of the right to use a land site within a certain term, and the land user who obtained the right to use the land may transfer, lease out, mortgage, or otherwise commercially exploit the land within the term of use. Under the Interim Regulations on Assignment and Transfer of the Rights to the Use of the State-Owned Urban Land and the Law of the PRC on Urban Real Estate Administration, the local land administration authority may enter into an assignment contract with the land user for the assignment of land use rights. The land user is required to pay the land premium as provided in the assignment contract. After the full payment of the land premium, the land user must register with the land administration authority and obtain a land use rights certificate which evidences the acquisition of land use rights. In December 2018, we made full payment of the land premium for the assignment of the use rights of the land where our Manzhouli facility will be located, and obtained the land use rights certificate for a term starting on November 16, 2018, and ending on November 16, 2068. From August 2023 to the date of this annual report, the construction of our new facility in Manzhouli City, Inner Mongolia, was suspended and sold.
See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—The operating entities may incur delays and budget overruns with respect to any facilities they construct. Any such delays or cost overruns may have a material adverse effect on the operating entities’ operating results.”
PRC Regulations Relating to Foreign Investment
Investment activities in the PRC by foreign investors were principally governed by the Guidance Catalogue of Industries for Foreign Investment, promulgated and as amended from time to time by MOFCOM and the NDRC, which was later divided into two legal documents, including the Catalog of Industries for Encouraged Foreign Investment, or the “Encouraged Catalog,” and the Special Administrative Measures for Access of Foreign Investment (Negative List), or the “Negative List.” The current Encouraged Catalog and Negative List were promulgated by MOFCOM and the NDRC on October 26, 2022 and December 27, 2021, respectively, and as amended from time to time. Industries listed in the Negative List are divided into two categories: restricted and prohibited. Industries not listed in the Negative List are generally constituted “permitted,” and are open to foreign investment unless specifically restricted by other PRC regulations. For restricted industries, some are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. The latest Negative List was released by MOFCOM and the NDRC on December 27, 2021 and became effective on January 1, 2021 and updated on November 1, 2024. Pursuant to the current and the updated Negative Lists, the production and sale of activated carbon is permitted industry.
| 57 |
| Table of Contents |
The establishment, operation, and management of corporate entities in the PRC is governed by the PRC Company Law, which was initially promulgated by the SCNPC on December 29, 1993, and came into effect on July 1, 1994, and was amended on October 26, 2018 and became effective on the same day, and was amended on December 29, 2023 and became effective on July 1, 2024. The PRC Company Law generally governs two types of companies—limited liability companies and joint stock limited companies. The PRC Company Law shall also apply to foreign-invested companies. Where laws on foreign investment have other stipulations, such stipulations shall prevail. The establishment procedures, approval or record-filing procedures, registered capital requirements, foreign exchange matters, accounting practices, taxation and labor matters of a wholly foreign-owned enterprise are regulated by the Wholly Foreign-Owned Enterprise Law of the PRC, or the “WFOE Law,” promulgated on April 12, 1986, and amended on October 31, 2000, and September 3, 2016, and the Rules for the Implementation of the WFOE Law, promulgated on December 12, 1990, and amended on April 12, 2001, and February 19, 2014. According to the amendments to the WFOE law in 2016, for a wholly foreign-owned enterprise which the special entry management system does not apply to, its establishment, operation duration and extension, separation, merger or other major changes shall be reported for record. Pursuant to the Provisional Administrative Measures for Record-filing Administration of the Establishment and Change of Foreign-Invested Enterprises, or the “Provisional Measures,” promulgated by MOFCOM on October 8, 2016 (as amended), establishment and modifications of foreign invested enterprises which are not subject to the approval under the special entry management measures shall be filed with the delegated commercial authorities.
On March 15, 2019, NPC passed the new Foreign Investment Law of the PRC and, on December 26, 2019, the State Council passed the new Implementation Regulations for the Foreign Investment Law of the PRC (collectively with the Foreign Investment Law of the PRC, the “FIL”), both of which became effective on January 1, 2020. The FIL sets out the definitions of foreign investment and the framework for promotion, protection and administration of foreign investment activities. Since its effectiveness in January 2020, the FIL has replaced the three existing PRC laws on foreign investment, namely the Law on Sino-Foreign Equity Joint Ventures (the “EJV Law”), the Law on Sino-Foreign Contractual Joint Ventures (the “CJV Law”), and the WFOE Law (together with the EJV Law and the CJV Law, the “Three FDI Laws”). Pursuant to the FIL, starting on January 1, 2020, the organization form, corporate structure, and operating rules of newly established FIEs are subject to the PRC Company Law and the PRC Partnership Enterprise Law, depending on their form of business organization. For existing FIE established under the Three FDI Laws, such as our WFOE MZ Pintai, its corporate structure may remain unchanged for five years. Upon the expiration of the five-year transition period, all FIEs will be governed by the PRC Company Law or the PRC Partnership Enterprise Law. We believe that the FIL will have very limited impact on our WFOE’s corporate governance, as the organizational form and corporate structure of WFOE have been governed by the PRC Company Law since 2006.
PRC Regulations Relating to Foreign Exchange
General Administration of Foreign Exchange
The principal regulations governing foreign currency exchange in China are the PRC Foreign Exchange Administration Regulations, which were promulgated on January 29, 1996, and most recently amended on August 5, 2008, issued by SAFE and other relevant PRC government authorities. Pursuant to the PRC Foreign Exchange Administration Regulations, RMB is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of RMB into other currencies and remittance of the converted foreign currency outside the PRC for capital account items, such as direct equity investments, loans, and repatriation of investment, requires the prior approval from SAFE or its local office.
Payments for transactions that take place within the PRC must be made in RMB. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.
Since 2012, SAFE has promulgated several circulars to substantially amend and simplify the current foreign exchange procedure. Pursuant to the Circular of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or “SAFE Circular 59,” promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012, and was further amended on May 4, 2015 and December 30, 2019, approval of SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to direct investments. SAFE Circular 59 also simplified foreign exchange-related registration required for foreign investors to acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for FIEs. The Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or “SAFE Circular 13,” effective from June 1, 2015, canceled the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplified the procedure of foreign exchange-related registration. Pursuant to SAFE Circular 13, the investors shall register with banks for direct domestic investment and direct overseas investment.
| 58 |
| Table of Contents |
The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or “SAFE Circular 19,” which was promulgated by SAFE on March 30, 2015, and became effective on June 1, 2015, provides that an FIE may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to SAFE Circular 19, for the time being, FIEs are allowed to settle 100% of their foreign exchange capital on a discretionary basis; an FIE shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary FIE makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered. SAFE later promulgated the Circular on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or “SAFE Circular 16,” effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or Circular 16 could result in administrative penalties such as restrictions on foreign exchange activities of such enterprises.
Pursuant to SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign invested enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the FIE, including without limitation any increase in its registered capital or total investment, the foreign invested enterprise must register such changes with the bank located at its registered place after completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon acceptance of the registration application.
Based on the foregoing, if we intend to provide funding to our wholly foreign owned subsidiaries through capital injection at or after their establishment, we must register the establishment of and any subsequent capital increase in our wholly foreign owned subsidiaries with the State Administration for Market Regulation or its local counterparts, file such via the foreign investment comprehensive administrative system, and register such with the local banks for the foreign exchange related matters. Once the FIL becomes effective, pursuant to Article 21 of the FIL, foreign investors will be free to remit profits, capital gains, income from asset disposal, or intellectual property royalties into and out of China in accordance with PRC laws. While there have not been any detailed rules issued on this regard, we do not expect that foreign investors will be able to freely remit funds into or out of China without any limitation. However, we do expect that foreign investors will enjoy more convenience when remitting their profits out of China.
Loans by Foreign Companies to their PRC Subsidiaries
A loan made by foreign investors as shareholders in a foreign invested enterprise is considered to be a foreign debt in China and is regulated by various laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debts Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of External Debt, and the Administrative Measures for Registration of Foreign Debts, together, the “Foreign Debts Provisions.” Under the Foreign Debts Provisions, a shareholder loan in the form of a foreign debt made to its PRC subsidiary does not require the prior approval of SAFE. However, such a foreign debt must be registered with and recorded by SAFE or its local branches within 15 business days after entering into the foreign debt contract. Further, the balance of the foreign debts of a foreign invested enterprise shall not exceed the difference between the total investment and the registered capital of the foreign invested enterprise, or the “Total Investment and Registered Capital Balance.”
| 59 |
| Table of Contents |
On January 12, 2017, PBOC issued PBOC Notice No. 9, which sets out the statutory upper limit on the foreign debts for PRC non-financial entities, including both FIEs and domestic-invested enterprises. Pursuant to PBOC Notice No. 9, the foreign debt upper limit for both foreign-invested and domestic-invested enterprise is calculated as twice the amount of the net asset of such enterprises. As to net assets, the companies shall take the net assets value stated in their latest audited financial statement. PBOC Notice No. 9 does not supersede the Foreign Debts Provisions. Pursuant to PBOC Notice No. 9, PBOC and SAFE shall reevaluate the calculation method for FIEs and determine what the applicable calculation method would be. As of the date of this annual report, neither PBOC nor SAFE has issued and made public any further rules, regulations, notices, or circulars in this regard. It is uncertain which mechanism will be adopted by PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC subsidiaries. Under current practice, the relevant authorities are likely to allow FIEs, such as our PRC subsidiaries, to choose the calculation method either under the Foreign Debts Provisions or PBOC Notice No. 9 until any new regulation is issued. After the FIL becomes effective, however, it is uncertain whether the concept of “total investment” will still exist and whether the foreign debt quota will still be subject to the total Investment and Registered Capital Balance of an FIE or it will be replaced by the new mode introduced under PBOC Notice No. 9. As of the date of this annual report, our PRC subsidiaries do not have any foreign debts owed to their foreign investor MZ HK.
Dividend Distribution
The principal laws and regulations regulating the distribution of dividends by FIEs in the PRC include the FIL and PRC Company Law and their implementation regulations. Under the current regulatory regime in the PRC, FIEs in the PRC may pay dividends only out of their retained earnings, if any, determined in accordance with the PRC accounting standards and regulations. A PRC company is required to set aside at least 10% of its after-tax profits as statutory reserve funds, until the cumulative amount of such reserve funds reaches 50% of its registered capital, unless laws regarding foreign investment provide otherwise. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
PRC Regulations Relating to Offshore Investments by PRC Residents
SAFE promulgated the SAFE Circular 37 in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore SPV undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.
| 60 |
| Table of Contents |
The SAFE Circular 37 was issued to replace Circular 75 (the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Round-trip Investments via Overseas Special Purpose Vehicles). SAFE further enacted the Notice on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment effective from June 1, 2015, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a SPV fails to fulfill the required SAFE registration, the PRC subsidiaries of that SPV may be prohibited from distributing profits to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the SPV may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. The core registration provisions of Circular 37 have been integrated and updated within the Foreign Exchange Business Guidelines for Capital Account Items (2020 Edition) (Huizongfa [2020] No. 14) issued by the State Administration of Foreign Exchange (SAFE). As of the date of this annual report, four of our beneficial owners who are PRC residents have completed the registrations required by the SAFE Circular 37.
PRC Regulations on Employee Share Incentive Plans
Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, pursuant to the Notice of Issues Related to the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Listed Company (“SAFE Circular 7”), which was issued by SAFE on February 15, 2012, employees, directors, supervisors, and other senior management participating in any share incentive plan of an overseas publicly-listed company, except for foreign diplomats and representatives of international organizations, who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, are required to register with SAFE through a domestic agency as regulated in SAFE Circular 7.
In addition, the SAT has issued certain circulars concerning employee stock options and restricted shares, including the Circular on Issues Concerning the Individual Income Tax on Share-option Incentives (“Circular 461”) which was promulgated and took effect on August 24, 2009. Under Circular 461 and other relevant laws and regulations, employees working in the PRC who exercise stock options or are granted restricted shares will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company are required to file documents related to employee stock options and restricted shares with relevant tax authorities and to withhold individual income taxes of employees who exercise their stock option or purchase restricted shares. If the employees fail to pay or the PRC subsidiaries fail to withhold income tax in accordance with relevant laws and regulations, the PRC subsidiary may face sanctions imposed by the tax authorities or other PRC governmental authorities.
PRC Regulations on Mergers and Acquisitions and Overseas Listing
On August 8, 2006, six PRC governmental and regulatory agencies, including the MOFCOM and the CSRC, promulgated the M&A Rules governing the mergers and acquisitions of domestic enterprises by foreign investors, which became effective on September 8, 2006, and was revised on June 22, 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or individuals, or “PRC Citizens,” intends to acquire equity interests or assets of any other PRC domestic company affiliated with PRC Citizens, such acquisition must be submitted to the MOFCOM for approval. The M&A Rules also requires that an offshore special vehicle, or a SPV formed for overseas listing purposes and controlled directly or indirectly by the PRC companies or individuals, shall obtain the approval of the CSRC prior to overseas listing and trading of such SPV’s securities on an overseas stock exchange.
Our PRC counsel, Universal Law Offices of Hangzhou, has advised us that, based on its understanding of current PRC laws, rules, and regulations, and the M&A Rules, the CSRC approval is not required for the listing and trading of our Class A ordinary shares on the Nasdaq Capital Market in the context of our initial public offering because the Company was established by means of direct investment rather than by a merger with or an acquisition of any PRC domestic companies as defined under the M&A Rules, and was not a PRC domestic company as defined under the M&A Rules. Notwithstanding the above opinion, our PRC counsel has further advised us that uncertainties still exist as to how the M&A Rules will be interpreted and implemented and its opinions summarized above are subject to any new laws, rules, and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. If the CSRC or other PRC regulatory agencies subsequently determine that prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies.
On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offerings or listing application. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines.
| 61 |
| Table of Contents |
The Trial Measures establish a list outlining the circumstances where a PRC enterprise is prohibited from offering and listing securities overseas, and the CSRC has the authority to block offshore listings that: (i) are explicitly prohibited by laws; (ii) may endanger national security as determined by relevant competent departments under the State Council; (iii) involve criminal offenses that disrupting PRC economy such as corruption, bribery, embezzlement, or misappropriation of property by the issuer, the controlling shareholder, and/or actual controller in the recent three years; (iv) involve the issuer under investigations for suspicion of criminal offenses or major violations of laws and regulations; or (v) involve material ownership disputes over the shares held by the controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller. An issuer seeking direct or indirect overseas listing is also required to undergo national security review or obtain clearance from relevant authorities if necessary before making any application with overseas regulator or listing venue. Where an overseas securities regulator investigates and collects evidence relating to the overseas offering and listing of a PRC enterprise and related activities, and requests the CSRC for cooperation in accordance with the cross-border supervision and management cooperation mechanism, the CSRC may provide necessary assistance according to law and based on the principle of reciprocity. Our application for listing in Nasdaq does not fall under the circumstance that such overseas listing is prohibited by the Trial Measures, nor do we need to go through the review such as security review or clearance approval from relevant authorities.
According to the CSRC Notice, the domestic companies that have already been listed overseas before the effective date of the Trial Measures (namely, March 31, 2023) shall be deemed as Existing Issuers. Existing Issuers are not required to complete the filing procedures immediately, and they shall be required to file with the CSRC for any subsequent offerings.
Based on the foregoing, as our registration statement on Form F-1 was declared effective on February 4, 2021 and we completed our initial public offering and listing on February 9, 2021, we are currently not required to complete the filing procedures pursuant to the Trial Measures. However, in the event that we undertake new offerings or fundraising activities in the future, we may be required to complete the filing procedures.
On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection, and National Archives Administration of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company and/or our subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.
The Opinions, the Trial Measures, the revised Provisions, and any related implementing rules to be enacted may subject us to additional compliance requirements in the future. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—Any actions by the Chinese government, including any decision to intervene or influence the operating entities’ operations or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, may cause them to make material changes to their operations, may limit or completely hinder our ability to offer or continue to offer securities to investors, and may cause the value of such securities to significantly decline or be worthless.”
PRC Regulations Relating to Taxation
Enterprise Income Tax
On March 16, 2007, the SCNPC promulgated the EIT Law which came into effect on January 1, 2008, and was later amended on February 24, 2017, and December 29, 2018, and on December 6, 2007, the State Council enacted the Regulations for the Implementation of the EIT Law which was amended and became effective on April 23, 2019. Under the EIT Law, both resident enterprises and non-resident enterprises are subject to tax in the PRC. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, enterprise income tax is set at the rate of 20% with respect to their income sourced from inside the PRC.
| 62 |
| Table of Contents |
Value-Added Tax
The Provisional Regulations of the PRC on Value-Added Tax were promulgated by the State Council on December 13, 1993, came into effect on January 1, 1994, and were last amended on November 19, 2017, and the Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-Added Tax was promulgated by the Ministry of Finance on December 15, 2008, effective on January 1, 2009, and amended on October 28, 2011 (collectively, the “VAT Laws”). On November 19, 2017, the State Council promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the PRC on Value-Added Tax, or the “Order 691.” According to the VAT Laws and the Order 691, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property, and the importation of goods within the territory of the PRC are the taxpayers of value-added taxes. The valued-added tax rates generally applicable are simplified as 13%, 9%, 6%, and 0%, and the value-added tax rate applicable to the small-scale taxpayers is 3%. In December 2020, the local tax authority notified us that beginning October 1, 2020, the VAT-in amount of our wood chip purchase would not be allowed to be deducted, which resulted in an increase in the purchasing cost of wood chips. The tax authority also required us to apply the change retrospectively beginning May 2018. As a result, we paid a full amount of approximately $429,000 of prior-period non-deductible VAT-in, and recorded it as cost of revenue in the fiscal year ended September 30, 2021. We do not have prior-period non-deductible VAT-in in the fiscal year 2023, 2024 and 2025.
Tax Incentives
On January 29, 2016, the PRC Ministry of Science and Technology, the Ministry of Finance, and the SAT jointly enacted the Administrative Measures for Certification of High and New Technology Enterprises (2016 Amendment) (the “Measures for High-Tech Enterprises”), which repealed the previous measures issued in 2008, and became effective retroactively on January 1, 2016. Under the EIT Law and the Measures for High-Tech Enterprises, certain qualified high-tech companies may benefit from a preferential tax rate of 15% if they own core intellectual properties and their business fall into certain industries that are strongly supported by the PRC government and recognized by certain departments of the State Council.
Since the 1980s, the PRC has incentivized the “comprehensive utilization of resources,” which means using nonhazardous wastes as inputs to production, to create environmental benefits by avoiding disposal impacts, mitigating manufacturing impacts, and conserving undeveloped resources. Pursuant to the Notice on the Issues Concerning the Implementation of the Catalogue of Comprehensive Utilization of Resources Entitling Enterprises to Income Tax Preferences issued by the Ministry of Finance and the SAT on September 23, 2008, effective retrospectively on January 1, 2008, the EIT Law, and other relevant rules and regulations, incomes gained by an enterprise from producing products that are in compliance with the relevant national or industrial standards by using resources listed in the catalogue as main raw materials, are subject to a 10% reduction in calculating its taxable income.
Dividend Withholding Tax
The EIT Law provides that since January 1, 2008, an income tax rate of 20% will normally be applicable to dividends declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
| 63 |
| Table of Contents |
Pursuant to the Double Tax Avoidance Arrangement and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%.
However, based on the SAT Circular 81 promulgated on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such a reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. The SAT further released several circulars including the Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties (the “SAT Circular 601) which listed seven unfavorable factors for the determination of “beneficial owner,” and the Announcement on the Recognition of the “Beneficial Owner” in Tax Treaties (the “SAT Announcement 30”) which provided a safe harbor rule for qualified non-tax residents to enjoy treaty benefits on dividends. Nevertheless, taxpayers and local-level tax authorities in China encountered numerous technical and practical problems when dealing with beneficial owner related cases due to lack of clearer guidance.
The SAT Circular 601 and the SAT Announcement 30 were abolished by the Circular on Relevant Questions Regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018, by the SAT and became effective on April 1, 2018 (the “SAT Circular 9”). According to the SAT Circular 9, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors will be taken into account and analyzed according to the actual circumstances of the specific cases, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in 12 months to residents in a third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties grants tax exemption on relevant incomes or levies tax at an extremely low rate. The SAT Circular 9 further provides that applicants who intend to prove their status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.
Tax on Indirect Transfer
On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or “SAT Bulletin 7.” Pursuant to SAT Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure. According to the SAT Bulletin 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable taxes will subject the transferor to default interest. The SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of the SAT Bulletin 7. The SAT Bulletin 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiary where non-resident enterprises, being the transferors, were involved. See “Item 3. Key Information—D. Risk Factors— Risks Relating to Doing Business in the PRC— We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”
PRC Regulations Relating to Intellectual Property Rights
Patent Law
According to the Patent Law of the PRC (2020 Amendment), the State Intellectual Property Office is responsible for administering patent law in the PRC. The patent administration departments of provincial, autonomous region, or municipal governments are responsible for administering patent law within their respective jurisdictions. The Chinese patent system adopts a first-to-file principle, which means that when more than one person files different patent applications for the same invention, only the person who files the application first is entitled to obtain a patent of the invention. To be patentable, an invention or a utility model must meet three criteria: novelty, inventiveness, and practicability. A patent is valid for 20 years in the case of an invention, 10 years in the utility model patent and 15 years in the case of designs. All calculated from the date of application.
| 64 |
| Table of Contents |
Trademarks
Registered trademarks are protected under the Trademark Law of the PRC, promulgated by SCNPC on August 23, 1982, last amended on April 23, 2019, and effective on November 1, 2019, and the Implementation Regulations of the Trademark Law of the PRC, promulgated by the State Council on August 3, 2002, and amended on April 29, 2014. Trademarks are registered with the Trademark Office of the State Administration for Industry and Commerce. Where registration is sought for a trademark that is identical or similar to another trademark that has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of the former trademark could be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.
Domain Names
The Ministry of Industry and Information Technology (the “MIIT”) promulgated the Administration Measures of Internet Domain Names (the “Domain Name Measures”) on August 24, 2017, which came into force on November 1, 2017. The China Internet Network Information Center, or the CNNIC, issued the Implementation Rules for Country Code Top-Level Domain Name Registration, which set forth detailed rules for registration of domain names, and Country Code Top-Level Dispute Resolutions Rules on June 18, 2019. Pursuant to these laws, regulations, and administrative rules, domain names registrations are processed through domain names service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.
See “Item 3. Key Information—D. Risk Factors—Risks relating to Our Business—Disclosure of our trade secrets and other proprietary information, or a failure to adequately protect these or our other intellectual property rights, could result in increased competition and have a material adverse effect on our business and financial results.”
PRC Regulations Relating to Labor and Social Welfare
Labor Protection
The Labor Contract Law, which was promulgated on January 1, 2008, amended on December 28, 2012, and became effective on July 1, 2013, is primarily aimed at regulating rights and obligations in employer and employee relationship, including the establishment, performance and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and must be paid to employees in a timely manner. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—Increases in labor costs in the PRC may adversely affect the operating entities’ business and the operating entities’ profitability.”
Social Insurance and Housing Fund
As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004, and amended in 2010, the Provisional Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for Old-Aged Pension Insurance of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999, and the Social Insurance Law of the PRC implemented on July 1, 2011, and last amended on December 29, 2018, employers are required to provide their employees in the PRC with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance, and medical insurance. These payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee at the rate of 0.05% per day of the outstanding amount from the due date. If the employer still fails to make up for the shortfalls within the prescribed time, the relevant administrative authorities will impose a fine of one to three times the outstanding amount upon them.
Article 84 of the Social Insurance Law mandates that if an employer does not register for social insurance, the social insurance administrative department will require the employer to rectify this within a specified timeframe. Failure to comply within this period can result in a fine ranging from double to triple the amount of the due social insurance premiums. Additionally, the individual in charge and other directly responsible personnel could face personal fines ranging from RMB500 to RMB3,000.
| 65 |
| Table of Contents |
On July 20, 2018, the General Office of the CPC Central Committee and the General Office of the State Council jointly issued the Reform Plan of the State Tax and Local Tax System, which specified that starting January 1, 2019, local tax authorities would become the administration authority for social insurance, and such payments shall be made to the local tax authorities. On November 16, 2018, the State Administration of Taxation released the Notice of Certain Measures on Further Supporting and Serving the Development of Private Economy, which provided that the policy for social insurance shall remain stable and the State Administration of Taxation will pursue to lower the social insurance contribution rates with the relevant authorities, and ensure the overall burden of social insurance contribution on enterprises will be lowered. With regard to the arrearages of contributors, including private enterprises, for the previous years, centralized settlement shall not be organized or implemented without authorization. On November 22, 2018, the NDRC, PBOC, and 26 other regulatory departments jointly circulated the Notice of the Memorandum of Understanding Regarding the Implementation of Joint Discipline on Severe Discredited Enterprises and Relevant People in the of Social Insurance, which confirmed that the relevant authorities would publicize an enterprise’s severe discredit in social insurance payments through official website, limit its government financial support, and limit its opportunities in participation of government projects.
In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999, amended on March 24, 2019, and became effective on the same day, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—The operating entities are not in compliance with the PRC’s regulations relating to employee benefit plans, and as a result, they may be subject to penalties if they are not able to remediate the non-compliance.”
C. Organizational Structure
See “—A. History and Development of the Company.”
D. Property, Plants and Equipment
See “—B. Business Overview—Facilities.”
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
| 66 |
| Table of Contents |
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This annual report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
A. Operating Results
Comparison of Results of Operations for the Fiscal Years Ended September 30, 2025 and 2024
The following table summarizes our results of operations for the fiscal years ended September 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such fiscal years.
|
| For the Years Ended September 30, |
|
| Variance |
| ||||||||||
|
| 2025 |
|
| 2024 |
|
| Amount |
|
| % |
| ||||
Revenues |
| $ | 35,573,432 |
|
| $ | 50,957,974 |
|
| ($15,384,542) |
|
| (30.2%) |
| ||
Cost of revenues |
|
| (34,925,865 | ) |
|
| (51,139,085 | ) |
|
| (16,213,220 | ) |
| (31.7%) |
| |
Gross profit (loss) |
|
| 647,567 |
|
|
| (181,111 | ) |
|
| (828,678 | ) |
| (457.6%) |
| |
Allowance for credit losses |
|
| (8,902,927 | ) |
|
| (8,976,860 | ) |
|
| (73,933 | ) |
| (0.8%) |
| |
Selling expenses |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.0 | % |
General and administrative expenses |
|
| (2,718,792 | ) |
|
| (3,195,488 | ) |
|
| (476,696 | ) |
| (14.9%) |
| |
Research and development expenses |
|
| (1,279 | ) |
|
| (135,146 | ) |
|
| (133,867 | ) |
| (99.1%) |
| |
Loss from operations |
|
| (10,975,431 | ) |
|
| (12,488,605 | ) |
|
| (1,513,174 | ) |
| (12.1%) |
| |
Interest expense and amortization of debt issuance costs |
|
| (708,711 | ) |
|
| (335,957 | ) |
|
| 372,754 |
|
|
| 111.0 | % |
Government subsidy income |
|
| - |
|
|
| 81,896 |
|
|
| (81,896 | ) |
| (100.0%) |
| |
Interest income |
|
| 2,567 |
|
|
| 388 |
|
|
| 2,179 |
|
|
| 561.6 | % |
Gain (loss) on disposal of subsidiaries |
|
| 815,671 |
|
|
| (1,290,201 | ) |
|
| 2,105,872 |
|
|
| 163.2 | % |
Share of net loss from equity investee |
|
| (308,681 | ) |
|
| - |
|
|
| 308,681 |
|
|
| 100.0 | % |
Other income (expenses) |
|
| 32,956 |
|
|
| (17,215 | ) |
|
| 50,171 |
|
|
| 291.4 | % |
Loss before income taxes |
|
| (11,141,629 | ) |
|
| (14,049,694 | ) |
|
| (2,908,065 | ) |
| (20.7%) |
| |
Income tax (expenses) benefits |
|
| (378 | ) |
|
| 8,925 |
|
|
| 9,303 |
|
|
| 104.2 | % |
Net loss |
| ($11,142,007) |
|
| ($14,040,769) |
|
| ($2,898,762) |
|
| (20.6%) |
| ||||
Revenue from activated carbon for the fiscal year ended September 30, 2025 decreased by $15.4 million, or 30.2%, to $35.6 million from $51.0 million for the same period of last year. The decrease was mainly attributable to the decrease in sales volume of activated carbon by 12,752 tons, or 29.0%, from 43,989 tons in fiscal 2024 to 31,237 tons in fiscal 2025, which caused a decrease in revenue of $14.6 million. The price of activated carbon showed a decrease in average price per ton by $1, or 0.1%, from $1,140 per ton in fiscal 2024 to $1,139 per ton in fiscal 2025, the impact of the average price per ton was minimal. Also, the decrease was caused by the decrease in sales of air filter product, revenue generated from air filter carbon was nil in fiscal 2025 while in fiscal 2024 sales of air filter product contributed $0.8 million in revenue.
Cost of Revenue
Cost of activated carbon decreased by $16.2 million, or 31.7%, to $34.9 million for fiscal 2025 from $51.1 million for the same period of last year. The decrease was mainly attributable to the decrease in sale volume of activated carbon from 43,989 tons in fiscal 2024 to 31,237 tons in fiscal 2025, which decrease the cost of revenue by $14.6 million. Also, the decrease was attributed to the decrease in average unit cost of activated carbon by $27, or 2.4%, to $1,118 per ton in fiscal 2025 from $1,145 per ton in fiscal 2024, which caused a decrease in cost of revenue by $0.8 million. Further, cost of revenue of air filter carbon decreased from $0.8 million in fiscal 2024 to nil in fiscal 2025.
| 67 |
| Table of Contents |
Gross profit (loss)
Gross profit was $0.65 million for the fiscal year ended September 30, 2025, an increase of $0.83 million, or 457.6%, from gross loss of $0.18 million for the fiscal year ended September 30, 2024. Gross profit margin was 1.8% in 2025, as compared with a gross loss margin of 0.5% in 2024. The increase by 2.3% points was primarily attributable to a decrease of average unit cost by 2.3% which, in turn, improved gross profit margin for activated carbon.
Allowance for credit losses
Allowance for credit losses were $8.9 million for the fiscal year ended September 30, 2025, representing an increase of $73,933, or 0.8%, from $9.0 million for the same period of last year. The increase of allowance for receivables was primarily due to other receivable that was outstanding since September 2024, the Company made estimation of the collectability and made 100% allowance for credit losses of $18.2 million. The allowance for receivable was partially offset by reversal of allowance for accounts receivable of $7.5 million primarily due to certain accounts receivable of $24,548,022 were assigned as part of the consideration for acquisition and reversal of allowance for advances to suppliers of $1.9 million due to normalization of ageing and utilization.
General and administrative expenses
Our general and administrative expenses were $2.7 million for the fiscal year ended September 30, 2025, representing a decrease by $0.5 million, or 14.9%, from $3.2 million for the same period of last year. The decrease was primarily attributable to reduction of $0.9 million in depreciation expenses of property and equipment, and reduction of $0.4 million in depreciation of biological assets due to disposal of subsidiaries. The decrease was partially offset by an increase in legal and other professional expenses of $0.7 million.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development projects, including raw materials, equipment parts, salaries, and other employee benefits. Research and development expenses decreased by $0.1 million, or 99.1%, to $1,279 for the fiscal year ended September 30, 2025, from $1.0 million for the same period of last year. The Company initiated cost cutting measures and ceased its spending in research and development expenses since November 2023.
Interest expenses
Interest expenses increased by approximately $0.4 million, or 111.0%, to approximately $0.7 million for fiscal year 2025 from approximately $0.3 million for the same period of last year. The increase was mainly attributable to the interest expenses arising from convertible notes.
Gain on disposal of subsidiaries
On January 20, 2025, CN Energy entered into a Share Transfer Agreement (the “Agreement”) with Asia Rubber Resources Limited (“Asia Rubber Resources”). Pursuant to the Agreement, CN Energy agreed to transfer 100% of its equity in Clean Energy Holdings Limited (“Energy Holdings”) to Asia Rubber Resources (the “Transfer”) for a total purchase price of HKD10,000 (approximately $1,281). In connection with the Agreement, Energy Holdings’ fully owned subsidiaries, Zhejiang CN Energy Technology Development Co., Ltd. (“Zhejiang CN Energy”) and Manzhouli CN Energy Industrial Co., Ltd. (“Manzhouli CN Energy”), Manzhouli CN Energy Technology Co., Ltd. (“Manzhouli CN Technology”) and Zhejiang Yongfeng New Material Technology Co., Ltd. (“Zhejiang Yongfeng New Material”) were altogether disposed to Asia Rubber Resources.
| 68 |
| Table of Contents |
On April 24, 2025, the Dali City People’s Court issued a ruling, (the “Execution Order”), regarding Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”), a wholly owned subsidiary of the Company. The ruling froze the assets of Shenzhen Xiangfeng Trading Co., Ltd., (“Shenzhen Xiangfeng”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honghao by the Company back to Shenzhen Xiangfeng. Shenzhen Xiangfeng will in turn return the cash payments made by the Company and the shares of the Company issued to Shenzhen Xiangfeng in connection with the Equity Transfer Agreement (“Purchase Agreement”), dated September 30, 2022, back to the Company.
As a result of aforementioned disposal, $0.8 million gain on disposal of subsidiaries was generated.
Share of net loss from equity investees
On March 31, 2025 and April 23, 2025, CN Energy and Ewforest (the “Purchaser”) entered into a share purchase agreement (the “Purchase Agreement”) with, Ynong Group Limited (the “Seller”) and Ynong International Group Limited (“Ynong”), pursuant to which the Seller agreed to sell and the Purchaser agreed to purchase 4,500 shares of Ynong ordinary shares (the “Ynong Shares”), of which represents forty-five percent (45%) of the issued and outstanding Ynong ordinary shares to the Purchaser. Ynong directly owns 90% of the issued and outstanding equity of an Indonesian entity, PT Grand Indonesia Forestmates (“PGIF”), and PGIF and two Indonesian citizens, collectively, directly owns 90% and 10%, respectively, of another Indonesian entity, PT Wana Arga Nusantara (“PWAN”), which is the operating business.
In connection with the execution of the Purchase Agreement, the Seller entered into a side letter with PGIF and PWAN, in which PGIF and PWAN agreed to be bound by and comply with the covenants and obligations set forth in the Purchase Agreement that are applicable to each of PGIF and PWAN.
Pursuant to, and upon the terms and subject to the conditions set forth in the Purchase Agreement, the consideration for the Ynong Shares will consist of the following:
(iv) | $6,365,348 in cash payable by CN Energy to the Seller will be made as a post-closing payment; |
|
|
(v) | 50,000,000 Class A ordinary shares, no par value per share, of CN Energy, having an aggregate value of $10,000,000 with a cost basis of $0.20 per share (the “Consideration Shares”), issuable by CN Energy to the Seller on the Closing Date; and |
|
|
(vi) | assignment of certain accounts receivables of the subsidiaries of the Company (the “Assigning Subsidiaries”) with an aggregate value of $24,548,022 (the “Assigned Receivables”), to be effected on the Closing Date. |
Aforementioned, prepayment for acquisition was related to the Assigned Receivables of $24,548,022.
On April 30, 2025, the Company and its wholly owned subsidiary, Ewforest, closed a transaction (the “Closing”) involving the acquisition of 4,500 shares of Ynong from the Seller in exchange for, among other things, the issuance by the Company of 50,000,000 shares of its Class A ordinary shares (“Shares”) to the Seller and its designees (the “Designees”) and the assignment to the Seller of certain accounts receivable of the subsidiaries of the Company (the “Subsidiaries”) with an aggregate value of $24,548,022, pursuant to the Share Purchase Agreement dated as of March 31, 2025 (the “Original Purchase Agreement”), as amended by the Amendment to Share Purchase Agreement dated as of April 23, 2025 (the “Amendment” and, together with the Share Purchase Agreement, the “Purchase Agreement”), entered into between the Company, the Purchaser, the Seller, and Ynong, and pursuant to the side letters (the “Side Letters”) entered into between the Seller, an Indonesian entity (“PGIF”) and the operating Indonesian entity (“PWAN”).
| 69 |
| Table of Contents |
In connection with the Closing, the following agreements were entered into and made effective as of April 30, 2025, the date of the Closing:
| · | a shareholder agreement between the Company, the Purchaser, the Seller, Ynong, an Indonesian entity (“PGIF”), the operating Indonesian entity (“PWAN”), and the other shareholders of PGIF and PWAN, which governs, among other things, the composition of the board of directors, restriction on share transfers, preemptive rights and significant corporate actions of HoldCo, PGIF and PWAN, as applicable; |
|
|
|
| · | a voting agreement entered into between a holder of Class B ordinary shares of the Company and the Designees, in which the Designees granted the Class B holder the authority to vote the applicable Shares issued to them; and |
|
|
|
| · | an assignment agreement entered into between the Subsidiaries and the Seller in which the Subsidiaries assigned certain of its account receivables with an aggregate value of $24,548,022 to the Seller. |
In addition, the Company will pay to the Seller a post-Closing payment of $6,365,348 in cash on or prior to June 30, 2025. Pursuant to the Purchase Agreement and Side Letters, PWAN will appoint an individual designated by the Company to serve on the board of directors of PWAN on or prior to June 30, 2025, pursuant to a director agreement to be entered into between the individual designated by the Company and PWAN.
The total consideration for the 4,500 shares of Ynong is $40,913,370, which consists of: (i) the Shares, which had an aggregate value of $10,000,000; (ii) the account receivables, which have an aggregate value of $24,548,022; and (iii) the cash payment of $6,365,348 to be paid by the Company to the Seller as a post-Closing obligation. As of September 30, 2025, the Company issued 50,000,000 Class A ordinary shares that had an aggregate value of $10,000,000, novated account receivables of $24,548,022, and paid $5,650,000 in cash to the Seller, the remaining acquisition consideration to be paid to the Seller was $715,348.
The investment was accounted for under the equity method in accordance with ASC 323. The Company recognized its proportionate share of Ynong’s net loss in the amount of $308,681 and nil for the fiscal years ended September 30, 2025 and 2024, respectively.
Other income (expenses)
The increase in other income increased by $50,171, or 291.4%, to other income of $32,956 for the fiscal year ended September 30, 2025 from other expenses of $17,215 for the same period of last year. The increase was mainly attributable to collection of storage fee income from customers.
Net loss
As a result of the foregoing, our net loss for the fiscal years ended September 30, 2025 and 2024 was $11.1 million and $14.0 million, respectively.
Comparison of Results of Operations for the Fiscal Years Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the fiscal years ended September 30, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such fiscal years.
|
| Fiscal year end September 30, |
|
| Variance |
| ||||||||||
|
| 2024 |
|
| 2023 |
|
| Amount |
|
| % |
| ||||
Revenues |
| $ | 50,957,974 |
|
| $ | 57,899,096 |
|
| $ | (6,941,122 | ) |
|
| (12.0 | )% |
Cost of revenues |
|
| (51,139,085 | ) |
|
| (57,110,446 | ) |
|
| (5,971,361 | ) |
|
| (10.5 | )% |
Gross (loss) profit |
|
| (181,111 | ) |
|
| 788,650 |
|
|
| (969,761 | ) |
|
| (123.0 | )% |
Allowance for receivables and inventories |
|
| (8,976,860 | ) |
|
| (195,355 | ) |
|
| 8,781,505 |
|
|
| 4,495.2 | % |
Selling expenses |
|
| - |
|
|
| (53,008 | ) |
|
| (53,008 | ) |
|
| (100.0 | )% |
General and administrative expenses |
|
| (3,195,488 | ) |
|
| (5,730,147 | ) |
|
| (2,534,659 | ) |
|
| (44.2 | )% |
Research and development expenses |
|
| (135,146 | ) |
|
| (988,559 | ) |
|
| (853,413 | ) |
|
| (86.3 | )% |
Loss from operations |
|
| (12,488,605 | ) |
|
| (6,178,419 | ) |
|
| 6,310,186 |
|
|
| 102.1 | % |
Interest expense |
|
| (335,957 | ) |
|
| (712,490 | ) |
|
| (376,533 | ) |
|
| (52.8 | )% |
Government subsidy income |
|
| 81,896 |
|
|
| 925,983 |
|
|
| (844,087 | ) |
|
| (91.2 | )% |
Interest income |
|
| 388 |
|
|
| 489 |
|
|
| (101 | ) |
|
| (20.7 | )% |
Loss on disposal of subsidiaries |
|
| (1,290,201 | ) |
|
| - |
|
|
| (1,290,201 | ) |
|
| (100.0 | )% |
Other (expenses) income |
|
| (17,215 | ) |
|
| 116,575 |
|
|
| (133,790 | ) |
|
| (114.8 | )% |
Loss before income taxes |
|
| (14,049,694 | ) |
|
| (5,847,862 | ) |
|
| 8,201,832 |
|
|
| 140.3 | % |
Income tax benefits |
|
| 8,925 |
|
|
| 222,122 |
|
|
| (213,197 | ) |
|
| (96.0 | )% |
Net loss |
| $ | (14,040,769 | ) |
| $ | (5,625,740 | ) |
| $ | 8,415,029 |
|
|
| 149.6 | % |
| 70 |
| Table of Contents |
Revenue
The following table sets forth the breakdown of our revenue for the fiscal years ended September 30, 2024 and 2023, respectively:
|
| Fiscal year ended September 30, |
|
| Variance |
| |||||||||||||||||
|
| 2024 |
|
| % |
|
| 2023 |
|
| % |
|
| Amount |
|
| % |
| |||||
Activated carbon |
| $ | 50,957,974 |
|
|
| 100.0 | % |
| $ | 57,879,320 |
|
|
| 100.0 | % |
| $ | (6,921,346 | ) |
| (12.0 | )% |
Biomass electricity |
|
| - |
|
|
| - |
|
|
| 19,776 |
|
|
| 0.0 | % |
|
| (19,776 | ) |
| (100.0 | )% |
Total |
| $ | 50,957,974 |
|
|
| 100.0 | % |
| $ | 57,899,096 |
|
|
| 100.0 | % |
| $ | (6,941,122 | ) |
| (12.0 | )% |
Activated carbon
Revenue from activated carbon for the fiscal year ended September 30, 2024 decreased by $6.9 million, or 12.0%, to $51.0 million from $57.9 million for the same period of last year. Although the sales volume of activated carbon increased by 3,738 tons, or 9.3%, from 40,251 tons in fiscal 2023 to 43,989 tons in fiscal 2024, which caused an increase in revenue of $5.4 million. With the increasing mature and competitive market, the price of activated carbon is showing a downward trend year by year, which decreased the average price per ton by $298, or 20.7%, from $1,438 per ton in fiscal 2023 to $1,140 per ton in fiscal 2024, and caused a decrease in revenue of $13.1 million. The decrease is partially offset by an introduction of new product, air filter carbon, in fiscal 2024, which contributed $0.8 million in revenue.
Biomass electricity
Revenue from biomass electricity for fiscal year 2024 decreased by $19,776, or 100%, to nil from $19,776 for the same period of last year. The biomass electricity was generated in the process of producing activated carbon and supplied to State Grid Heilongjiang pursuant to a biomass electricity sales agreement, which is renewed annually. The decrease was mainly due to the newly commissioned equipment in fiscal 2023 which produced more activated carbon with less gas and the heat generated from the production of activated carbon was insufficient to supply the power generation equipment. Since June 2023, the power plant had been in a state of shutdown which in turn reduced self-produced activated carbon and produced no electricity for fiscal year 2024.
Cost of Revenue
Cost of activated carbon decreased by $6.0 million, or 10.5%, to $51.1 million for fiscal 2024 from $57.1 million for the same period of last year. The decrease was mainly attributed to the decrease in average unit cost of activated carbon by $273, or 19.2%, to $1,144.93 per ton in fiscal 2024 from $1,417.50 per ton in fiscal 2023, which caused a decrease in cost of revenue by $12.0 million. The decrease was partially offset by an increase in sale volume of activated carbon from 40,251 tons in fiscal 2023 to 43,989 tons in fiscal 2024, which increased the cost of revenue by $5.3 million. Also, the introduction of new product, air filter carbon, in fiscal 2024, contributed $0.8 million in cost of revenue.
Gross (Loss) Profit
Gross loss was $0.18 million for the fiscal year ended September 30, 2024, a decrease of $0.97 million, or 123.0%, from gross profit of $0.79 million in fiscal 2023. Gross loss for activated carbon was $0.22 million in fiscal 2024 as compared to gross profit of $0.79 million for fiscal 2023, which was mainly caused by mature and competitive market which drove the selling price down more than cost of producing activated carbon. The new product, air filter carbon, contributed $36,100 in gross profit in fiscal 2024.
Allowance for receivables and inventories
Allowance for receivables were $7.0 million for the fiscal year ended September 30, 2024, representing an increase of $6.8 million, or 3,814.9%, from $0.2 million for the same period of last year. The increase of allowance for receivables was primarily due to certain account receivable ageing were deteriorated. Also, allowance for advances to suppliers were $1.8 million for the fiscal year ended September 30, 2024, representing an increase of $2.0 million, or 970.6% from a reversal of $0.2 million for the same period of last year. The increase of allowance for advances to suppliers was primarily due to certain advances to suppliers ageing were deteriorated. As partially offset by an allowance of $0.1 million for inventories as the net realizable value of certain inventories was lower than the carrying value.
| 71 |
| Table of Contents |
Selling expenses
Selling expenses were nil for the fiscal year ended September 30, 2024, representing a decrease of $53,008, or 100%, from $53,008 for the same period of last year. The decrease was primarily due to lower shipping expenses as most of the customers chose to pick up the activated carbon products themselves instead of having the operating entities ship the products to them.
General and administrative expenses
Our general and administrative expenses were $3.2 million for the fiscal year ended September 30, 2024, representing a decrease by $2.5 million, or 44.4%, from $5.7 million for the same period of last year. The decrease was primarily attributable to reduction of $1.4 million consultation service fees, reduction of $0.7 million in legal and other professional expenses, and reduction of $0.5 million staff and related expenses due to reduction of headcount from 133 employees in fiscal 2023 to 27 employees in fiscal 2024 as the Company initiated cost cutting measures to revive the business.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development projects, including raw materials, equipment parts, salaries, and other employee benefits. Research and development expenses decreased by $0.9 million, or 86.3%, to $0.1 million for the fiscal year ended September 30, 2024, from $1.0 million for the same period of last year. The Company initiated cost cutting measures and ceased its spending in research and development expenses since November 2023.
Interest expenses
Interest expenses decreased by $0.4 million, or 52.8%, to $0.3 million for fiscal year 2024 from $0.7 million for the same period of last year. The decrease was mainly attributable to the full redemption of convertible notes.
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 fiscal years ended September 30, 2024, and 2023, the Company had the following subsidy income:
|
| September 30, |
|
| September 30, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Value-added tax refund |
|
| - |
|
| $ | 465,072 |
|
Investment grant |
|
| - |
|
|
| 292,487 |
|
Equipment of energy projects grants |
| $ | 81,896 |
|
|
| 97,366 |
|
Research and development grants |
|
| - |
|
|
| 71,058 |
|
Total |
| $ | 81,896 |
|
| $ | 925,983 |
|
In January 2014, April 2014, and December 2019, the Company received government subsidies of approximately $840,000, $140,000, and $140,000 for equipment of energy projects, respectively. These subsidies were one-time grants, and the Company recognizes the income over the useful lives of the equipment. During the fiscal years ended September 30, 2024 and 2023, $81,896, and $97,366 was recorded in government subsidy income, respectively.
| 72 |
| Table of Contents |
Loss on disposal of subsidiaries
On September 12, 2024, the Company, through its wholly owned subsidiary CN Energy Development, entered into a Share Transfer Agreement (the “Agreement No. 1”) with Zhejiang Sentuo Industrial Holding Group., Ltd. (“Sentuo”). Pursuant to the Agreement No. 1, CN Energy Development agreed to transfer all of its equity interest in Hangzhou Forasen, which constituted 100% of the issued and outstanding equity of Hangzhou Forasen, to Sentuo in consideration of RMB29,478 ($4,201), which was received in September 2014.
On September 25, 2024, the Company, through its wholly owned subsidiaries in China, Zhejiang CN Energy and Manzhouli CN Energy, entered into a Share Transfer Agreement (the “Agreement No. 2”) with Xinbaocheng Industrial Group Co., Ltd. (“Xinbaocheng”). Pursuant to the Agreement No. 2, Zhejiang CN Energy agreed to transfer 90% of its equity in CN Energy Development and its subsidiaries (Khingan Forasen and Zhongxing Energy), and Manzhouli CN Energy agreed to transfer its 10% of equity in CN Energy Development to Shanghai Xinbaocheng Industrial Group Co., Ltd. for a total purchase price of RMB138,204,751 ($19,694,019), which shall be paid by Xinbaocheng in installments according to the schedules set forth in the Agreement. Consideration of RMB6,910,238 ($984,701) was received in September 2014 and RMB131,294,513 ($18,709,318) was outstanding as of September 30, 2024.
As a result of aforementioned agreements, $1.3 million loss on disposal of subsidiaries was incurred.
Net (loss) income
As a result of the foregoing, our net loss for the fiscal years ended September 30, 2024 and 2023 was $14.0 million and $5.6 million, respectively.
B. Liquidity and Capital Resources
Liquidity
In assessing the Company’s liquidity and substantial doubt about its ability to continue as a going concern, the Company monitors and analyzes cash on-hand and operating expenditure commitments. The Company’s liquidity needs are to meet working capital requirements and operating expense obligations. To date, the Company financed its operations primarily through equity or convertible securities financing activities.
The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company recorded net loss of $11.1 million, accumulated deficits of $27.9 million, cash and restricted cash of $391k and net cash used in operating activities of $2.0 million for the year ended September 30, 2025. The above matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In evaluating if there is substantial doubt about the ability to continue as a going concern, the Company is trying to alleviate the going concern risk through (1) collection from accounts receivables and other receivables, (2) by bringing in strategic investors to supplement funding; and (3) equity or debt financing to meet its anticipated working capital requirements for at least the next 12 months. From the operational perspective, the Company has the following initiatives to alleviate the going concern risk by:
(1) improve accounts receivable management, strengthen collection by shorten the collection cycle and improve cash flow, optimize credit policy by strictly review customer credit and reduce bad debt risk, using factoring or financing which would relieve cash flow pressure through accounts receivable financing.
(2) strategic adjustments through business restructuring, divesting loss making businesses and focus on profitable business, and by acquiring new technologies or market share through mergers and acquisitions or collaborations to enhance competitiveness.
| 73 |
| Table of Contents |
(3) technological innovation and digital transformation to improve production efficiency and product competitiveness, optimizing operations and customer experience through digital means.
(4) increase income through expanding the market, entering new markets or launching new products to increase revenue sources, subject to the market conditions by raising prices appropriately to improve profit margins, strengthening sales and optimizing sales strategies to increase customer order volumes.
The Company may, however, need additional capital in the future to fund our further expansion. If the Company determines that its cash requirements exceed the amount of cash and cash equivalents it has on hand at the time, the Company may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to shareholders of the Company. In addition, as of September 30, 2025, the Company has positive working capital of $61.0 million, net assets and shareholders’ surplus position of $102.0 million.
The Company prepared the consolidated financial statements assuming the Company will continue as a going concern. However, there is no assurance that the measures above can be achieved as planned. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Currently, our principal source of liquidity is our operations. The primary drivers and material factors impacting our liquidity and capital resources include our ability to generate sufficient cash flows from our operations. We plan to support our future operations primarily from cash generated from our operations. We may require additional cash due to business expansion or other future developments. If our future cash is insufficient to meet our requirements, we may further to seek to issue debt or equity securities or obtain additional credit facilities.
We are a holding company incorporated in the British Virgin Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our 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. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our revenue generating subsidiaries to meet our obligations to date. Furthermore, cash transfers from our PRC subsidiaries to their parent companies outside of China are subject to PRC government control of currency conversion. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to their parent companies outside of China, or otherwise satisfy their foreign currency denominated obligations. See “Item 3. Key Information—D. Risk Factors—Risks relating to Doing Business in PRC—We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirement we may have, and any limitation on the ability of our subsidiaries to make payments to us and any tax we are required to pay could have a materially adverse effect on our ability to conduct our business.”
As of September 30, 2025, we had cash of $0.4 million, and total working capital of $61.0 million. During fiscal year 2025, we received proceeds of $6.0 million from issuance of ordinary shares, proceeds of $5.9 million from convertible notes, and proceeds of $0.5 million from issuance of ordinary shares for warrants exercised. In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of September 30, 2025, we had advances to suppliers of approximately $21.4 million. In order to secure a steady supply of raw materials, the operating entities are required from time to time to make cash advances when placing their purchase orders. We monitor the advances to suppliers account and the allowance level periodically in order to ensure the related allowance is reasonable. We have since enhanced our collections or realization on advances to suppliers through tightening vendor prepayment policy and strengthening the monitoring of unrealized prepayment. If we have difficulty collecting payment, we will take measures including discontinuing additional purchases from these suppliers, visiting the suppliers to request return of the prepayment promptly, and, if necessary, taking legal action. If all of these steps are unsuccessful, management will determine whether or not the prepayment will be reserved or written off.
| 74 |
| Table of Contents |
With the uncertainty of the current market and the external environment, our management believes it is necessary to enhance the collection of the outstanding balance of accounts receivable and other receivables, and to be cautious on operational decisions and project selections. For fiscal year 2025, we generated negative operating cash flows of $2.0 million, primarily due to net loss of $15.9 million, reversal of allowance for accounts receivable of $7.5 million, and increase in accounts receivable of $7.5 million due to sales, as partially offset by allowance for other receivable of $18.2 million, decrease in advances to suppliers of $6.5 million due to utilization, and allowance for loan to a third party of $4.7 million. We made advanced payments to fulfill sales orders received and secure a steady supply of raw materials. Our management believes that income generated from our current operations can satisfy our daily working capital needs over the next 12 months.
Cash Flows for the Fiscal Years Ended September 30, 2025, 2024, and 2023
Cash Flows
The following table sets forth a summary of our cash flows for the fiscal years indicated:
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Net cash used in operating activities |
| $ | (1,971,537 | ) |
| $ | (2,371,172 | ) |
| $ | (30,164,971 | ) |
Net cash (used in) provided by investing activities |
|
| (10,404,038 | ) |
|
| 1,569,078 |
|
|
| (1,452,654 | ) |
Net cash provided by financing activities |
|
| 12,448,200 |
|
|
| 925,831 |
|
|
| 13,432,547 |
|
Effect of exchange rate changes on cash |
|
| 758 |
|
|
| (1,916 | ) |
|
| 333,708 |
|
Net increase (decrease) in cash |
|
| 73,383 |
|
|
| 121,821 |
|
|
| (17,851,370 | ) |
Cash and restricted cash, beginning of year |
|
| 317,323 |
|
|
| 195,502 |
|
|
| 18,046,872 |
|
Cash and restricted cash, end of year |
| $ | 390,706 |
|
| $ | 317,323 |
|
| $ | 195,502 |
|
Operating Activities
Net cash used in operating activities was $2.0 million for the year ended September 30, 2025. The net cash used in operating activities was primarily due to net loss of $11.1 million, reversal of allowance for accounts receivable of $7.5 million, and increase in accounts receivable of $7.5 million due to sales, as partially offset by allowance for other receivable of $18.2 million, and decrease in advances to suppliers of $6.5 million due to utilization.
Net cash used in operating activities was $2.4 million for the year ended September 30, 2024. The net cash used in operating activities was primarily attributable to net loss of $14.0 million, an increase of $5.3 million in advances to suppliers, and a decrease of $4.0 million in accounts payable, as partially offset by a decrease of $10.9 million in accounts receivable, an increase of allowance for accounts receivable of $7.0 million, and allowance for advances to suppliers of $1.8 million, and loss on disposal of subsidiaries of $1.3 million.
Net cash used in operating was $30.2 million for the fiscal year ended September 30, 2023. The net cash used in operating activities was primarily attributable to the following:
| · | Accounts receivable increased by $11.3 million as the operating entities increased sales of $17.7 million to the customers; |
|
|
|
| · | Advances to suppliers increased by $21,8 million as the operating entities pay more funding to suppliers in anticipation of higher sales in fiscal 2024. In order to secure a steady supply of raw materials, the operating entities are required from time to time to make cash advances when placing their purchase orders. |
Investing Activities
For the fiscal year ended September 30, 2025, net cash used in investing activities amounted to $10.4 million, which was primarily due to purchase of investment of $5.7 million, and $6.0 million loan to a third party, as partially offset by $1.2 million repayment from loan to a third party.
For the fiscal year ended September 30, 2024, net cash provided by investing activities amounted to $1.6 million, which was primarily due to proceeds of $1.6 million from disposal of subsidiaries.
For the fiscal year ended September 30, 2023, net cash used in investing activities amounted to $1.5 million. The increase in net cash used in investing activities was primarily due to (1) purchases of property, plant, and equipment of $0.7 million; and (2) advances of $0.8 million to third parties.
Financing Activities
Net cash provided by financing activities was $12.4 million for the fiscal year ended September 30, 2025, which was primarily due to proceeds of $6.0 million from issuance of ordinary shares, proceeds of $5.9 million from convertible notes, and proceeds of $0.5 million from issuance of ordinary shares for warrants exercised.
Net cash provided by financial activities was $0.9 million for the fiscal year ended September 30, 2024, which was primarily due to proceeds of $0.8 million from related party loans.
Net cash provided by financing activities was $13.4 million for the fiscal year ended September 30, 2023. During fiscal year 2023, the Company received $8.9 million from issuance of shares and warrants, received $3.0 million from issuance of convertible notes and proceeds of $5.8 million from loans, which were partially offset by repayments of $4.6 million of loans.
| 75 |
| Table of Contents |
Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements. 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. Moreover, we do not have any variable interest in any unconsolidated entity that we provide financing, liquidity, market risk, or credit support to or engages in hedging or research and development services with us.
C. Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D. Trend Information
Other than as disclosed below and elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments, or events for the period from October 1, 2024 to September 30, 2025 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
Factors and Trends Affecting Our Results of Operations
Government policies may impact our business and operating results.
We have not seen any impact of unfavorable government policies upon our business in recent years. However, our business and operating results will be affected by the overall economic growth and government policies in the PRC, and our products are currently eligible for certain favorable government tax incentive and other incentives. Unfavorable changes in government policies and these incentives could affect the demand for our products and could materially and adversely affect our results of operations. However, we will seek to make adjustments as required if and when government policies shift.
Exchange rate fluctuations may significantly impact our business and profitability.
Substantially all of our operations are in the PRC. Thus, our revenue and operating results may be impacted by exchange rate fluctuations between RMB and U.S. dollars. For the fiscal years ended September 30, 2025, 2024, and 2023, we had an unrealized foreign currency translation (loss) gain of ($3.7 million), $4.8 million, and ($2.2 million), respectively, because of changes in the exchange rates.
| 76 |
| Table of Contents |
E. Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see “Note 2—Summary of significant accounting policies” to our consolidated financial statements included elsewhere in this annual report.
Use of Estimates
In preparing the 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 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, other receivables, useful lives of property and equipment, biological assets 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.
Revenue Recognition
We account for revenue recognition under Accounting Standards Codification 606 (“ASC 606”), Revenue from Contracts with Customers. Our revenue 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, we recognize revenue when title and risk of loss passes and the customer accepts the products, which generally 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 us 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 our power plant 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. We also provide technical services to customers who purchase activated carbon from us. The revenue of technical services is recognized on a straight-line basis over the service period as earned.
The transaction price of activated carbon and technical services is determined based on fixed consideration in our customer contracts. Pursuant to the power purchase agreements entered into between us and the respective provincial power grid company, our sales of biomass electricity were made to the power grid company at the tariff rates agreed 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 we invoice our customers to when payment is received is less than one year.
Revenue is reported net of all value added taxes. We generally do not permit customers to return products and historically, customer returns have been immaterial. In the event we receive an advance from a customer, such advance is recorded as a liability to us. We reduce the liability and recognizes revenue after the delivery of goods occurs.
The core principle underlying the revenue recognition ASC 606 is that we recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in such exchange. This requires us 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. Our 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. Our 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. Our performance obligation is satisfied over time as biomass electricity is delivered.
There were no contract assets as of September 30, 2025 and 2024. For the fiscal years ended September 30, 2025, 2024, and 2023, 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.
| 77 |
| Table of Contents |
We have elected the following practical expedients in applying ASC 606:
| · | Unsatisfied Performance Obligations – for all performance obligations relate to contracts with a duration of less than one year, we have elected to apply the optional exemption provided in ASC 606, and therefore are 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 we otherwise would have recognized is one year or less in duration. |
|
|
|
| · | Significant Financing Component - we do not adjust the promised amount of consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when we transfer 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 - we exclude 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 us from the customer. |
|
|
|
| · | Shipping and Handling Activities - we elect to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation. |
Accounts receivable
Accounts receivable are presented net of an allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses. We review our accounts receivable on a periodic basis and make general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, customer’s historical 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
We value our inventory at the lower of cost, determined on a first-in first-out 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. We review our inventory periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value.
Income taxes
Our subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the fiscal years ended September 30, 2025, 2024, and 2023. We account 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 we are 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 September 30, 2025. As of September 30, 2025, the tax years ended December 31, 2017, through December 31, 2024 for our PRC subsidiaries remain open for statutory examination by PRC tax authorities.
| 78 |
| Table of Contents |
Recent accounting pronouncements
The Company considers the applicability and impact of all ASUs. Management periodically reviews new accounting standards that are issued.
In November 2024, the FASB issued ASU 2024-03, Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. This ASU may be applied either on a prospective or retrospective basis. We are currently evaluating the impact of this standard on our disclosures.
In November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This ASU is effective for fiscal years beginning after December 15, 2025 and interim reporting periods within those annual reporting periods, with early adoption permitted. We are currently evaluating the impact of this standard on our disclosures.
In January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40),which clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810), Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, which revised current guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a VIE that meets the definition of a business. The amendments require that an entity consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions. The amendments in this Update require an entity involved in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider the factors in paragraphs 805-10-55-12 through 55-15 to determine which entity is the accounting acquirer. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments in this Update require that an entity apply the new guidance prospectively to any acquisition transaction that occurs after the initial application date. Early adoption is permitted as of the beginning of an interim or annual reporting period.
In May 2025, the FASB issued ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Clarifications to Share-Based Consideration Payable to a Customer, which revised the Master Glossary definition of the term performance condition for share-based consideration payable to a customer. The revised definition incorporates conditions (such as vesting conditions) that are based on the volume or monetary amount of a customer’s purchases (or potential purchases) of goods or services from the grantor (including over a specified period of time). The revised definition also incorporates performance targets based on purchases made by other parties that purchase the grantor’s goods or services from the grantor’s customers. The revised definition of the term performance condition cannot be applied by analogy to awards granted to employees and nonemployees in exchange for goods or services to be used or consumed in the grantor’s own operations. Although it is expected that entities will conclude that fewer awards contain service conditions, for those that are determined to have service conditions, the amendments in this Update eliminate the policy election permitting a grantor to account for forfeitures as they occur. Therefore, when measuring share-based consideration payable to a customer that has a service condition, the grantor is required to estimate the number of forfeitures expected to occur. Separate policy elections for forfeitures remain available for share-based payment awards with service conditions granted to employees and nonemployees in exchange for goods or services to be used or consumed in the grantor’s own operations. The amendments in this Update clarify that share-based consideration encompasses the same instruments as share-based payment arrangements, but the grantee does not need to be a supplier of goods or services to the grantor. Finally, the amendments in this Update clarify that a grantor should not apply the guidance in Topic 606 on constraining estimates of variable consideration to share-based consideration payable to a customer. Therefore, a grantor is required to assess the probability that an award will vest using only the guidance in Topic 718. Collectively, these changes improve the decision usefulness of a grantor’s financial statements, improve the operability of the guidance, and reduce diversity in practice for accounting for share-based consideration payable to a customer. Under the amendments in this Update, revenue recognition will no longer be delayed when an entity grants awards that are not expected to vest. This is expected to result in estimates of the transaction price that better reflect the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer and, therefore, more decision-useful financial reporting.
| 79 |
| Table of Contents |
The amendments in this Update are effective for all entities for annual reporting periods (including interim reporting periods within annual reporting periods) beginning after December 15, 2026. Early adoption is permitted for all entities. The amendments in this Update permit a grantor to apply the new guidance on either a modified retrospective or a retrospective basis. When applying the amendments in this Update on a modified retrospective basis, a grantor should recognize a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of 4 equity or net assets in the statement of financial position) as of the beginning of the period of adoption and should not recast any financial statement information before the period of adoption. A grantor should apply the amendments as of the date of initial application to all share-based consideration payable to a customer. When applying the amendments in this Update on a retrospective basis, a grantor should recast comparative periods and recognize a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the earliest period presented. Additionally, an entity that elects to apply the guidance retrospectively should use the actual outcome, if known, of a performance condition or service condition as of the beginning of the annual reporting period of adoption for all prior-period estimates. If actual outcomes are unknown as of the beginning of the annual reporting period of adoption, an entity should use its estimate of the probability of achieving a service condition or performance condition as of the beginning of the annual reporting period of adoption for all prior-period estimates.
In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU 2025-05)”, simplifies credit loss calculations by introducing a practical expedient (available to all entities) that allows entities to assume current conditions won’t change over an asset’s life, removing the need for complex macroeconomic forecasts. Additionally, a new accounting policy election (for non-public business entities) allows these entities to consider post-balance sheet collection activity to estimate expected credit losses. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025. Early adoptions is permitted. The Company’s management does not believe the adoption of ASU 2025-05 will have a material impact on its financial statements and disclosures.
In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) - Targeted Improvements to the Accounting for Internal-Use Software”, the amendments in this Update remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. Therefore, an entity is required to start capitalizing software costs when both of the following occur: 1. Management has authorized and committed to funding the software project. 2. It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software (referred to as “significant development uncertainty”). The two factors to consider in determining whether there is significant development uncertainty are whether: 1. The software being developed has technological innovations or novel, unique, or unproven functions or features, and the uncertainty related to those technological innovations, functions, or features, if identified, has not been resolved through coding and testing. 2. The entity has determined what it needs the software to do (for example, functions or features), including whether the entity has identified or continues to substantially revise the software’s significant performance requirements. The amendments in this Update specify that the disclosures in Subtopic 360- 10, Property, Plant, and Equipment—Overall, are required for all capitalized internal-use software costs, regardless of how those costs are presented in the financial statements. Additionally, the amendments clarify that the intangibles disclosures in paragraphs 350-30-50-1 through 50-3 are not required for capitalized internal-use software costs. Furthermore, the amendments in this Update supersede the website development costs guidance and incorporate the recognition requirements for website-specific development costs from Subtopic 350-50 into Subtopic 350-40. 4 within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The amendments in this Update permit an entity to apply the new guidance using any of the following transition approaches: 1. A prospective transition approach 2. A modified transition approach that is based on the status of the project and whether software costs were capitalized before the date of adoption 3. A retrospective transition approach. Under a prospective transition approach, an entity should apply the amendments in this Update to new software costs incurred as of the beginning of the period of adoption for all projects, including in-process projects. Under a modified transition approach, an entity should apply the amendments in this Update on a prospective basis to new software costs incurred (for all projects, including costs incurred for in-process projects), except for in-process projects that, as of the date of adoption, the entity determines do not meet the capitalization requirements under the amendments but meet the capitalization requirements under current guidance. For those in-process projects, an entity should derecognize any capitalized costs through a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the date of adoption. Under a retrospective transition approach, an entity should recast comparative periods and recognize a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the first period presented.
In September 2025, the FASB issued ASU 2025-07, “Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606) - Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract”, the amendments in this Update exclude from derivative accounting nonexchange-traded contracts with underlyings that are based on operations or activities specific to one of the parties to the contract. However, this scope exception does not apply to (1) variables based on a market rate, market price, or market index, (2) variables based on the price or performance of a financial asset or financial liability of one of the parties to the contract, (3) contracts (or features) involving the issuer’s own equity that are evaluated under the guidance in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and (4) call options and put options on debt instruments. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. An entity is permitted to apply the amendments in this Update either (1) prospectively to new contracts entered into on or after the date of adoption or (2) on a modified retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption for contracts existing as of the beginning of the annual reporting period of adoption. If an entity applies the modified retrospective transition method described in the preceding paragraph, upon adoption the entity may elect on an instrument by-instrument basis to (1) measure contracts previously accounted for as derivatives that are no longer accounted for as derivatives in their entirety under the amendments in this Update at fair value with changes in fair value recognized in earnings and (2) stop applying the fair value option for contracts that contained embedded features that otherwise would have been bifurcated but are no longer accounted for as derivatives under the amendments in this Update.
| 80 |
| Table of Contents |
The amendments in this Update clarify that an entity should apply the guidance in Topic 606, including the guidance on noncash consideration in paragraphs 606-10-32-21 through 32-24, to a contract with share-based noncash consideration (for example, shares, share options, or other equity instruments) from a customer for the transfer of goods or services. The guidance in other Topics (including Topic 815 on derivatives and hedging and Topic 321 on equity securities) does not apply to share-based noncash consideration from a customer for the transfer of goods or services unless and until the entity’s right to receive or retain the share-based noncash consideration is unconditional under Topic 606. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. An entity is permitted to apply the amendments in this Update either (1) prospectively to new contracts entered into on or after the date of adoption, including modified contracts accounted for as separate contracts in accordance with paragraph 606-10-25-12, or (2) on a modified retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption for contracts existing as of the beginning of the annual reporting period of adoption.
In November 2025, the FASB issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326) Purchased Loans”, the amendments in this update expand the population of acquired financial assets subject to the gross-up approach in Topic 326. In accordance with the amendments in this Update, loans (excluding credit cards) acquired without credit deterioration and deemed “seasoned” (defined below) are purchased seasoned loans and accounted for using the gross-up approach at acquisition. Specifically, after an entity determines that a loan is a non-PCD asset based on its assessment of credit deterioration experienced since origination, the entity should apply the guidance described in the amendments to determine whether the loan is seasoned and, therefore, should be accounted for using the gross-up approach. All non-PCD loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-PCD loans (excluding credit cards) are seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments in this Update should be applied prospectively to loans that are acquired on or after the initial application date. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim reporting period, it should apply the amendments as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period.
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815) Hedge Accounting Improvements”, Issue 1: Similar Risk Assessment for Cash Flow Hedges - the amendments in this Update expand the hedged risks permitted to be aggregated in a group of individual forecasted transactions in a cash flow hedge by changing the requirement to designate a group of individual forecasted transactions from having a shared risk exposure to having a similar risk exposure. Entities are required to assess risk similarity both at hedge inception and on an ongoing basis. The amendments also clarify that a group of individual forecasted transactions can be considered to have a similar risk exposure if the derivative used as the hedging instrument is highly effective against each hedged risk in the group. In addition, in some cases, entities are permitted to perform an ongoing qualitative assessment of whether a group of individual forecasted transactions has a similar risk exposure. The amendments in this Update improve GAAP by expanding the hedged risks permitted to be aggregated in a group of individual forecasted transactions, thereby enabling entities to apply hedge accounting to potentially broader portfolios of forecasted transactions. Entities that aggregate larger groups of individual forecasted transactions in accordance with the amendments can achieve hedge accounting in a more efficient, cost-effective manner while reducing the risk of missed forecasts for highly effective economic hedges. Furthermore, the amendments improve operability and foster consistent application of the similar risk assessment. Therefore, an entity’s financial statements can provide more relevant information to investors about the entity’s risk management activities related to cash flow hedges of groups of forecasted transactions. 4 The amendments in this Update improve GAAP because the application of hedge accounting will not be limited by whether the execution of the nonfinancial purchase or sale transaction is in the spot or forward market. Relative to current GAAP, which limits designation of nonfinancial components to those that are contractually specified, a model based on the clearly-and-closely-related criteria permits hedge accounting for eligible components of forecasted spot-market transactions, forward-market transactions, and subcomponents of explicitly referenced components in an agreement’s pricing formula. Furthermore, the amendments also may enable entities to reduce missed forecasts for highly effective economic hedges, more closely aligning hedge accounting with the economics of entities’ risk management activities. The amendments in this Update also clarify that entities may designate a variable price component in a contract that is accounted for as a derivative as the hedged risk if all other hedge criteria are satisfied. That clarification improves GAAP because it resolves diversity in practice about whether hedge accounting may be applied in those situations and allows hedge accounting to be applied to highly effective economic hedges. Issue 4: Net Written Options as Hedging Instruments The amendments in this Update on the use of net written options as hedging instruments improve GAAP by updating the hedge accounting guidance to accommodate differences in the loan and swap markets that developed after the cessation of the London Interbank Offered Rate. Specifically, the amendments in this Update eliminate the requirement to apply the net written option test to a compound derivative comprising a swap and a written option designated as the hedging instrument in a cash flow hedge or a fair value hedge of interest rate risk. Issue 5: Foreign-Currency-Denominated Debt Instrument as Hedging Instrument and Hedged Item (Dual Hedge) The amendments in this Update eliminate the recognition and presentation mismatch related to a dual hedge strategy (that is, a hedge for which a foreign currency-denominated debt instrument is both designated as the hedging instrument in a net investment hedge and designated as the hedged item in a fair value hedge of interest rate risk). The amendments require that an entity exclude the debt instrument’s fair value hedge basis adjustment from the net 5 investment hedge effectiveness assessment. As a result, an entity immediately recognizes in earnings the gains and losses from the remeasurement of the debt instrument’s fair value hedge basis adjustment at the spot exchange rate. Entities are prohibited from applying this guidance by analogy to other circumstances. The amendments in this Update improve GAAP by enabling entities that utilize dual hedging strategies to reflect the economic offset of changes attributable to both interest rate risk and foreign exchange risk. For public business entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. For entities other than public business entities, the amendments are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after the issuance of this Update. Entities should apply the amendments in this Update on a prospective basis for all hedging relationships. An entity may elect to adopt the amendments in this Update for hedging relationships that exist as of the date of adoption. Upon adoption of the amendments in this Update, entities are permitted to modify certain critical terms of certain existing hedging relationships without dedesignating the hedge.
| 81 |
| Table of Contents |
In December 2025, the FASB issued ASU 2025-10, “Government Grants (Topic 832) Accounting for Government Grants Received by Business Entities”, The amendments in this Update establish the accounting for a government grant received by a business entity, including guidance for (1) a grant related to an asset and (2) a grant related to income. A grant related to an asset is a government grant, or part of a government grant, that is conditioned on the purchase, construction, or acquisition of an asset (for example, a long-lived asset or inventory). A grant related to income is a government grant, or part of a government grant, other than a grant related to an asset (for example, a grant that reimburses a business entity for operating expenses). The amendments in this Update require that a government grant received by a business entity should not be recognized until: 1. It is probable that (a) a business entity will comply with the conditions attached to the grant and (b) the grant will be received. 2. A business entity meets the recognition guidance for a grant related to an asset or a grant related to income. 3 The amendments in this Update require that a grant related to an asset be recognized on the balance sheet as a business entity incurs the related costs for which the grant is intended to compensate, either as: 1. Deferred income (the deferred income approach) 2. An adjustment to the cost basis in determining the carrying amount of the asset (the cost accumulation approach). A grant related to income and a grant related to an asset for which the deferred income approach is elected should be recognized in earnings on a systematic and rational basis over the periods in which a business entity recognizes as expenses the costs for which the grant is intended to compensate. When a business entity elects the cost accumulation approach for a grant related to an asset, there is no separate subsequent recognition of the government grant proceeds in earnings. The carrying amount of the asset that reflects the government grant proceeds would be used to determine depreciation or other subsequent accounting for that asset. The amendments in this Update require that a business entity present a grant related to income and a grant related to an asset for which the deferred income approach is elected as part of earnings either (1) separately under a general heading such as other income or (2) deducted from the related expense. In addition, the amendments in this Update require, consistent with current disclosure requirements, that a business entity provide disclosures, including the nature of the government grant received, the accounting policies used to account for the grant, and significant terms and conditions of the grant. Under a modified prospective approach, prior-period results should not be restated and there is no cumulative-effect adjustment. 2. A modified retrospective approach to both: a. Government grants that are entered into on or after the beginning of the earliest period presented b. Government grants that are not complete as of the beginning of the earliest period presented. A government grant is complete when substantially all of the government grant proceeds have been recognized before the beginning of the earliest period presented. Under a modified retrospective approach, all prior period results should be restated for government grants that are not complete as of the beginning of the earliest period presented through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the earliest period presented. 3. A retrospective approach to all government grants through a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the earliest period presented.
In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270) Narrow-Scope Improvements”, the amendments in this Update clarify interim disclosure requirements and the applicability of Topic 270. The amendments in this Update result in a comprehensive list of interim disclosures that are required by GAAP. In developing the list of disclosures required by other Topics, the Board focused on identifying the interim disclosures that are currently required under GAAP. The objective of the amendments is to provide clarity about the current requirements, rather than evaluate whether to expand or reduce interim disclosure requirements. The amendments in this Update also include a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The intent of the disclosure principle, which is modeled after a previous SEC disclosure requirement, is to help entities determine whether disclosures not specified in Topic 270 should be provided in interim reporting periods. The amendments in this Update also clarify the applicability of Topic 270, the types of interim reporting, and the form and content of interim financial statements in accordance with GAAP. The Board expects that these clarifications will enhance consistency in interim reporting for all entities. The Board considers the amendments in this Update to be necessary to reflect the development of interim reporting over time. The amendments in this Update are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, for public business entities and for interim reporting periods within annual reporting periods beginning after December 15, 2028, for entities other than public business entities. Early adoption is permitted for all entities. The amendments in this Update can be applied either (1) prospectively or (2) retrospectively to any or all prior periods presented in the financial statements.
In December 2025, the FASB issued ASU 2025-12, “Codification Improvements”, thirty-three issues are addressed in this Update. Generally, the amendments in this Update are not intended to result in significant changes for most entities. However, the Board recognizes that changes to guidance may result in accounting changes for some entities. Therefore, the Board is providing transition guidance for the amendments. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this Update in an interim period, it must adopt them as of the beginning of the annual reporting period that includes that interim reporting period. An entity may elect to early adopt the amendments on an issue-by-issue basis. For example, an entity may decide to early adopt certain amendments and adopt the remaining amendments at the effective date. An entity should apply the amendments in this Update (except for the amendments to Topic 260, Earnings Per Share, related to Issue 4) using one of the following transition methods: 1. Prospectively to all transactions recognized on or after the date that the entity first applies the amendments 2. Retrospectively to the beginning of the earliest comparative period presented. An entity should adjust the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the earliest comparative period presented. An entity may elect the transition method on an issue-by-issue basis. For example, it may apply certain amendments prospectively while applying others retrospectively. For the amendments in this Update to Topic 260 (that is, Issue 4), an entity should apply the amendments retrospectively to each prior reporting period presented in the period of adoption.
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.
| 82 |
| Table of Contents |
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
Name |
| Age |
| Position(s) |
Xinyang Wang |
| 28 |
| Chairwoman of the Board and Director |
Jinwu Huang |
| 52 |
| Chief Financial Officer |
Wenhua Liu |
| 57 |
| Interim Chief Executive Officer and Director |
Phillip Connelly |
| 72 |
| Independent Director |
Wenbiao Zhang |
| 58 |
| Independent Director |
Jian Chen |
| 56 |
| Independent Director |
Ming Yi |
| 45 |
| Independent Director |
The following is a brief biography of each of our executive officers and directors:
Ms. Xinyang Wang has been our chairwoman of the board of directors since March 2023, and she has served as the Secretary of the Board of the Company, since July 2021. Ms. Wang received a Bachelor of Arts degree in Mathematics and a Bachelor of Science degree in Computer Science from Indiana University Bloomington in May 2020. She later received a Master of Science degree in Financial Technology from the Chinese University of Hong Kong in November 2021.
Mr. Jinwu Huang has been our chief financial officer since March 2022 and is responsible for supervising our finance team, reviewing and approving financial and accounting transactions, and financial regulation compliance. Since January 2014 to September 2024, Mr. Huang has served as a financial manager of Greater Khingan Range Forasen Energy Technology Co., Ltd. and Manzhouli Zhongxing Energy Technology Co., Ltd., both of which were previously wholly owned subsidiaries of the Company. Prior to joining the Company, Mr. Huang served as a financial manager of the Northern Branch of Forasen Co., Ltd. between September 2006 and September 2013 and an accountant of Zhejiang Suichang Mineral Industry and Trade Co., Ltd. between June 2000 and July 2006. Mr. Huang received his associate degree in Accounting from Zhejiang Business College in 1994.
Mr. Wenhua Liu has served as our director since June 2022 and has served as our interim CEO since May 2024. Mr. Liu has served as the executive director of CN Energy Industrial Development Co., Ltd., our previous main operating entity in China, since April 2022 to September 2024. From August 2021 to March 2022, Mr. Liu served as the chief financial officer of Farmmi, Inc. Prior to that, from March 2015 to July 2021, Mr. Liu served as the general manager of the financial department of Forasen Holding Group Co., Ltd., a China-based corporation focusing on agricultural products trade, new energy industries, and investment business. He also served as the chief financial officer at Halumm (China) Co, Ltd., a China-based technology research and development company focusing on total solution services for prefabricated buildings, from October 2010 to February 2015. Mr. Liu served as the chief auditor for Zhejiang Boda Plastic Technology Co., Ltd, a China-based corporation focusing on producing various types of plastic pipes, from August 2009 to September 2010, and served as the chief financial officer for Zhejiang Taizhou Hongda Textile Co., Ltd, a China-based corporation focusing on production and sales of industrial chemical fiber waterproof cloth, luggage cloth, and light textile machinery accessories, from April 2004 to June 2009. From October 1997 to March 2004, Mr. Liu served as the vice president of the subsidiaries of BC Stone Group, a China-based corporation focusing on real estate, finance, new building materials, logistics, and environmental protection. Mr. Liu received a bachelor’s degree in Accounting from Hunan University of Finance and Economics in 1995.
| 83 |
| Table of Contents |
Mr. Phillip Connelly has been our independent director since April 2020. Mr. Connelly retired from his position as the executive vice chancellor of Wenzhou-Kean University in March 2018, where he oversaw the complete operations of the university in accordance with the direction established in its strategic plan since July 2008. From September 2002 to June 2008, Mr. Connelly served as the vice-president for administration and finance of Kean University, and was responsible for the operations of the divisions of financial services, computer services, facilities maintenance, campus planning, campus safety, and human resources. Mr. Connelly received his Master of Business Administration degree in Finance from Fordham University in 1985 and his bachelor’s degree in Accounting from Rutgers University in 1981.
Mr. Wenbiao Zhang has been our independent director since August 2019. Mr. Zhang is an experienced researcher in the areas of bamboo charcoal and biomass energy, who published over 60 papers on Chinese and international journals, owns 10 patents in the PRC, and has been a committee member of multiple bamboo material related organizations. Mr. Zhang has been a professor and doctorial supervisor of Zhejiang A&F University since July 2002, whose research focuses on the pyrolysis of biomass in bamboo, biochar and its functional composites, and the production of clean energy from biomass. Mr. Zhang has served as an independent director of Jiangshan Oupai Door Co., Ltd., a public company in the PRC since October 2015. Mr. Zhang received his doctoral degree and master’s degree in Wooden Materials and Technology from Nanjing Forestry University in 2002 and 1999, respectively, and his bachelor’s degree in Wooden Materials and Engineering from Zhejiang A&F University in 1994.
Ms. Jian Chen has been our independent director since June 2020. Ms. Chen has served as the vice president of Kean USA Group Inc. since October 2010. From March 2007 to October 2010, Ms. Chen served as a senior financial manager of Verizon Wireless, Inc. From March 2000 to March 2007, Ms. Chen served as a senior system/business supervisor of Bristol-Myers Squibb. Ms. Chen received her Master of Business Administration degree in Management Information System from Kean University in 1999 and her bachelor’s degree in Accounting and Finance from University of Nebraska in 1993.
Mr. Ming Yi has been our independent director since December 2024. Mr. Yi has been serving since 2020 as the Chief Financial Officer of Future FinTech Group Inc. (NASDAQ: FTFT), and from 2020 to 2022, Mr. Yi served as the independent director of Hudson Capital Inc. (NASDAQ: HUSN) and Chairperson of the Audit Committee. From 2018-2019, Mr. Yi served as the Chief Financial Officer of SSLJ.com Ltd . From 2011 to 2018, Mr. Yi served as the Chief Financial Officer of Wave Sync Corp. (OTC: WAYS). From 2007 to 2010, Mr. Yi was the Senior Accountant of Ernst & Young. From 2003 to 2006, Mr. Yi was the accountant and supervisor of N.G. Australia Pty Ltd. Mr. Yi obtained a Bachelor Degree of Business from Liao Ning University and a Master of Business from Victoria University. Mr. Yi is also a CPA Charter holder (CPA Australia).
Family Relationships
None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
B. Compensation
For the fiscal year ended September 30, 2025, we paid an aggregate of $272,198 as compensation to our executive officers and directors. None of our non-employee directors have any service contracts with us that provide for benefits upon termination of employment. We have not set aside or accrued any amount to provide pension, retirement, or other similar benefits to our directors and executive officers. Our PRC subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance, and other statutory benefits and a housing provident fund.
| 84 |
| Table of Contents |
Employment Agreements with Named Executive Officers
On March 17, 2022 and March 3, 2023, we entered into employment agreements with our executive officers, Ms. Xinyang Wang and Mr. Jinwu Huang. Pursuant to the employment agreements, we agreed to employ each of our executive officers for a specified time period, which may be renewed upon both parties’ agreement 30 days before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a one-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.
Our employment agreement with Ms. Xinyang Wang, our chairwoman, is for a term of three years beginning on March 3, 2023, with an annual salary of RMB500,000 (approximately $72,800).
Our employment agreement with Mr. Jinwu Huang, our chief financial officer, is for a term of three years beginning on March 17, 2022, with an annual salary of RMB200,000 (approximately $27,599). The term has been renewed.
Mr. Wenhua Liu is compensated as a director of the Company. We have not entered into employment agreement with Mr. Wenhua Liu, our director and interim CEO.
2023 Share Incentive Plan
In August 2023, our board of directors adopted, and in September 2023, our shareholders approved, the 2023 Plan. This 2023 Plan is to attract and retain the best available personnel, to provide additional incentives to employees, directors, and consultants, and to promote the success of the Company’s business. The maximum aggregate number of shares that may be issued under the 2023 Plan is initially approximately 8,240 shares, as adjusted to reflect (i) a 1-for-30 reverse share split effected on January 18, 2024, and (ii) a 1-for-25 share split effected on May 19, 2025. As of the date of this annual report, we have not granted any awards under the 2023 Plan.
The following summarizes the material terms of the 2023 Plan:
Types of Awards: The 2023 Plan permits, individually or collectively, the grant of an option, share appreciation right, dividend equivalent right, restricted share, restricted share unit, or other right or benefit under the 2023 Plan approved by our board of directors or compensation committee of the board.
Plan Administration: Our board of directors or the compensation committee administers the 2023 Plan. The board or the compensation committee determines, among other things, the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.
Award Agreement: Awards granted under the 2023 Plan are evidenced by an award agreement that sets forth terms, conditions, and limitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Term of Award: The term of each award shall be the term stated in the award agreement and no longer than 10 years after its grant. Notwithstanding the foregoing, the specified term of any award shall not include any period for which the grantee has elected to defer the receipt of the Shares or cash issuable pursuant to the award.
Eligibility: Awards may be granted to employees, directors, and consultants. An employee, director, or consultant who has been granted an award may, if otherwise eligible, be granted additional awards.
Vesting Schedule: The awards to be issued to any grantee under the 2023 Plan shall be subject to the vesting schedule as specified in the award agreement of such grantee. The administrator shall have the right to adjust the vesting schedule of the awards granted to any grantees.
| 85 |
| Table of Contents |
Exercise of Awards: The exercise price per share subject to an option is determined by the plan administrator and set forth in the award agreement, which may be a fixed price or a variable price related to the fair market value of the shares. The vested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant.
Transferability of Awards: Subject to the applicable laws, awards shall be transferable (i) by will and by the laws of descent and distribution and (ii) during the lifetime of the grantee, only to the extent and in the manner approved by the 2023 Plan administrator. Notwithstanding the foregoing, the grantee may designate one or more beneficiaries of the grantee’s award in the event of the grantee’s death on a beneficiary designation form provided by the plan administrator.
Amendment, Suspension, or Termination of the 2023 Plan: The compensation committee may at any time amend (including extend the term of the 2023 Plan), suspend or terminate the 2023 Plan. No awards may be granted during any suspension of the 2023 Plan or after termination of the 2023 Plan. Unless otherwise determined by the plan administrator in good faith, the suspension or termination of the 2023 Plan shall not materially adversely affect any rights under awards already granted to a grantee.
C. Board Practices
Pursuant to our third amended and restated articles of association, the minimum number of directors consist of not less than one person unless otherwise determined by the shareholders in a general meeting. Our directors in office immediately prior to the first annual general meeting following the listing of our Class A ordinary shares on the Nasdaq Capital Market will retire at that annual general meeting unless re-elected. After the first annual general meeting following the listing of our ordinary shares, unless removed or re-appointed, each director will be appointed for a term expiring at the next-following annual general meeting, if any is held. At any annual general meeting held, our directors will be elected by a majority vote of shareholders eligible to vote at that meeting. At each annual general meeting, each director so elected shall hold office until the election of their respective successors in office or removed.
Board of Directors
Our board of directors consists of six directors. We have determined that Wenbiao Zhang, Jian Chen, Ming Yi and Phillip Connelly satisfy the “independence” requirements of the Nasdaq Capital Market corporate governance rules.
Duties of Directors
Under British Virgin Islands law, our directors owe fiduciary duties both at common law and under statute, including a statutory duty to act honestly, in good faith and with a view to our best interests. When exercising powers or performing duties as a director, our directors also have a duty to exercise the care, diligence and skills that a reasonable director would exercise in comparable circumstances, taking into account without limitation the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken by him. In exercising the powers of a director, the directors must exercise their powers for a proper purpose and shall not act or agree to the company acting in a manner that contravenes our third amended and restated memorandum and articles of association or the BVI Act. In fulfilling their duty of care to us, our directors must ensure compliance with our third amended and restated memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.
The functions and powers of our board of directors include, among others:
| · | appointing officers and determining the term of office of the officers; |
|
|
|
| · | authorizing the payment of donations to religious, charitable, public, or other bodies, clubs, funds, or associations as deemed advisable; |
|
|
|
| · | exercising the borrowing powers of the company and mortgaging the property of the company; |
|
|
|
| · | executing checks, promissory notes, and other negotiable instruments on behalf of the company; and |
|
|
|
| · | maintaining or registering a register of mortgages, charges, or other encumbrances of the company. |
| 86 |
| Table of Contents |
Terms of Directors and Executive Officers
Each of our directors generally holds office until a successor has been duly elected and qualified unless the director was appointed by the board of directors, in which case such director holds office until the next following annual meeting of shareholders at which time such director is eligible for re-election. All of our executive officers are appointed by and serve at the discretion of our board of directors.
Qualification
There is currently no shareholding qualification for directors, although a shareholding qualification for directors may be fixed by our shareholders by ordinary resolution.
Committees of the Board of Directors
We have established an audit committee, a compensation committee, and a nominating and corporate governance committee. Our independent directors serve on each of the committees. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of our four independent directors, Wenbiao Zhang, Jian Chen, Ming Yi, and Phillip Connelly. Mr. Yi is the chairperson of our audit committee. We have determined that each of our independent directors also satisfy the “independence” requirements of Rule 10A‑3 under the Securities Exchange Act. Our board also has determined that Mr. Connelly qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq Capital Market corporate governance rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our Company. The audit committee is responsible for, among other things:
| · | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
|
|
|
| · | reviewing with the independent auditors any audit problems or difficulties and management’s response; |
|
|
|
| · | discussing the annual audited financial statements with management and the independent auditors; |
|
|
|
| · | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; |
|
|
|
| · | reviewing and approving all proposed related party transactions; |
|
|
|
| · | meeting separately and periodically with management and the independent auditors; and |
|
|
|
| · | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation Committee. Our compensation committee consists of our three independent directors, Wenbiao Zhang, Jian Chen, and Phillip Connelly. Mr. Connelly is the chairman of our compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
| · | reviewing and approving the total compensation package for our most senior executive officers; |
|
|
|
| · | approving and overseeing the total compensation package for our executives other than the most senior executive officers; |
|
|
|
| · | reviewing and recommending to the board with respect to the compensation of our directors; |
|
|
|
| · | reviewing periodically and approving any long-term incentive compensation or equity plans; |
|
|
|
| · | selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and |
|
|
|
| · | reviewing programs or similar arrangements, annual bonuses, employee pension, and welfare benefit plans. |
| 87 |
| Table of Contents |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of our three independent directors, Wenbiao Zhang, Jian Chen, and Phillip Connelly. Mr. Zhang is the chairperson of our nominating and corporate governance committee. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
| · | identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; |
|
|
|
| · | reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us; |
|
|
|
| · | identifying and recommending to our board the directors to serve as members of committees; |
|
|
|
| · | advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and |
|
|
|
| · | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics applicable to all of our directors, officers, and employees. We have made our code of business conduct and ethics publicly available on our website.
Compensation Recovery Policy
We have adopted a compensation recovery policy to provide for the recovery of erroneously-awarded incentive compensation, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, final SEC rules, and applicable listing standards.
D. Employees
See “Item 4. Information on the Company—B. Business Overview—Employees.”
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d‑3 under the Exchange Act, of our ordinary shares as of the date of this annual report for:
| · | each of our directors and executive officers; and |
|
|
|
| · | each person known to us to own beneficially more than 5% of our ordinary shares. |
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person is based on 4,988,337 Class A ordinary shares and 635,419 Class B ordinary shares outstanding as of the date of this annual report.
Information with respect to beneficial ownership has been furnished by each director, officer, or beneficial owner of 5% or more of our ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of ordinary shares beneficially owned by a person listed below and the percentage ownership of such person, ordinary shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.
| 88 |
| Table of Contents |
|
|
|
|
|
| Percentage |
|
| Percentage of |
| ||||||
|
| Class A |
|
| Class B |
|
| of |
|
| Aggregate |
| ||||
|
| Ordinary |
|
| Ordinary |
|
| Beneficial |
|
| Voting |
| ||||
|
| Shares |
|
| Shares |
|
| Ownership** |
|
| Power*** |
| ||||
|
| Number |
|
| Number |
|
| % |
|
| % |
| ||||
Directors and Executive Officers(1): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Xinyang Wang(3) |
|
| — |
|
|
| 631,391 |
|
|
| 11.2 |
|
|
| — |
|
Jinwu Huang |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Wenhua Liu |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Phillip Connelly |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Wenbiao Zhang |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Jian Chen |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Ming Yi |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (seven individuals): |
|
| — |
|
|
| 631,391 |
|
|
| 11.2 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Clean Energy Limited(2) |
|
| — |
|
|
| 635,419 |
|
|
| 11.3 |
|
| 86.4 |
| |
Weastfinace Group Inc.(3) |
|
| — |
|
|
| 631,391 |
|
|
| 11.2 |
|
| — |
| |
_____________________________
* | Represents beneficial ownership or voting power of less than 1%. |
|
|
** | For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our outstanding Class A ordinary shares and Class B ordinary shares as a single class. |
|
|
*** | Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of Class B ordinary shares is entitled to 50 votes per share, and while on all matters submitted to them for a vote. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders. |
|
|
(1) | Unless otherwise indicated, the business address of each of the individuals is Building 1-B, Room 303, No. 268 Shiniu Road, Liandu District, Lishui City, Zhejiang Province, the PRC. The business address of Phillip Connelly is 136 Lord Avenue, Bayonne, New Jersey 07002. The business address of Wenbiao Zhang is No.666 Wusu Street, Linan District, Hangzhou City, Zhejiang Province, the PRC. The business address of Jian Chen is 57 Sycamore Lane, Skillman, New Jersey 08558. |
|
|
(2) | Represents (i) 4,028 Class B ordinary shares held by Global Clean Energy Limited, a British Virgin Islands company, which is 100% owned by Ms. Yefang Zhang, who has the sole dispositive and investment power over the Class B ordinary shares, and (ii) 631,391 Class B Ordinary Shares held of record by Weastfinace Group Inc. that are subject to an irrevocable proxy granted to Ms. Yefang Zhang pursuant to a Voting Agreement dated September 16, 2025; Ms. Zhang has sole voting power over such Weastfinace shares and no economic interest in them. The business address of Global Clean Energy Limited is 2/F, Palm Grove House, P.O. Box 3340, Road Town, Tortola, British Virgin Islands. |
|
|
(3) | Represents 631,391 Class B ordinary shares held by Weastfinace Group Inc., a United State company, which is 100% owned by Xinyang Wang, that are subject to the Voting Agreement described in footnote (2). Accordingly, for purposes of determining beneficial ownership and voting control, these Class B Ordinary Shares are included in the total number of shares over which Yefang Zhang exercises voting power. The business address of Weastfinace Group Inc. is 1751 W Lincoln Ave, Anaheim, CA 92801. |
As of the date of this annual report, approximately 18.8% of our issued and outstanding Class A ordinary shares are held in the United States by one record holder (CEDE & CO), representing 2.5% of the aggregated voting power.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our Company.
| 89 |
| Table of Contents |
F. Disclosure of a registrant’s action to recover erroneously awarded compensation
Not applicable.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation Board Practices— Employment Agreements with Named Executive Officers.”
Material Transactions with Related Parties
The relationship and the nature of related party transactions are summarized as follow:
Name of Related Party | Relationship to the Company | Nature of Transactions |
Yefang Zhang | Principal shareholder | Providing working capital for the Company |
Hangzhou Forasen Energy Technology Co., Ltd. | Controlled by Mr. Zhengyu Wang, spouse of Ms. Yefang Zhang | Lease of office space to the Company |
Due to a related party
As of September 30, 2025 and 2024, the Company owed Yefang Zhang $611,327 and $611,327 (of which $311,150 was a loan from Yefang Zhang and $300,177 was payment of expenses on behalf of the Company), respectively. The balance of due to a related party is interest-free, unsecured, and due upon demand.
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 27,147 square feet of office space in Hangzhou. The lease term is for five years with annual rent of RMB432,043 (equivalent of $60,742).
| 90 |
| Table of Contents |
Voting Agreement with Weastfinace Group Inc.
On September 16, 2025, Weastfinace and Ms. Yefang Zhang, both holders of Class B Ordinary Shares, entered into a Voting Agreement, agreed and acknowledged by the Company.
Under the agreement, Weastfinace irrevocably appointed Zhang, and any designee of Zhang, as its proxy and attorney-in-fact to vote all 631,391 Class B ordinary shares owned by Weastfinace on all matters submitted to a vote of the Company’s shareholders. The proxy is coupled with an interest and is irrevocable to the fullest extent permitted under British Virgin Islands law. Zhang may vote such shares at her sole discretion and Weastfinace agreed not to take any action that would interfere with Zhang’s voting power.
The Voting Agreement also provides that Weastfinace will vote its shares in accordance with Zhang’s instructions and will not transfer or assign its shares unless the transferee agrees in writing to be bound by the agreement. The agreement remains in effect until terminated by Zhang on five days’ written notice and cannot be unilaterally terminated by Weastfinace.
The Voting Agreement effectively permits Zhang to control the voting of all Class B ordinary shares held by Weastfinace, thereby consolidating the voting power of Zhang with respect to the election of directors and other matters requiring shareholder approval. The Company, as a limited-purpose signatory, agreed to provide Zhang with the same notices of shareholder meetings and other materials as it provides to Weastfinace and acknowledged the terms of the irrevocable proxy.
The agreement was entered into in connection with the Securities Purchase Agreement dated August 1, 2025, pursuant to which the Company sold Class B ordinary shares to Weastfinace. The Voting Agreement was a condition to closing of that sale.
| 91 |
| Table of Contents |
C. Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report. See “Item 18. Financial Statements.”
Legal Proceedings
We are currently not a party to any material legal proceeding. From time to time, however, we may be subject to various claims and legal actions arising in the ordinary course of business.
Dividend Policy
See “Item 3. Key Information—Transfer of Funds and Other Assets Between Our Company and Our Subsidiaries” and “Item 3. Key Information—Dividends or Distributions and Tax Consequences.”
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
Item 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our Class A ordinary shares have been listed on the Nasdaq Capital Market since February 5, 2021 under the symbol “CNEY.” The closing price for the Class A ordinary shares was $0.9270 on January 29, 2025.
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A ordinary shares have been listed on the Nasdaq Capital Market since February 5, 2021 under the symbol “CNEY.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
| 92 |
| Table of Contents |
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We incorporate by reference into this annual report our third amended and restated memorandum and articles of association, which are filed as Exhibit 1.1 to in this annual report, and the description of differences in corporate laws contained in our registration statement on Form F‑3 (File No. 333-292319), as amended, initially filed with the SEC on December 22, 2025.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—PRC Regulations Relating to Foreign Exchange” and “Item 4. Information on the Company—B. Business Overview—Regulations—PRC Regulations Relating to Offshore Investments by PRC Residents.”
E. Taxation
People’s Republic of China Taxation
We are a holding company incorporated in the British Virgin Islands and receive income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that PRC-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.
Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property, and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Circular 82, which provides guidance on the determination of the tax residence status of a PRC-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although CN Energy does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a PRC-controlled offshore incorporated enterprise within the meaning of SAT Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Circular 82 to evaluate the tax residence status of CN Energy and its subsidiaries organized outside of China.
According to SAT Circular 82, a PRC-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
| 93 |
| Table of Contents |
We believe that we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, the key assets and records of CN Energy, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside China, same as of Energy Holdings. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that CN Energy and its offshore subsidiary should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Circular 82 were deemed applicable to us. As the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, however, we will continue to monitor our tax status.
If the PRC tax authorities determine that CN Energy is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from any dividends we pay to our shareholders that are non- resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is also unclear, however, whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. There is no guidance from the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstances where a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRC and other countries may impact non-resident enterprises. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in the PRC—Under the EIT Law, we may be classified as a ‘resident enterprise’ of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.”
Provided that CN Energy is not deemed to be a PRC resident enterprise, holders of our ordinary shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under SAT Bulletin 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Bulletin 7, and we may be required to expend valuable resources to comply with SAT Bulletin 7, or to establish that we should not be taxed under this Bulletin. See “Item 3. Key Information—D. Risk Factors—Risks relating to Doing Business in China—We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”
Hong Kong Taxation
Entities incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5% for each of the fiscal years ended September 30, 2025, 2024, and 2023.
British Virgin Islands Taxation
The British Virgin Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the British Virgin Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the British Virgin Islands. No stamp duty is payable in the British Virgin Islands on the issue of shares by, or any transfers of shares of, British Virgin Islands companies (except those which hold interests in land in the British Virgin Islands). The British Virgin Islands is not party to any double tax treaties that are applicable to any payments made to or by us. There are no exchange control regulations or currency restrictions in the British Virgin Islands.
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the British Virgin Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares, as the case may be, nor will gains derived from the disposal of our ordinary shares be subject to British Virgin Islands income or corporation tax.
| 94 |
| Table of Contents |
United States Federal Income Taxation
The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
| · | banks; |
|
|
|
| · | financial institutions; |
|
|
|
| · | insurance companies; |
|
|
|
| · | regulated investment companies; |
|
|
|
| · | real estate investment trusts; |
|
|
|
| · | broker-dealers; |
|
|
|
| · | persons that elect to mark their securities to market; |
|
|
|
| · | U.S. expatriates or former long-term residents of the U.S.; |
|
|
|
| · | governments or agencies or instrumentalities thereof; |
|
|
|
| · | tax-exempt entities; |
|
|
|
| · | persons liable for alternative minimum tax; |
|
|
|
| · | persons holding our ordinary shares as part of a straddle, hedging, conversion or integrated transaction; |
|
|
|
| · | persons that actually or constructively own 10% or more of our voting power or value (including by reason of owning our ordinary shares); |
|
|
|
| · | persons who acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation; |
|
|
|
| · | persons holding our ordinary shares through partnerships or other pass-through entities; |
|
|
|
| · | beneficiaries of a Trust holding our ordinary shares; or |
|
|
|
| · | persons holding our ordinary shares through a Trust. |
The discussion set forth below is addressed only to U.S. Holders (defined below) that purchase our ordinary shares. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign, and other tax consequences to them of the purchase, ownership, and disposition of our ordinary shares.
Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares
The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our ordinary shares. It is directed to U.S. Holders of our ordinary shares and is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible tax consequences relating to ownership and disposition of our ordinary shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local, and other tax laws.
The following brief description applies only to U.S. Holders that hold ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of ordinary shares and you are, for U.S. federal income tax purposes,
| · | an individual who is a citizen or resident of the United States; |
|
|
|
| · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
|
|
|
| · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
|
|
|
| · | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
| 95 |
| Table of Contents |
PFIC consequences
A non-U.S. corporation is considered a PFIC, as defined in Section 1297(a) of the U.S. Internal Revenue Code, for any taxable year if either:
| · | at least 75% of its gross income for such taxable year is passive income; or |
|
|
|
| · | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, the value of our assets must be determined based on the market value of our ordinary shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets on any particular quarterly testing date for purposes of the asset test.
Based on our operations and the composition of our assets we believe we are not a PFIC under the current PFIC rules for this fiscal year ended. We must make a separate determination each year as to whether we are a PFIC, however, and there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the amount of assets held for the production of passive income, it is possible that, for our current taxable year or for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. In addition, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A ordinary shares, our PFIC status will depend in large part on the market price of our Class A ordinary shares. Accordingly, fluctuations in the market price of the Class A ordinary shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend our liquid assets. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Class A ordinary shares from time to time) that may not be within our control. If we are a PFIC for any year during which you hold ordinary shares, we will continue to be treated as a PFIC for all succeeding years during which you hold ordinary shares. If we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, however, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the ordinary shares.
If we are a PFIC for your taxable year(s) during which you hold ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
| · | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares; |
|
|
|
| · | the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and |
|
|
|
| · | the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.
| 96 |
| Table of Contents |
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election under Section 1296 of the U.S. Internal Revenue Code for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) ordinary shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of such taxable year over your adjusted basis in such ordinary shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. Such ordinary loss, however, is allowable only to the extent of any net mark-to-market gains on the ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—Dividends and Other Distributions” generally would not apply.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the Nasdaq Capital Market. If the ordinary shares are regularly traded on the Nasdaq Capital Market and if you are a holder of ordinary shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election under Section 1295(b) of the U.S. Internal Revenue Code with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. The qualified electing fund election, however, is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold ordinary shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such ordinary shares, including regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.
If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our ordinary shares, then such ordinary shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such ordinary shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the ordinary shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your ordinary shares for tax purposes.
IRC Section 1014(a) provides for a step-up in basis to the fair market value for our ordinary shares when inherited from a decedent that was previously a holder of our ordinary shares. However, if we are determined to be a PFIC and a decedent that was a U.S. Holder did not make either a timely qualified electing fund election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) our ordinary shares, or a mark-to-market election and ownership of those ordinary shares are inherited, a special provision in IRC Section 1291(e) provides that the new U.S. Holder’s basis should be reduced by an amount equal to the Section 1014 basis minus the decedent’s adjusted basis just before death. As such if we are determined to be a PFIC at any time prior to a decedent’s passing, the PFIC rules will cause any new U.S. Holder that inherits our ordinary shares from a U.S. Holder to not get a step-up in basis under Section 1014 and instead will receive a carryover basis in those ordinary shares.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our ordinary shares and the elections discussed above.
Dividends and Other Distributions
As of the date of this annual report, we have not issued dividends or other distributions on our ordinary shares. In the event that we do make distributions of cash or other property in the future, the following tax considerations will apply, subject to the PFIC rules discussed above. The gross amount of distributions made by us to you with respect to the ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
| 97 |
| Table of Contents |
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a PFIC for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is an income tax treaty between the United States and the British Virgin Islands, clause (1) is satisfied due to the tax treaty and that the ordinary shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, ordinary shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on certain exchanges, which presently includes the NYSE and the Nasdaq Stock Market. Should you receive any distributions of cash or other property on our ordinary shares in the future, you are strongly encouraged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares, including the effects of any change in law after the date of this annual report.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our ordinary shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Disposition of our Ordinary Shares
Subject to the PFIC rules discussed above, you will recognize taxable gain or loss on any sale, exchange, or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the ordinary shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreign tax credits.
Information Reporting and Backup Withholding
Dividend payments with respect to our ordinary shares and proceeds from the sale, exchange, or redemption of our ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the U.S. Internal Revenue Code with at a current flat rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. Transactions effected through certain brokers or other intermediaries, however, may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold ordinary shares.
Transfer reporting requirements
A U.S. Holder (including a U.S. tax-exempt entity) that transfers cash in exchange for equity of a newly created non-U.S. corporation may be required to file IRS Form 926 or a similar form with the IRS if (i) such person owned, directly or by attribution, immediately after the transfer at least 10% by vote or value of the corporation or (ii) if the transferred cash, when aggregated with all transfers made by such person (or any related person) within the preceding 12 month period, exceeds US$100,000. U.S. Holders should consult their tax advisors regarding the applicability of this requirement to their acquisition of ordinary shares.
| 98 |
| Table of Contents |
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing, among other things, the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company—A. History and Development of the Company.”
J. Annual Report to Security Holders
Not applicable.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Our business is conducted in the PRC by our PRC subsidiaries, and our PRC subsidiaries’ books and records are maintained in RMB. The financial statements that we file with the SEC and provide to our shareholders are presented in U.S. dollars. Changes in the exchange rates between the RMB and U.S. dollar affect the value of our PRC subsidiaries’ assets and results of operations, when presented in U.S. dollars.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue, and financial condition. Further, our ordinary shares offered in the U.S. are offered in U.S. dollars, we need to convert the net proceeds we receive into RMB in order to use the funds for our PRC subsidiaries’ business. Changes in the conversion rate among the U.S. dollar and the RMB will affect the amount of proceeds we will have available for our PRC subsidiaries’ business.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into more hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.
Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and term deposit. As of September 30, 2025 and 2024, $69,244 and $7,563 of our cash were maintained with state-owned banks within the PRC, respectively. Per PRC regulations, the maximum insured bank deposit amount is approximately $70,235 (RMB500,000) for each financial institution. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
| 99 |
| Table of Contents |
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by our assessment of our customers’ creditworthiness and our ongoing monitoring of outstanding balances. Other receivables include working capital support provided to major suppliers, which are also typically unsecured. We also make advances to certain suppliers to ensure the stable supply of key raw materials. We perform ongoing credit evaluations of our key suppliers to help reduce credit risk.
Interest Rate Risk
We have not used derivative financial instruments to hedge interest risk. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed to material risks due to changes in market interest rates. Our future interest income, however, may fall short of expectations due to changes in market interest rates.
Inflation Risk
In recent years, inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the consumer price index in China increased by 0%, 0.2%, and 0.2% in 2025, 2024, and 2023, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. If inflation rises, it may materially and adversely affect our business.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
| 100 |
| Table of Contents |
PART II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
Not applicable.
Item 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a‑15(e) of the Exchange Act, as of September 30, 2025.
Based on that evaluation, our management has concluded that, due to the material weaknesses described below, as of September 30, 2025, our disclosure controls and procedures were not effective. Our conclusion is based on the fact that we do not have sufficient in-house personnel in our accounting department with sufficient knowledge of the U.S. GAAP and SEC reporting rules. Our management is currently in the process of evaluating the steps necessary to remediate the ineffectiveness, such as (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework, and (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. We used the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”) in performing the assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2025. Based on the assessment, management determined that, as of September 30, 2025, we did not maintain effective internal control over financial reporting, because we lack sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements. The other material weakness that has been identified related to our lack of key monitoring mechanisms such as internal control department to oversee and monitor Company’s risk management, business strategies and financial reporting procedures.
We have already taken some steps and have continued to implement measures to remediate the material weakness identified, including but not limited to (a) continuing our efforts to set up the internal audit department, and enhance the effectiveness of the internal control system; (b) pertaining to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; and (c) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel. However, we cannot assure you that we will not identify additional material weaknesses or significant deficiencies in the future.
| 101 |
| Table of Contents |
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20‑F does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC where domestic and foreign registrants that are non-accelerated filers, which we are, and “emerging growth companies,” which we also are, are not required to provide the auditor attestation report.
Changes in Internal Control over Financial Reporting
Other than those disclosed above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20‑F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Mr. Ming Yi qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20‑F. Mr. Ming Yi satisfies the “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules as well as the independence requirements of Rule 10A‑3 under the Exchange Act.
Our board also has determined that Mr. Connelly qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq Capital Market corporate governance rules.
Item 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers, and employees. Our code of business conduct and ethics is publicly available on our website.
| 102 |
| Table of Contents |
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered and billed by Enrome LLP, our independent registered public accounting firm for the periods indicated.
|
| For the years ended September 30, |
| |||||||||
Enrome LLP services |
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Audit fees(1) |
| $ | 205,000 |
|
| $ | 225,000 |
|
| $ | 210,000 |
|
Audit-Related fees |
|
| - |
|
|
| - |
|
|
| - |
|
Tax fees |
|
| - |
|
|
| - |
|
|
| - |
|
All other fees(2) |
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 205,000 |
|
| $ | 225,000 |
|
| $ | 210,000 |
|
________________________
(1) | Audit fees include the aggregate fees billed for each of the fiscal years for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements. |
|
|
(2) | All other fees include the aggregate fees billed in each of the fiscal years for products and services provided by our independent registered public accounting firm, other than the services reported under audit fees, audit-related fees, and tax fees. |
The Audit Committee has adopted a policy requiring that all audit and non-audit services to be performed by Enrome LLP, our independent registered public accounting firm, to be pre-approved, including audit services, audit-related services, tax services, and other services as described above.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
There has been no change in independent accountants for our Company during the two most recent fiscal years or any subsequent interim period. There have been no disagreements of the type required to be disclosed by Item 16F(b).
Item 16G. CORPORATE GOVERNANCE
As a business company incorporated in the British Virgin Islands with limited liability that is listed on the Nasdaq Capital Market, we are subject to the Nasdaq corporate governance listing standards. Nasdaq rules, however, permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the British Virgin Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards.
| 103 |
| Table of Contents |
Nasdaq Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on Nasdaq prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value (ii) resulting in a change of control of the company; and (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. Notwithstanding this general requirement, Nasdaq Listing Rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. The British Virgin Islands do not require shareholder approval prior to any of the foregoing types of issuances. We, therefore, are not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. Specifically, we have elected to be exempt from the requirements under (a) Nasdaq Listing Rule 5635 to obtain shareholder approval for (i) the issuance 20% or more of our outstanding ordinary shares or voting power in a private offering, (ii) the issuance of securities pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended, (iii) the issuance of securities when the issuance or potential issuance will result in a change of control of our Company, and (iv) certain acquisitions in connection with the acquisition of the stock or assets of another company and (b) Nasdaq Listing Rule 5640, which requires that the voting rights of a listed company cannot be disparately reduced or restricted through any corporate action or issuance.
Nasdaq Listing Rule 5605(b)(1) requires listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements. The corporate governance practice in our home country, the British Virgin Islands, does not require a majority of our board to consist of independent directors. Currently, a majority of our board members are independent. However, if we change our board composition such that independent directors do not constitute a majority of our board of directors, our shareholders may be afforded less protection than they would otherwise enjoy under Nasdaq’s corporate governance requirements applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Ordinary Shares and the Trading Market—Because we are a foreign private issuer and have taken advantage of exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.”
Nasdaq Listing Rule 5620 provides that (with certain exceptions not relevant to the conclusions expressed herein) each company listing common stock or voting preferred stock, and their equivalents, shall hold an annual meeting of shareholders no later than one year after the end of the company’s fiscal year-end. As a foreign private issuer, however, we are permitted to, and we have elected to follow home country practice in lieu of the above requirements. The corporate governance practice in our home country, the British Virgin Islands, does not require an annual meeting of shareholders to be held.
Other than those described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq corporate governance listing standards.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. Insider Trading Policies
Our board of directors adopted an Insider Trading Policy on April 15, 2020, and a copy of the Insider Trading Policy is filed as an exhibit to this annual report.
ITEM 16K. Cybersecurity
The Company currently lacks a formalized cybersecurity policy. Implementing a comprehensive cybersecurity framework is recommended to safeguard critical data, mitigate risks, and ensure compliance with industry standards. We plan to develop and implement this framework as soon as financial resources become available. Currently, our board of directors has oversight responsibility for the Company’s overall risk management, including cybersecurity risk.
| 104 |
| Table of Contents |
PART III
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
The consolidated financial statements of CN Energy, and its operating entities are included at the end of this annual report.
Item 19. EXHIBITS
EXHIBIT INDEX
Exhibit No. |
| Description |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
101* |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
104* |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
_____________________________
* | Filed with this annual report on Form 20‑F |
** | Furnished with this annual report on Form 20‑F |
| 105 |
| Table of Contents |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20‑F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| CN ENERGY GROUP. INC. |
| |
|
|
|
|
Date: January 30, 2026 | By: | /s/ Wenhua Liu |
|
|
| Wenhua Liu |
|
|
| Interim Chief Executive Officer and Director |
|
|
|
|
|
| By: | /s/ Jinwu Huang |
|
|
| Chief Financial Officer |
|
| 106 |
| Table of Contents |
CN ENERGY GROUP. INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
CN Energy Group. Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CN Energy Group. Inc. and its subsidiaries (the “Company”) as of September 30, 2025 and 2024, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended September 30, 2025, 2024, and 2023, and the related notes (collectively referred to as the 20-F “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2025 and 2024, and the results of its operations and its cash flows for each of the years ended September 30, 2025, 2024, and 2023, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Material Uncertainty Related to Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, The Company recorded net loss of $11.1 million, accumulated deficit of $27.9 million and net cash used in operating activities of $1.97 million for the year ended September 30, 2025. The above matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ |
|
We have served as the Company’s auditor since 2022.
January 30, 2026
| F-2 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONSOLIDATED BALANCE SHEETS
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash and restricted cash |
| $ |
|
| $ |
| ||
Accounts receivable, net |
|
|
|
|
|
| ||
Inventories, net |
|
|
|
|
|
| ||
Advances to suppliers, net |
|
|
|
|
|
| ||
Other receivable |
|
|
|
|
|
| ||
Loan to a third party |
|
|
|
|
|
| ||
Acquisition reversal receivable |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Total current assets |
|
|
|
|
|
| ||
Non-Current Assets: |
|
|
|
|
|
|
|
|
Biological assets, net |
|
|
|
|
|
| ||
Long-term investments |
|
|
|
|
|
| ||
Land use right, net |
|
|
|
|
|
| ||
Property and equipment, net |
|
|
|
|
|
| ||
Right-of-use assets |
|
|
|
|
|
| ||
Total non-current assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
| ||
Convertible notes |
|
|
|
|
|
| ||
Due to related parties |
|
|
|
|
|
| ||
Remaining acquisition consideration payable |
|
|
|
|
|
| ||
Taxes payable |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
|
|
|
|
|
| ||
Total current liabilities |
|
|
|
|
|
| ||
Non-Current Liability: |
|
|
|
|
|
|
|
|
Due to related parties |
|
|
|
|
|
| ||
Total non-current liability |
|
|
|
|
|
| ||
Total liabilities |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity: |
|
|
|
|
|
|
|
|
Class A ordinary share, no par value, unlimited number of shares authorized; |
|
|
|
|
|
| ||
Class B ordinary share, no par value, unlimited number of shares authorized; |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Statutory reserves |
|
|
|
|
|
| ||
Accumulated deficits |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive loss |
|
| ( | ) |
|
| ( | ) |
Total shareholders' equity |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders' Equity |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In U.S. Dollar, except for share and per share data, or otherwise noted)
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Revenues |
| $ |
|
| $ |
|
| $ |
| |||
Cost of revenues |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Gross profit (loss) |
|
|
|
|
| ( | ) |
|
|
| ||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Selling expenses |
|
|
|
|
|
|
|
| ( | ) | ||
General and administrative expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Research and development expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Total operating expenses |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Amortization of debt issuance costs |
|
| ( | ) |
|
|
|
|
|
| ||
Government subsidy income |
|
|
|
|
|
|
|
|
| |||
Interest income |
|
|
|
|
|
|
|
|
| |||
Gain (loss) on disposal of subsidiaries |
|
|
|
|
| ( | ) |
|
|
| ||
Share of net loss from equity investee |
|
| ( | ) |
|
|
|
|
|
| ||
Other income (expenses) |
|
|
|
|
| ( | ) |
|
|
| ||
Total other (expenses) income, net |
|
| ( | ) |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Income tax (expenses) benefits |
|
| ( | ) |
|
|
|
|
|
| ||
Net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Other comprehensive income (loss) : |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Comprehensive loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
| |||
Diluted |
|
|
|
|
|
|
|
|
| |||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED SEPTEMBER 30,
2025, 2024, AND 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||||
|
| Ordinary Shares |
|
| Additional |
|
|
|
|
|
|
| Other |
|
| Total |
| |||||||||||||||||||
|
| Class A Ordinary Shares |
|
| Class B Ordinary Shares |
|
| Paid-in |
|
| Statutory |
|
| (Accumulated |
|
| Comprehensive |
|
| Shareholders' |
| |||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Reserves |
|
| Deficit) |
|
| Loss |
|
| Equity |
| |||||||||
Balance as of September 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||||
Issuance of ordinary shares for private placement, net |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for acquisition |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares and warrants, net |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for services |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for convertible notes redemption |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss for the year |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Appropriation to statutory reserve |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Foreign currency translation loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance as of September 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
Issuance of ordinary shares for convertible notes redemption |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for warrants exercised |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Purchase of treasury shares |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||||
Disposal of subsidiaries |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Net loss for the year |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Appropriation to statutory reserve |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||
Foreign currency translation gain |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance as of September 30, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
Issuance of ordinary shares for convertible notes redemption |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for warrants exercised |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for commitment fee |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares for acquisition |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Reverse share split adjustments |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Issuance of ordinary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Disposal of subsidiaries |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
| ||||||
Net loss for the year |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Foreign currency translation loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Balance as of September 30, 2025 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
| |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
CN ENERGY GROUP. INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Reversal of) allowance for accounts receivable |
|
| ( | ) |
|
|
|
|
|
| ||
(Reversal of) allowance for advances to suppliers |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Allowance for other receivable |
|
|
|
|
|
|
|
|
| |||
Allowance (reversal of allowance) for prepaid expenses and other current assets |
|
|
|
|
|
|
|
| ( | ) | ||
(Reversal of) allowance for inventories |
|
| ( | ) |
|
|
|
|
|
| ||
Depreciation expense |
|
|
|
|
|
|
|
|
| |||
Loss on disposal of property and equipment |
|
|
|
|
|
|
|
|
| |||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
|
|
|
| |||
Amortization of intangible assets and land use right |
|
|
|
|
|
|
|
|
| |||
Depreciation of biological assets |
|
|
|
|
|
|
|
|
| |||
(Gain) loss on disposal of subsidiaries |
|
| ( | ) |
|
|
|
|
|
| ||
Share of net loss from equity investee |
|
|
|
|
|
|
|
|
| |||
Deferred income taxes |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Amortization of deferred revenue |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Amortization of debts issuance costs |
|
|
|
|
|
|
|
|
| |||
Issuance of ordinary shares for commitment fee |
|
|
|
|
|
|
|
|
| |||
Issuance of ordinary shares for services |
|
|
|
|
|
|
|
|
| |||
Interest expenses |
|
|
|
|
|
|
|
|
| |||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Inventories, net |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Advances to suppliers, net |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Prepaid expenses and other current assets |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Accounts payable |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Operating lease liabilities |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Taxes payable |
|
|
|
|
|
|
|
| ( | ) | ||
Accrued expenses and other current liabilities |
|
|
|
|
| ( | ) |
|
|
| ||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment |
|
| ( | ) |
|
|
|
|
|
| ||
Proceeds from disposal of subsidiaries, net of cash |
|
| ( | ) |
|
|
|
|
|
| ||
Loan to a third party |
|
| ( | ) |
|
|
|
|
|
| ||
Repayment from loan to a third party |
|
|
|
|
|
|
|
|
| |||
Purchase of treasury shares |
|
|
|
|
| ( | ) |
|
|
| ||
Other receivables |
|
|
|
|
|
|
|
| ( | ) | ||
Purchase of property, plant and equipment |
|
|
|
|
|
|
|
| ( | ) | ||
Acquisition of a subsidiary, net of cash |
|
|
|
|
|
|
|
|
| |||
Net cash (used in) provided by investing activities |
|
| ( | ) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of ordinary shares |
|
|
|
|
|
|
|
|
| |||
Proceeds from convertible notes |
|
|
|
|
|
|
|
|
| |||
Proceeds from issuance of ordinary shares for warrants exercised |
|
|
|
|
|
|
|
|
| |||
Proceeds from issuance of shares and warrants |
|
|
|
|
|
|
|
|
| |||
Repayment of related parties loans |
|
|
|
|
| ( | ) |
|
|
| ||
Proceeds from related parties loans |
|
|
|
|
|
|
|
|
| |||
Repayment of loans |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Proceeds from loans |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
|
|
|
|
|
| ( | ) | ||
Cash and restricted cash, beginning of year |
|
|
|
|
|
|
|
|
| |||
Cash and restricted cash, end of year |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income tax |
| $ |
|
| $ |
|
| $ |
| |||
Cash paid for interest |
|
|
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for acquisition |
| $ |
|
|
|
|
| $ |
| |||
Issuance of ordinary shares for convertible notes redemption |
| $ |
|
| $ |
|
| $ |
| |||
Issuance of ordinary shares for commitment fee |
| $ |
|
|
|
|
|
|
| |||
Issuance of ordinary shares for services |
|
|
|
|
|
|
| $ |
| |||
Lease liabilities arising from obtaining right-of-use assets |
|
|
|
|
|
|
| $ |
| |||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| 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 and 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.
On November 29, 2024, the Company incorporated a wholly owned subsidiary, Ewforest Group Limited (“Ewforest”), incorporated in the People’s Republic of China (“PRC”)’s special administration region of Hong Kong.
On January 20, 2025, CN Energy entered into a Share Transfer Agreement (the “Agreement”) with Asia Rubber Resources Limited (“Asia Rubber Resources”). Pursuant to the Agreement,
In January and February 2025, CN Energy conducted a reorganization of its wholly owned subsidiaries, Zhejiang CN Energy New Material Co., Ltd. (“Zhejiang New Material”), Zhoushan Xinyue Trading Co., Ltd (“Zhoushan Xinyue”) and Ningbo Nadoutong Trading Co., Ltd (“Ningbo Nadoutong”), under the holding of MZ Pintai Mining (Zhejiang) Co., Ltd (“MZ Pintai”). Ningbo Nadoutong has been deregistered.
On March 31, 2025 and April 23, 2025, CN Energy and Ewforest (the “Purchaser”) entered into a share purchase agreement (the “Purchase Agreement”) with, Ynong Group Limited (the “Seller”) and Ynong International Group Limited (“Ynong”),
In connection with the execution of the Purchase Agreement, the Seller entered into a side letter with PGIF and PWAN, in which PGIF and PWAN agreed to be bound by and comply with the covenants and obligations set forth in the Purchase Agreement that are applicable to each of PGIF and PWAN.
Pursuant to, and upon the terms and subject to the conditions set forth in the Purchase Agreement, the consideration for the Ynong Shares will consist of the following:
(i) | $ |
|
|
(ii) | |
|
|
(iii) | assignment of certain accounts receivables of the subsidiaries of the Company (the “Assigning Subsidiaries”) with an aggregate value of $ |
| F-7 |
| Table of Contents |
Note 1 – Organization and nature of business (Continued)
On April 30, 2025, CN Energy and Ewforest (the “Purchaser”) closed a transaction (the “Closing”) involving the acquisition of
On April 24, 2025 the Dali City People’s Court issued a ruling, (the “Execution Order”), regarding Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”), a wholly owned subsidiary of the Company. The ruling froze the assets of Shenzhen Xiangfeng Trading Co., Ltd., (“Shenzhen”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honhao by the Company back to Shenzhen. Shenzhen will in turn return the cash payments made by the Company and the shares of the Company issued to Shenzhen in connection with the Equity Transfer Agreement (“Purchase Agreement”), dated September 30, 2022, back to the Company.
On June 12, 2025, Pathenbot Group Inc. (“Pathenbot”) was incorporated under the laws of the State of California, the United States of America. CN Energy USA owns
On July 2, 2025, Hangzhou Tanmulai Xin Activated Carbon Co., Ltd (“Tanmulai”) was incorporated under the laws of the PRC, Zhejiang New Material owns
Currently, CN Energy has subsidiaries in countries and jurisdictions including the PRC, Hong Kong, the British Virgin Islands, and the United States of America. Details of the subsidiaries of CN Energy are set out below:
| Date of | Place of | % of |
|
Name of Entity | Incorporation | Incorporation | Ownership | Principal Activities |
| F-8 |
| Table of Contents |
Note 2 – Summary of significant accounting policies
Liquidity and Going Concern
In assessing the Company’s liquidity and substantial doubt about its ability to continue as a going concern, the Company monitors and analyzes cash on-hand and operating expenditure commitments. The Company’s liquidity needs are to meet working capital requirements and operating expense obligations. To date, the Company financed its operations primarily through equity or convertible securities financing activities.
The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company recorded net loss of $
In evaluating if there is substantial doubt about the ability to continue as a going concern, the Company is trying to alleviate the going concern risk through (1) collection from accounts receivables and other receivables, (2) by bringing in strategic investors to supplement funding; and (3) equity or debt financing to meet its anticipated working capital requirements for at least the next 12 months. From the operational perspective, the Company has the following initiatives to alleviate the going concern risk by:
(1) improve accounts receivable management, strengthen collection by shorten the collection cycle and improve cash flow, optimize credit policy by strictly review customer credit and reduce bad debt risk, using factoring or financing which would relieve cash flow pressure through accounts receivable financing.
(2) strategic adjustments through business restructuring, divesting loss making businesses and focus on profitable business, and by acquiring new technologies or market share through mergers and acquisitions or collaborations to enhance competitiveness.
(3) technological innovation and digital transformation to improve production efficiency and product competitiveness, optimizing operations and customer experience through digital means.
(4) increase income through expanding the market, entering new markets or launching new products to increase revenue sources, subject to the market conditions by raising prices appropriately to improve profit margins, strengthening sales and optimizing sales strategies to increase customer order volumes.
The Company may, however, need additional capital in the future to fund our further expansion. If the Company determines that its cash requirements exceed the amount of cash and cash equivalents it has on hand at the time, the Company may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to shareholders of the Company. In addition, as of September 30, 2025, the Company has positive working capital of $
The Company prepared the consolidated financial statements assuming the Company will continue as a going concern. However, there is no assurance that the measures above can be achieved as planned. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
The consolidated financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date on which control ceases.
In preparing the consolidated financial statements, transactions, balances and unrealized gains on transactions between group entities are eliminated. Unrealized losses are also eliminated unless the transactions provide evidence of an impairment indicator of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company.
Use of estimates
In preparing the 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 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, other receivables, useful lives of biological assets, property and equipment and land use right, 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.
| F-9 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Accounts receivable
Accounts receivable are presented net of an allowance for credit losses. The Company maintains an allowance for credit losses 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. The Company makes estimates of expected credit losses for the allowance for credit losses based on assessment of various factors, including historical experience, the age of the accounts receivable balances, credit quality of certain accounts receivables, current economic conditions, reasonable and supportable forecasts of future economic conditions and other factors that may affect its ability to collect from the counterparties. Uncollectible accounts receivables are written off when a settlement is reached for an amount that is less than the outstanding historical balance or when the Company has determined that is not probable for the balance to be collected.
Inventories
The Company values its inventory at the lower of cost, determined on a first-in first-out 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.
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.
Other receivables and loan to a third party
Other receivables and loan to a third party are presented net of an allowance for credit losses. The Company maintains an allowance for credit losses for estimated losses. The Company reviews its other receivables and loan to a third party 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, the customer’s payment history and current credit-worthiness, and current economic trends. Accounts are written off after efforts at collection prove unsuccessful.
Long-term investments
The Company invests from time to time in equity securities of private companies. If the Company determines that the Company has control over these companies, the Company includes them in the consolidated financial statements. If the Company determines that the Company does not have control over these companies, the Company then determines if the Company has an ability to exercise significant influence via voting interests, board representation or other business relationships.
| F-10 |
| Table of Contents |
The Company accounts for the investments where the Company exercises significant influence using either an equity method of accounting or at fair value by electing the fair value option under Accounting Standards Codification (“ASC”) Topic 825, Financial Instruments. If the fair value option is applied to an investment that would otherwise be accounted for under the equity method, the Company applies it to all its financial interests in the same entity (equity and debt, including guarantees) that are eligible items. All gains and losses from fair value changes, unrealized and realized, are presented as changes in fair values of equity and long-term investments, net on the consolidated statements of income.
If the Company concludes that it does not have an ability to exercise significant influence over an investee, the Company may elect to account for the security without a readily determinable fair value using the measurement alternative under ASC Topic 312, Investments – Equity Securities. This measurement alternative allows the Company to measure the equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company’s long-term investments are equity method investments. Investee companies over which the Company has the ability to exercise significant influence but does not have a controlling interest through investment in common shares or in-substance common shares, are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the investee’s board of directors, voting rights and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.
Under the equity method, the Company initially records its investment at cost and subsequently recognizes the Company’s proportionate share of each equity investee’s net income or loss after the date of investment into net loss and accordingly adjusts the carrying amount of the investment. The Company reviews its equity method investments for impairment whenever an event or circumstance indicates that any other-than-temporary impairment has occurred. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investment.
An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary. As of September 30, 2025 and 2024, the Company had no impairment for long-term investments.
Biological assets
Property and equipment
Property 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.
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:
Categories | Useful life | ||
Property and buildings | 20 years | ||
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 the consolidated statements of income (loss) and comprehensive income (loss) in income from operations.
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, 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
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 September 30, 2025 and 2024.
| F-11 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
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.
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.
The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. Non-lease components include payments for building management services, utilities and property taxes. It separates the non-lease components from the lease components to which they relate.
The Company evaluates the impairment of its right-of-use assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of finance and operating lease liabilities in any tested asset group and include the associated lease payments in the undiscounted future pre-tax cash flows. As of September 30, 2025 and 2024, the Company did not have any impairment loss for its operating lease right-of-use assets.
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, accounts receivable, advances to suppliers, prepaid expenses and other current assets, accounts payable, due to related parties, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities.
| F-12 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
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 services to customers who purchase activated carbon from the Company. The revenue of technical services is recognized on a straight-line basis over the service period as earned.
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 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 September 30, 2025 and 2024. For the fiscal years ended September 30, 2025, 2024, and 2023, 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.
| F-13 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Revenue recognition (Continued)
The Company has elected the following practical expedients in applying ASC 606:
| · | Unsatisfied Performance Obligations – for all performance obligations relate 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. |
Refer to “Note 18—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 expenses, 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 nil, nil, and $
| F-14 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
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 fiscal years ended September 30, 2025, 2024, and 2023, the Company had the following subsidy income:
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Value-added tax refund |
|
|
|
|
|
|
| $ |
| |||
Investment grant |
|
|
|
|
|
|
|
|
| |||
Equipment of energy projects grants |
|
|
|
| $ |
|
|
|
| |||
Research and development grants |
|
|
|
|
|
|
|
|
| |||
Total |
|
|
|
| $ |
|
| $ |
| |||
In January 2014, April 2014, and December 2019, the Company received government subsidies of approximately $
Income taxes
The Company’s subsidiaries in the PRC, Hong Kong, and the U.S. are subject to the income tax laws of the PRC, Hong Kong, and the U.S. 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 September 30, 2025, and 2024. As of September 30, 2025, the tax years ended December 31, 2017 through December 31, 2024 for the Company’s subsidiaries remain open for statutory examination by tax authorities.
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
| F-15 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, term deposit, accounts receivable, advances to suppliers, and other receivables. Most of the Company’s cash is maintained with banks within the PRC. Per PRC regulations, the maximum insured bank deposit amount is RMB500,000 (approximately $
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 an element 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 (loss) 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 rates in effect as of September 30, 2025, and 2024, were US$1 for RMB
Earnings (Loss) 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 measured as net income divided by the weighted average ordinary shares outstanding for the period. 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 is no anti-dilutive effect for the fiscal years ended September 30, 2025, 2024, and 2023.
| F-16 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
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-17 |
| Table of Contents |
Note 2 – Summary of significant accounting policies (Continued)
Recent accounting pronouncements
The Company considers the applicability and impact of all ASUs. Management periodically reviews new accounting standards that are issued.
In November 2024, the FASB issued ASU 2024-03, Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. This ASU may be applied either on a prospective or retrospective basis. We are currently evaluating the impact of this standard on our disclosures.
In November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This ASU is effective for fiscal years beginning after December 15, 2025 and interim reporting periods within those annual reporting periods, with early adoption permitted. We are currently evaluating the impact of this standard on our disclosures.
In January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40),which clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted.
In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810), Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity, which revised current guidance for determining the accounting acquirer for a transaction effected primarily by exchanging equity interests in which the legal acquiree is a VIE that meets the definition of a business. The amendments require that an entity consider the same factors that are currently required for determining which entity is the accounting acquirer in other acquisition transactions. The amendments in this Update require an entity involved in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider the factors in paragraphs 805-10-55-12 through 55-15 to determine which entity is the accounting acquirer. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments in this Update require that an entity apply the new guidance prospectively to any acquisition transaction that occurs after the initial application date. Early adoption is permitted as of the beginning of an interim or annual reporting period.
In May 2025, the FASB issued ASU 2025-04, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), Clarifications to Share-Based Consideration Payable to a Customer, which revised the Master Glossary definition of the term performance condition for share-based consideration payable to a customer. The revised definition incorporates conditions (such as vesting conditions) that are based on the volume or monetary amount of a customer’s purchases (or potential purchases) of goods or services from the grantor (including over a specified period of time). The revised definition also incorporates performance targets based on purchases made by other parties that purchase the grantor’s goods or services from the grantor’s customers. The revised definition of the term performance condition cannot be applied by analogy to awards granted to employees and nonemployees in exchange for goods or services to be used or consumed in the grantor’s own operations. Although it is expected that entities will conclude that fewer awards contain service conditions, for those that are determined to have service conditions, the amendments in this Update eliminate the policy election permitting a grantor to account for forfeitures as they occur. Therefore, when measuring share-based consideration payable to a customer that has a service condition, the grantor is required to estimate the number of forfeitures expected to occur. Separate policy elections for forfeitures remain available for share-based payment awards with service conditions granted to employees and nonemployees in exchange for goods or services to be used or consumed in the grantor’s own operations. The amendments in this Update clarify that share-based consideration encompasses the same instruments as share-based payment arrangements, but the grantee does not need to be a supplier of goods or services to the grantor. Finally, the amendments in this Update clarify that a grantor should not apply the guidance in Topic 606 on constraining estimates of variable consideration to share-based consideration payable to a customer. Therefore, a grantor is required to assess the probability that an award will vest using only the guidance in Topic 718. Collectively, these changes improve the decision usefulness of a grantor’s financial statements, improve the operability of the guidance, and reduce diversity in practice for accounting for share-based consideration payable to a customer. Under the amendments in this Update, revenue recognition will no longer be delayed when an entity grants awards that are not expected to vest. This is expected to result in estimates of the transaction price that better reflect the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer and, therefore, more decision-useful financial reporting.
| F-18 |
| Table of Contents |
The amendments in this Update are effective for all entities for annual reporting periods (including interim reporting periods within annual reporting periods) beginning after December 15, 2026. Early adoption is permitted for all entities. The amendments in this Update permit a grantor to apply the new guidance on either a modified retrospective or a retrospective basis. When applying the amendments in this Update on a modified retrospective basis, a grantor should recognize a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of 4 equity or net assets in the statement of financial position) as of the beginning of the period of adoption and should not recast any financial statement information before the period of adoption. A grantor should apply the amendments as of the date of initial application to all share-based consideration payable to a customer. When applying the amendments in this Update on a retrospective basis, a grantor should recast comparative periods and recognize a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the earliest period presented. Additionally, an entity that elects to apply the guidance retrospectively should use the actual outcome, if known, of a performance condition or service condition as of the beginning of the annual reporting period of adoption for all prior-period estimates. If actual outcomes are unknown as of the beginning of the annual reporting period of adoption, an entity should use its estimate of the probability of achieving a service condition or performance condition as of the beginning of the annual reporting period of adoption for all prior-period estimates.
In July 2025, the FASB issued ASU 2025-05, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (ASU 2025-05)”, simplifies credit loss calculations by introducing a practical expedient (available to all entities) that allows entities to assume current conditions won’t change over an asset’s life, removing the need for complex macroeconomic forecasts. Additionally, a new accounting policy election (for non-public business entities) allows these entities to consider post-balance sheet collection activity to estimate expected credit losses. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025. Early adoptions is permitted. The Company’s management does not believe the adoption of ASU 2025-05 will have a material impact on its financial statements and disclosures.
In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) - Targeted Improvements to the Accounting for Internal-Use Software”, the amendments in this Update remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. Therefore, an entity is required to start capitalizing software costs when both of the following occur: 1. Management has authorized and committed to funding the software project. 2. It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software (referred to as “significant development uncertainty”). The two factors to consider in determining whether there is significant development uncertainty are whether: 1. The software being developed has technological innovations or novel, unique, or unproven functions or features, and the uncertainty related to those technological innovations, functions, or features, if identified, has not been resolved through coding and testing. 2. The entity has determined what it needs the software to do (for example, functions or features), including whether the entity has identified or continues to substantially revise the software’s significant performance requirements. The amendments in this Update specify that the disclosures in Subtopic 360- 10, Property, Plant, and Equipment—Overall, are required for all capitalized internal-use software costs, regardless of how those costs are presented in the financial statements. Additionally, the amendments clarify that the intangibles disclosures in paragraphs 350-30-50-1 through 50-3 are not required for capitalized internal-use software costs. Furthermore, the amendments in this Update supersede the website development costs guidance and incorporate the recognition requirements for website-specific development costs from Subtopic 350-50 into Subtopic 350-40. 4 within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The amendments in this Update permit an entity to applythe new guidance using any of the following transition approaches: 1. A prospective transition approach 2. A modified transition approach that is based on the status of the project and whether software costs were capitalized before the date of adoption 3. A retrospective transition approach. Under a prospective transition approach, an entity should apply the amendments in this Update to new software costs incurred as of the beginning of the period of adoption for all projects, including in-process projects. Under a modified transition approach, an entity should apply the amendments in this Update on a prospective basis to new software costs incurred (for all projects, including costs incurred for in-process projects), except for in-process projects that, as of the date of adoption, the entity determines do not meet the capitalization requirements under the amendments but meet the capitalization requirements under current guidance. For those in-process projects, an entity should derecognize any capitalized costs through a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the date of adoption. Under a retrospective transition approach, an entity should recast comparative periods and recognize a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the first period presented.
| F-19 |
| Table of Contents |
In September 2025, the FASB issued ASU 2025-07, “Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606) - Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract”, the amendments in this Update exclude from derivative accounting nonexchange-traded contracts with underlyings that are based on operations or activities specific to one of the parties to the contract. However, this scope exception does not apply to (1) variables based on a market rate, market price, or market index, (2) variables based on the price or performance of a financial asset or financial liability of one of the parties to the contract, (3) contracts (or features) involving the issuer’s own equity that are evaluated under the guidance in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and (4) call options and put options on debt instruments. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. An entity is permitted to apply the amendments in this Update either (1) prospectively to new contracts entered into on or after the date of adoption or (2) on a modified retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption for contracts existing as of the beginning of the annual reporting period of adoption. If an entity applies the modified retrospective transition method described in the preceding paragraph, upon adoption the entity may elect on an instrumentby-instrument basis to (1) measure contracts previously accounted for as derivatives that are no longer accounted for as derivatives in their entirety under the amendments in this Update at fair value with changes in fair value recognized in earnings and (2) stop applying the fair value option for contracts that contained embedded features that otherwise would have been bifurcated but are no longer accounted for as derivatives under the amendments in this Update.
The amendments in this Update clarify that an entity should apply the guidance in Topic 606, including the guidance on noncash consideration in paragraphs 606-10-32-21 through 32-24, to a contract with share-based noncash consideration (for example, shares, share options, or other equity instruments) from a customer for the transfer of goods or services. The guidance in other Topics (including Topic 815 on derivatives and hedging and Topic 321 on equity securities) does not apply to share-based noncash consideration from a customer for the transfer of goods or services unless and until the entity’s right to receive or retain the share-based noncash consideration is unconditional under Topic 606. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. An entity is permitted to apply the amendments in this Update either (1) prospectively to new contracts entered into on or after the date of adoption, including modified contracts accounted for as separate contracts in accordance with paragraph 606-10-25-12, or (2) on a modified retrospective basis through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption for contracts existing as of the beginning of the annual reporting period of adoption.
In November 2025, the FASB issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326) Purchased Loans”, the amendments in this update expand the population of acquired financial assets subject to the gross-up approach in Topic 326. In accordance with the amendments in this Update, loans (excluding credit cards) acquired without credit deterioration and deemed “seasoned” (defined below) are purchased seasoned loans and accounted for using the gross-up approach at acquisition. Specifically, after an entity determines that a loan is a non-PCD asset based on its assessment of credit deterioration experienced since origination, the entity should apply the guidance described in the amendments to determine whether the loan is seasoned and, therefore, should be accounted for using the gross-up approach. All non-PCD loans (excluding credit cards) that are acquired in a business combination are deemed seasoned. Other non-PCD loans (excluding credit cards) are seasoned if they were purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The amendments in this Update should be applied prospectively to loans that are acquired on or after the initial application date. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim reporting period, it should apply the amendments as of the beginning of that interim reporting period or the beginning of the annual reporting period that includes that interim reporting period.
| F-20 |
| Table of Contents |
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815) Hedge Accounting Improvements”, Issue 1: Similar Risk Assessment for Cash Flow Hedges - the amendments in this Update expand the hedged risks permitted to be aggregated in a group of individual forecasted transactions in a cash flow hedge by changing the requirement to designate a group of individual forecasted transactions from having a shared risk exposure to having a similar risk exposure. Entities are required to assess risk similarity both at hedge inception and on an ongoing basis. The amendments also clarify that a group of individual forecasted transactions can be considered to have a similar risk exposure if the derivative used as the hedging instrument is highly effective against each hedged risk in the group. In addition, in some cases, entities are permitted to perform an ongoing qualitative assessment of whether a group of individual forecasted transactions has a similar risk exposure. The amendments in this Update improve GAAP by expanding the hedged risks permitted to be aggregated in a group of individual forecasted transactions, thereby enabling entities to apply hedge accounting to potentially broader portfolios of forecasted transactions. Entities that aggregate larger groups of individual forecasted transactions in accordance with the amendments can achieve hedge accounting in a more efficient, cost-effective manner while reducing the risk of missed forecasts for highly effective economic hedges. Furthermore, the amendments improve operability and foster consistent application of the similar risk assessment. Therefore, an entity’s financial statements can provide more relevant information to investors about the entity’s risk management activities related to cash flow hedges of groups of forecasted transactions. 4 The amendments in this Update improve GAAP because the application of hedge accounting will not be limited by whether the execution of the nonfinancial purchase or sale transaction is in the spot or forward market. Relative to current GAAP, which limits designation of nonfinancial components to those that are contractually specified, a model based on the clearly-and-closely-related criteria permits hedge accounting for eligible components of forecasted spot-market transactions, forward-market transactions, and subcomponents of explicitly referenced components in an agreement’s pricing formula. Furthermore, the amendments also may enable entities to reduce missed forecasts for highly effective economic hedges, more closely aligning hedge accounting with the economics of entities’ risk management activities. The amendments in this Update also clarify that entities may designate a variable price component in a contract that is accounted for as a derivative as the hedged risk if all other hedge criteria are satisfied. That clarification improves GAAP because it resolves diversity in practice about whether hedge accounting may be applied in those situations and allows hedge accounting to be applied to highly effective economic hedges. Issue 4: Net Written Options as Hedging Instruments The amendments in this Update on the use of net written options as hedging instruments improve GAAP by updating the hedge accounting guidance to accommodate differences in the loan and swap markets that developed after the cessation of the London Interbank Offered Rate. Specifically, the amendments in this Update eliminate the requirement to apply the net written option test to a compound derivative comprising a swap and a written option designated as the hedging instrument in a cash flow hedge or a fair value hedge of interest rate risk. Issue 5: Foreign-Currency-Denominated Debt Instrument as Hedging Instrument and Hedged Item (Dual Hedge) The amendments in this Update eliminate the recognition and presentation mismatch related to a dual hedge strategy (that is, a hedge for which a foreign currency-denominated debt instrument is both designated as the hedging instrument in a net investment hedge and designated as the hedged item in a fair value hedge of interest rate risk). The amendments require that an entity exclude the debt instrument’s fair value hedge basis adjustment from the net 5 investment hedge effectiveness assessment. As a result, an entity immediately recognizes in earnings the gains and losses from the remeasurement of the debt instrument’s fair value hedge basis adjustment at the spot exchange rate. Entities are prohibited from applying this guidance by analogy to other circumstances. The amendments in this Update improve GAAP by enabling entities that utilize dual hedging strategies to reflect the economic offset of changes attributable to both interest rate risk and foreign exchange risk. For public business entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. For entities other than public business entities, the amendments are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after the issuance of this Update. Entities should apply the amendments in this Update on a prospective basis for all hedging relationships. An entity may elect to adopt the amendments in this Update for hedging relationships that exist as of the date of adoption. Upon adoption of the amendments in this Update, entities are permitted to modify certain critical terms of certain existing hedging relationships without dedesignating the hedge.
In December 2025, the FASB issued ASU 2025-10, “Government Grants (Topic 832) Accounting for Government Grants Received by Business Entities”, The amendments in this Update establish the accounting for a government grant received by a business entity, including guidance for (1) a grant related to an asset and (2) a grant related to income. A grant related to an asset is a government grant, or part of a government grant, that is conditioned on the purchase, construction, or acquisition of an asset (for example, a long-lived asset or inventory). A grant related to income is a government grant, or part of a government grant, other than a grant related to an asset (for example, a grant that reimburses a business entity for operating expenses). The amendments in this Update require that a government grant received by a business entity should not be recognized until: 1. It is probable that (a) a business entity will comply with the conditions attached to the grant and (b) the grant will be received. 2. A business entity meets the recognition guidance for a grant related to an asset or a grant related to income. 3 The amendments in this Update require that a grant related to an asset be recognized on the balance sheet as a business entity incurs the related costs for which the grant is intended to compensate, either as: 1. Deferred income (the deferred income approach) 2. An adjustment to the cost basis in determining the carrying amount of the asset (the cost accumulation approach). A grant related to income and a grant related to an asset for which the deferred income approach is elected should be recognized in earnings on a systematic and rational basis over the periods in which a business entity recognizes as expenses the costs for which the grant is intended to compensate. When a business entity elects the cost accumulation approach for a grant related to an asset, there is no separate subsequent recognition of the government grant proceeds in earnings. The carrying amount of the asset that reflects the government grant proceeds would be used to determine depreciation or other subsequent accounting for that asset. The amendments in this Update require that a business entity present a grant related to income and a grant related to an asset for which the deferred income approach is elected as part of earnings either (1) separately under a general heading such as other income or (2) deducted from the related expense. In addition, the amendments in this Update require, consistent with current disclosure requirements, that a business entity provide disclosures, including the nature of the government grant received, the accounting policies used to account for the grant, and significant terms and conditions of the grant. 5 Under a modified prospective approach, prior-period results should not be restated and there is no cumulative-effect adjustment. 2. A modified retrospective approach to both: a. Government grants that are entered into on or after the beginning of the earliest period presented b. Government grants that are not complete as of the beginning of the earliest period presented. A government grant is complete when substantially all of the government grant proceeds have been recognized before the beginning of the earliest period presented. Under a modified retrospective approach, all prior period results should be restated for government grants that are not complete as of the beginning of the earliest period presented through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the earliest period presented. 3. A retrospective approach to all government grants through a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the earliest period presented.
| F-21 |
| Table of Contents |
In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270) Narrow-Scope Improvements”, the amendments in this Update clarify interim disclosure requirements and the applicability of Topic 270. The amendments in this Update result in a comprehensive list of interim disclosures that are required by GAAP. In developing the list of disclosures required by other Topics, the Board focused on identifying the interim disclosures that are currently required under GAAP. The objective of the amendments is to provide clarity about the current requirements, rather than evaluate whether to expand or reduce interim disclosure requirements. The amendments in this Update also include a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The intent of the disclosure principle, which is modeled after a previous SEC disclosure requirement, is to help entities determine whether disclosures not specified in Topic 270 should be provided in interim reporting periods. The amendments in this Update also clarify the applicability of Topic 270, the types of interim reporting, and the form and content of interim financial statements in accordance with GAAP. The Board expects that these clarifications will enhance consistency in interim reporting for all entities. The Board considers the amendments in this Update to be necessary to reflect the development of interim reporting over time. The amendments in this Update are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027, for public business entities and for interim reporting periods within annual reporting 3 periods beginning after December 15, 2028, for entities other than public business entities. Early adoption is permitted for all entities. The amendments in this Update can be applied either (1) prospectively or (2) retrospectively to any or all prior periods presented in the financial statements.
In December 2025, the FASB issued ASU 2025-12, “Codification Improvements”, thirty-three issues are addressed in this Update. Generally, the amendments in this Update are not intended to result in significant changes for most entities. However, the Board recognizes that changes to guidance may result in accounting changes for some entities. Therefore, the Board is providing transition guidance for the amendments. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. 12 Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this Update in an interim period, it must adopt them as of the beginning of the annual reporting period that includes that interim reporting period. An entity may elect to early adopt the amendments on an issue-by-issue basis. For example, an entity may decide to early adopt certain amendments and adopt the remaining amendments at the effective date. An entity should apply the amendments in this Update (except for the amendments to Topic 260, Earnings Per Share, related to Issue 4) using one of the following transition methods: 1. Prospectively to all transactions recognized on or after the date that the entity first applies the amendments 2. Retrospectively to the beginning of the earliest comparative period presented. An entity should adjust the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the earliest comparative period presented. An entity may elect the transition method on an issue-by-issue basis. For example, it may apply certain amendments prospectively while applying others retrospectively. For the amendments in this Update to Topic 260 (that is, Issue 4), an entity should apply the amendments retrospectively to each prior reporting period presented in the period of adoption.
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-22 |
| Table of Contents |
Note 3 – Accounts receivable, net
Accounts receivable consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Accounts receivable |
| $ |
|
| $ |
| ||
Less: allowance for credit losses |
|
|
|
|
| ( | ) | |
Accounts receivable, net |
| $ |
|
| $ |
| ||
The Company’s accounts receivable primarily include balances due from customers when the Company’s activated carbon products are sold and delivered to customers.
The movement of allowance for credit losses was as follows:
|
| For the |
|
| For the |
| ||
|
| year ended |
|
| year ended |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Balance as of beginning of year |
| $ |
|
| $ |
| ||
Addition |
|
|
|
|
|
| ||
Reversal |
|
| ( | ) |
|
|
| |
Translation adjustments |
|
| ( | ) |
|
|
| |
Balance as of end of year |
|
|
|
| $ |
| ||
Note 4 – Inventories, net
Inventories consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Less: allowance for inventory |
|
|
|
|
| ( | ) | |
Total |
| $ |
|
| $ |
| ||
The movement of allowance for inventory reserve was as follows:
|
| For the |
|
| For the |
| ||
|
| year ended |
|
| year ended |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Balance as of beginning of year |
| $ |
|
| $ |
| ||
Addition |
|
|
|
|
|
| ||
Reversal |
|
| ( | ) |
|
|
| |
Translation adjustments |
|
| ( | ) |
|
|
| |
Balance as of end of year |
|
|
|
| $ |
| ||
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:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Advances for raw materials purchase |
| $ |
|
| $ |
| ||
Less: allowance for credit losses |
|
|
|
|
| ( | ) | |
Advances to suppliers, net |
| $ |
|
| $ |
| ||
| F-23 |
| Table of Contents |
The movement of allowance for credit losses was as follows:
|
| For the |
|
| For the |
| ||
|
| year ended |
|
| year ended |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Balance as of beginning of year |
| $ |
|
| $ |
| ||
Addition |
|
|
|
|
|
| ||
Reversal |
|
| ( | ) |
|
|
| |
Translation adjustments |
|
| ( | ) |
|
|
| |
Balance as of end of year |
|
|
|
| $ |
| ||
Note 6 – Other receivable
On September 25, 2024, the Company, through its wholly owned subsidiaries in China, Zhejiang CN Energy and Manzhouli CN Energy, entered into a Share Transfer Agreement (the “Agreement No. 2”) with Xinbaocheng Industrial Group Co., Ltd. (“Xinbaocheng”). Pursuant to the Agreement No. 2, Zhejiang CN Energy agreed to transfer 90% of its equity in CN Energy Development and its subsidiaries (Khingan Forasen and Zhongxing Energy), and Manzhouli CN Energy agreed to transfer its 10% of equity in CN Energy Development to Shanghai Xinbaocheng Industrial Group Co., Ltd. (“Xinbaocheng”) for a total purchase price of RMB138,204,751 ($
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Other receivable |
| $ |
|
| $ |
| ||
Less: allowance for credit losses |
|
| ( | ) |
|
|
| |
Other receivable, net |
|
|
|
| $ |
| ||
The movement of allowance for credit losses was as follows:
|
| For the |
|
| For the |
| ||
|
| year ended |
|
| year ended |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Balance as of beginning of year |
|
|
|
|
|
| ||
Addition |
|
|
|
|
|
| ||
Translation adjustments |
|
|
|
|
|
|
| |
Balance as of end of year |
| $ |
|
|
|
| ||
Note 7 – Loan to a third party
The Company signed a revolving loan agreement with a third party to lend a revolving loan up to a maximum amount of $
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Loan to a third party |
| $ |
|
|
|
| ||
On January 29, 2026, the Company received the full repayment of $
| F-24 |
| Table of Contents |
Note 8 – Acquisition reversal receivable
On April 24, 2025 the Dali City People’s Court issued a ruling regarding Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”), a wholly owned subsidiary of the Company. The ruling froze the assets of Shenzhen Xiangfeng Trading Co., Ltd., (“Shenzhen”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honhao by the Company back to Shenzhen. Shenzhen will in turn return the cash payments made by the Company and the shares of the Company issued to Shenzhen in connection with the Equity Transfer Agreement (“Purchase Agreement”), dated September 30, 2022, back to the Company. As of September 30, 2025, Shenzhen agreed to return $
Note 9 – Long-term investments
On March 31, 2025 and April 23, 2025, CN Energy and Ewforest (the “Purchaser”) entered into a share purchase agreement (the “Purchase Agreement”) with, Ynong Group Limited (the “Seller”) and Ynong International Group Limited (“Ynong”),
In connection with the execution of the Purchase Agreement, the Seller entered into a side letter with PGIF and PWAN, in which PGIF and PWAN agreed to be bound by and comply with the covenants and obligations set forth in the Purchase Agreement that are applicable to each of PGIF and PWAN.
Pursuant to, and upon the terms and subject to the conditions set forth in the Purchase Agreement, the consideration for the Ynong Shares will consist of the following:
(iv) | $ |
|
|
(v) | |
|
|
(vi) | assignment of certain accounts receivables of the subsidiaries of the Company (the “Assigning Subsidiaries”) with an aggregate value of $ |
Aforementioned, prepayment for acquisition was related to the Assigned Receivables of $
On April 30, 2025, the Company and its wholly owned subsidiary, Ewforest, closed a transaction (the “Closing”) involving the acquisition of
In connection with the Closing, the following agreements were entered into and made effective as of April 30, 2025, the date of the Closing:
| · | a shareholder agreement between the Company, the Purchaser, the Seller, Ynong, an Indonesian entity (“PGIF”), the operating Indonesian entity (“PWAN”), and the other shareholders of PGIF and PWAN, which governs, among other things, the composition of the board of directors, restriction on share transfers, preemptive rights and significant corporate actions of HoldCo, PGIF and PWAN, as applicable; |
|
|
|
| · | a voting agreement entered into between a holder of Class B ordinary shares of the Company and the Designees, in which the Designees granted the Class B holder the authority to vote the applicable Shares issued to them; and |
|
|
|
| · | an assignment agreement entered into between the Subsidiaries and the Seller in which the Subsidiaries assigned certain of its account receivables with an aggregate value of $24,548,022 to the Seller. |
| F-25 |
| Table of Contents |
In addition, the Company will pay to the Seller a post-Closing payment of $
The total consideration for the
The investment was accounted for under the equity method in accordance with ASC 323. The Company recognized its proportionate share of Ynong’s net loss in the amount of $
As of September 30, 2025, and 2024, long-term investments consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Equity investment accounted for using the equity method |
| $ |
|
|
|
| ||
Long-term investments, net |
| $ |
|
|
|
| ||
For the years ended September 30, 2025 and 2024, the movement of equity investment accounted for using the equity method consisted of the following:
|
| For the Years Ended September 30, |
| |||||
|
| 2025 |
|
| 2024 |
| ||
Balance, beginning of the year |
|
|
|
|
|
| ||
Investment in Ynong International Group Limited |
|
|
|
|
|
| ||
Loss from equity method investments |
|
| ( | ) |
|
|
| |
Balance, end of the year |
| $ |
|
|
|
| ||
Note 10 – Biological assets
Biological assets mainly consist forest for future wood harvest and sales, of which the
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Biological assets |
|
|
|
| $ |
| ||
Less: accumulated depreciation |
|
|
|
|
| ( | ) | |
Biological assets, net |
|
|
|
| $ |
| ||
| F-26 |
| Table of Contents |
Depreciation expenses were $
On April 24, 2025 the Dali City People’s Court issued a ruling regarding Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”), a wholly owned subsidiary of the Company (“Shenzhen”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honhao by the Company back to Shenzhen. In connection with this transaction reversal, the biological assets were no longer belong to the Company.
Note 11 – Property and equipment, net
Property and equipment, stated at cost less accumulated depreciation, consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Machinery and equipment |
| $ |
|
| $ |
| ||
Property and buildings |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment, net |
| $ |
|
| $ |
| ||
Depreciation expenses were $
Note 12 – Land use right, net
Land use right, net, consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Land use right |
|
|
|
| $ |
| ||
Less: accumulated amortization |
|
|
|
|
| ( | ) | |
Land use right, net |
|
|
|
| $ |
| ||
Amortization expense was $
On April 24, 2025 the Dali City People’s Court issued a ruling regarding Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”), a wholly owned subsidiary of the Company. The ruling froze the assets of Shenzhen Xiangfeng Trading Co., Ltd. (“Shenzhen”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honhao by the Company back to Shenzhen. In connection with this transaction reversal, the land use right was no longer belong to the Company.
| F-27 |
| Table of Contents |
Note 13 – Convertible note
1．On October 10, 2024, CN Energy Group. Inc., a British Virgin Islands company (the “Company”), entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (the “Investor”), pursuant to which the Company issued to the Investor an unsecured promissory note, on October 10,2024, in the principal amount of $
The Note bears interest at a rate of
2. On April 4, 2025, CN Energy Group. Inc. (the “Company”), entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, (the “Investor”). Pursuant to the Purchase Agreement, the Investor agreed to purchase from the Company, and the Company agreed to issue and sell to the Investor, securities in the form of one or more pre-paid purchases (the “Pre-Paid Purchases”) with an aggregate purchase amount of up to $
Upon the initial closing under the Purchase Agreement, on April 8, 2025, the Company issued to the Investor an initial Pre-Paid Purchase in the principal amount of $
For the fiscal years ended September 30, 2025, 2024, and 2023,
| F-28 |
| Table of Contents |
Note 14 – Accrued expenses and other current liabilities
Accrued expenses and other payables consisted of the following:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Payroll payable |
| $ |
|
| $ |
| ||
Interest payable |
|
|
|
|
|
| ||
Accrued expenses |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
| $ |
|
| $ |
| ||
Note 15 – Related party transactions
The relationship and the nature of related party transactions are summarized as follow:
Name of Related Party | Relationship to the Company | Nature of Transactions |
Yefang Zhang | Principal shareholder | Providing working capital for the Company |
Hangzhou Forasen Energy Technology Co., Ltd. | Controlled by Mr. Zhengyu Wang, spouse of Ms. Yefang Zhang | Lease of office space to the Company |
Due to a related party
As of September 30, 2025 and 2024, 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
| F-29 |
| Table of Contents |
Note 16 – Shareholders’ equity
Ordinary shares
CN Energy is a holding company established under the laws of the British Virgin Islands on November 23, 2018. The Company had 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.
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
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.
As a result of reverse share split on January 18, 2024, the exercise price was adjusted from $
As a result of reverse share split on May 19, 2025, the exercise price was adjusted from $
For the fiscal years September 30, 2025, 2024, and 2023,
| F-30 |
| Table of Contents |
Note 16 – Shareholders’ equity (Continued)
Issuance of shares for repayment of convertible note
1．On October 10, 2024, CN Energy Group. Inc., a British Virgin Islands company (the “Company”), entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (the “Investor”), pursuant to which the Company issued to the Investor an unsecured promissory note, on October 10,2024, in the principal amount of $
The Note bears interest at a rate of 7% per annum. All outstanding principal and accrued interest on the Note will become due and payable twelve months after the purchase price of the Note is delivered by the Investor to the Company. The Note includes an original issue discount of $
2. On April 4, 2025, CN Energy Group. Inc. (the “Company”), entered into a securities purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, (the “Investor”). Pursuant to the Purchase Agreement, the Investor agreed to purchase from the Company, and the Company agreed to issue and sell to the Investor, securities in the form of one or more pre-paid purchases (the “Pre-Paid Purchases”) with an aggregate purchase amount of up to $
Upon the initial closing under the Purchase Agreement, on April 8, 2025, the Company issued to the Investor an initial Pre-Paid Purchase in the principal amount of $
For the fiscal years ended September 30, 2025, 2024, and 2023,
Issuance of ordinary shares for acquisition
On April 30, 2025, the Company and its wholly owned subsidiary, Ewforest Group Limited, closed a transaction involving the acquisition of
Reverse share split
On May 19, 2025, the Company effectuated a 1-for-25 reverse share split of ordinary shares with no par value. The reverse share split reduced the number of Class A ordinary shares issued and outstanding from approximately
Issuance of ordinary shares
On August 1, 2025, CN Energy Group. Inc., a British Virgin Islands company (the “Company”), entered into a securities purchase agreement (the “Class A Purchase Agreement”) with certain investors (the “Class A Investors”), pursuant to which the Company issued to the Class A Investors an aggregate of
On August 1, 2025, CN Energy Group. Inc., a British Virgin Islands company (the “Company”), entered into a securities purchase agreement (the “Class B Purchase Agreement” and collectively with the Class B Purchase Agreement, the “Purchase Agreements”) with Weastfinace Group Inc., which is controlled by Xinyang Wang, a director of the Company (the “Class B Investor”), pursuant to which the Company issued to the Class B Investor an aggregate of
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 September 30, 2025 and 2024, the balance of the required statutory reserves was $
| F-31 |
| Table of Contents |
Note 17 – Taxes
Corporation Income Tax
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.
Under the United States of America tax laws, an entity is subject to a
Under the Hong Kong tax laws, an entity, that incorporated under the laws of Hong Kong China, is not subject to income tax if no revenue is generated in Hong Kong.
Under the Enterprise Income Tax (“EIT”) Law of the PRC, an entity is subject to a
The following table reconciles the statutory rate to the Company’s effective tax rate:
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
China Statutory income tax rate |
|
| % |
|
| % |
|
| % | |||
Effect of PRC preferential tax rate and tax exemption |
|
|
|
|
|
|
|
| % | |||
Research and development (“R&D”) tax credit |
|
|
|
|
| % |
|
| % | |||
Exempt income |
|
|
|
|
|
|
|
| % | |||
Non-PRC entities not subject to PRC tax |
|
| % |
| ( | )% |
| ( | )% | |||
Change in valuation allowance |
| ( | )% |
|
| % |
|
| % | |||
Others |
| ( | )% |
| ( | )% |
| ( | )% | |||
Effective tax rate |
|
| % |
|
| % |
|
| % | |||
| F-32 |
| Table of Contents |
Note 17 – Taxes (Continued)
The income tax (benefits) expenses consisted of the following:
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Current income tax expenses (benefits) |
| $ |
|
| $ |
|
| $ | ( | ) | ||
Deferred income tax benefits |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Income tax expenses (benefits) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Deferred tax liabilities and assets attributable to different tax jurisdictions are not offset. Components of deferred tax assets and liabilities were as follows:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
Net operating loss carryforwards |
| $ |
|
| $ |
| ||
Allowance on receivables |
|
|
|
|
|
| ||
Allowance on inventory |
|
|
|
|
|
| ||
Valuation allowance on deferred tax assets |
|
| ( | ) |
|
| ( | ) |
Total |
|
|
|
|
|
| ||
The Company’s PRC subsidiaries had cumulative net operating loss of approximately $
As of each reporting date, management considers evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. On the basis of this evaluation, valuation allowance of $
| F-33 |
| Table of Contents |
Note 18 – Concentration of major customers and suppliers
For the fiscal year ended September 30, 2025, one major customer accounted for
As of September 30, 2025, three major customers accounted for
For the fiscal year ended September 30, 2025, one major supplier accounted for
As of September 30, 2025, three suppliers accounted for approximately
Note 19 – Leases
On October 8, 2021, Zhejiang New Material entered into a lease agreement with Hangzhou Forasen Energy Technology Co., Ltd., to lease approximately
As of September 30, 2025 and 2024, the remaining average lease term was an average of
Supplemental balance sheet information related to operating leases from the Company’s continuing operations was as follows:
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Right-of-use assets under operating leases |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Operating lease liabilities, current |
|
|
|
|
|
| ||
Operating lease liabilities, non-current |
|
|
|
|
|
| ||
Total operating lease liabilities |
|
|
|
|
|
| ||
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 fiscal years ended September 30, 2025, 2024, and 2023, respectively:
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
Activated carbon |
| $ |
|
| $ |
|
| $ |
| |||
Biomass electricity |
|
|
|
|
|
|
|
|
|
| ||
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-34 |
| Table of Contents |
Note 21– Commitments and contingencies
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. The Company’s PRC subsidiaries have not paid adequate social insurance for all its employees, and the Company’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 22 – Disposition of subsidiaries
On January 20, 2025, CN Energy entered into a Share Transfer Agreement (the “Agreement”) with Asia Rubber Resources Limited (“Asia Rubber Resources”). Pursuant to the Agreement, CN Energy agreed to transfer
On April 24, 2025 the Dali City People’s Court issued a ruling, (the “Execution Order”), regarding Yunnan Honghao Forestry Development Co., Ltd. (“Yunnan Honghao”), a wholly owned subsidiary of the Company. The ruling froze the assets of Shenzhen Xiangfeng Trading Co., Ltd. (“Shenzhen”), the original owner of Yunnan Honghao. The effect of the ruling rescinds the acquisition of Yunnan Honhao by the Company back to Shenzhen. Shenzhen will in turn return the cash payments made by the Company and the shares of the Company issued to Shenzhen in connection with the Equity Transfer Agreement (“Purchase Agreement”), dated September 30, 2022, back to the Company.
| F-35 |
| Table of Contents |
The following is a reconciliation of the carrying amounts of major classes of assets and liabilities in the consolidated balance sheets as of September 30, 2025 and 2024.
|
| As of September 30, |
| |||||
|
| 2025 |
|
| 2024 |
| ||
Carrying amount of major classes of assets |
|
|
|
|
|
| ||
Cash and restricted cash |
| $ |
|
| $ |
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Property and equipment, net |
|
|
|
|
|
| ||
Biological assets, net |
|
|
|
|
|
| ||
Land use right, net |
|
|
|
|
|
| ||
Total assets of disposed entities |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Carrying amount of major classes of liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
| ||
Taxes payable |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
|
|
|
|
|
| ||
Total liabilities of disposed entities |
| $ |
|
| $ |
| ||
The following is a reconciliation of the amounts of major classes of operations of disposed entities in the consolidated statements of income (loss) and comprehensive income (loss) for the years ended September 30, 2025 and 2024.
|
| For the Years Ended September 30, |
| |||||
|
| 2025 |
|
| 2024 |
| ||
Revenue |
| $ |
|
| $ |
| ||
Cost of revenues |
|
| ( | ) |
|
| ( | ) |
Gross profit |
|
|
|
|
|
| ||
Operating expenses |
|
| ( | ) |
|
| ( | ) |
Loss from operations |
|
| ( | ) |
|
| ( | ) |
Other (expenses) income |
|
| ( | ) |
|
|
| |
(Loss) income before income tax expenses |
|
| ( | ) |
|
|
| |
Income tax expenses |
|
|
|
|
|
| ||
Net (loss) income |
| ($ |
|
| $ |
| ||
Note 23 – Subsequent events
Management has reviewed events occurring through the date the consolidated financial statements were issued and, except as disclosed elsewhere in the consolidated financial statements, no subsequent events occurred that require accrual or disclosure:
1. On October 22, 2025, CNEY Holdings, LLC, was incorporated under the laws of the State of Utah, the United States of America.
2. On January 16, 2026, CN Energy Group. Inc. (the “Company”) entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Streeterville Capital, LLC, an institutional investor (“Streeterville”), pursuant to which Streeterville purchased from the Company a secured promissory note in the principal amount of $
The Note bears interest at a rate of
The Note is secured by a collateral package that includes (i) a pledge of equity interests and (ii) cash collateral maintained by CNEY Holdings, LLC (“CNEY Holdings”), a wholly owned subsidiary of the Company, in a restricted deposit account pursuant to the
Note 24 – Condensed financial information of the parent company
Pursuant to the requirements of Rule 12‑04(a), 5‑04(c), and 4‑08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirement and concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiaries exceeded 25% of the consolidated net assets of the Company. Therefore, the condensed financial statements of the parent company are included herein.
For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances, or cash dividends without the consent of a third party.
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries” and the respective profit or loss as “Equity in earnings of subsidiaries” on the condensed statements of income (loss).
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods presented. As of September 30, 2025 and 2024, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those separately disclosed in the consolidated financial statements, if any.
| F-36 |
| Table of Contents |
Note 24 – Condensed financial information of the parent company (Continued)
CN ENERGY GROUP. INC.
PARENT COMPANY BALANCE SHEETS
|
| As of |
|
| As of |
| ||
|
| September 30, |
|
| September 30, |
| ||
|
| 2025 |
|
| 2024 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Acquisition reversal receivable |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
|
|
|
|
| ||
Non-current assets |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
|
|
|
| ||
Investment in subsidiaries |
|
|
|
|
|
| ||
Total assets |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Convertible notes |
|
|
|
|
|
| ||
Due to related parties |
|
|
|
|
|
| ||
Remaining acquisition consideration payable |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
|
|
|
|
|
| ||
Total liabilities |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
Class A ordinary share, no par value, unlimited number of shares authorized; 4,988,337 and 272,490 shares issued and outstanding as of September 30, 2025 and 2024, respectively |
|
|
|
|
|
| ||
Class B ordinary share, no par value, unlimited number of shares authorized; 635,419 and 4,028 shares issued and outstanding as of September 30, 2025 and 2024, respectively |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Statutory reserves |
|
|
|
|
|
| ||
(Accumulated deficits) |
|
| ( | ) |
|
| ( | ) |
Accumulated other comprehensive loss |
|
| ( | ) |
|
| ( | ) |
Total shareholders’ equity |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
| $ |
|
| $ |
| ||
| F-37 |
| Table of Contents |
Note 24 – Condensed financial information of the parent company (Continued)
CN ENERGY GROUP. INC.
PARENT COMPANY STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
|
|
|
|
|
|
|
|
|
| |||
General and administrative expenses |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Gain on disposal of subsidiaries |
|
|
|
|
|
|
|
|
| |||
Equity in loss of subsidiaries |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Foreign currency translation (loss) gain |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Comprehensive loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| F-38 |
| Table of Contents |
Note 24 – Condensed financial information of the parent company (Continued)
CN ENERGY GROUP. INC.
PARENT COMPANY STATEMENTS OF CASH FLOWS
|
| For the Years Ended September 30, |
| |||||||||
|
| 2025 |
|
| 2024 |
|
| 2023 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
| |||
Gain on disposal of subsidiaries |
|
| ( | ) |
|
|
|
|
|
| ||
Amortization of debts issuance costs |
|
|
|
|
|
|
|
|
| |||
Issuance of ordinary shares for commitment fee |
|
|
|
|
|
|
|
|
| |||
Interest expenses |
|
|
|
|
|
|
|
|
| |||
Amortization of debts issuance costs |
|
|
|
|
|
|
|
|
| |||
Issuance of ordinary shares for services |
|
|
|
|
|
|
|
|
| |||
Equity in earnings of subsidiaries |
|
|
|
|
|
|
|
|
| |||
Prepaid expenses and other current assets |
|
| ( | ) |
|
|
|
|
|
| ||
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
| |||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables |
|
|
|
|
|
|
|
| ( | ) | ||
Purchase of investments |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Investment in subsidiaries |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Net cash (used in) provided by investing activities |
|
| ( | ) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of ordinary shares |
|
|
|
|
|
|
|
|
| |||
Proceeds from convertible notes |
|
|
|
|
|
|
|
|
| |||
Proceeds from issuance of ordinary shares for warrants exercised |
|
|
|
|
|
|
|
|
| |||
Proceeds from related party loans |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGES IN CASH |
|
|
|
|
| ( | ) |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, beginning of year |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, end of year |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for acquisition |
| $ |
|
|
|
|
| $ |
| |||
Issuance of ordinary shares for convertible notes redemption |
| $ |
|
| $ |
|
| $ |
| |||
Issuance of ordinary shares for commitment fee |
| $ |
|
|
|
|
|
|
| |||
Issuance of ordinary shares for services |
|
|
|
|
|
|
| $ |
| |||
| F-39 |
EXHIBIT 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Wenhua Liu, certify that:
| 1. | I have reviewed this annual report on Form 20-F of CN ENERGY GROUP. INC. (the “Company”); |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Company as of, and for, the periods presented in this report; |
|
|
|
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
|
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: January 30, 2026
| By: | /s/ Wenhua Liu |
|
| Name: | Wenhua Liu |
|
| Title: | Interim Chief Executive Officer |
|
EXHIBIT 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jinwu Huang, certify that:
| 1. | I have reviewed this annual report on Form 20-F of CN ENERGY GROUP. INC. (the “Company”); |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
|
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Company as of, and for, the periods presented in this report; |
|
|
|
| 4. | The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
|
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
|
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
|
|
|
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
| 5. | The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function): |
|
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
|
|
|
|
|
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: January 30, 2026
| By: | /s/ Jinwu Huang |
|
| Name: | Jinwu Huang |
|
| Title: | Chief Financial Officer |
|
EXHIBIT 13.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CN ENERGY GROUP. INC. (the “Company”) on Form 20-F for the year ended September 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wenhua Liu, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: January 30, 2026
| By: | /s/ Wenhua Liu |
|
| Name: | Wenhua Liu |
|
| Title: | Interim Chief Executive Officer |
|
EXHIBIT 13.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CN ENERGY GROUP. INC. (the “Company”) on Form 20-F for the year ended September 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jinwu Huang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: January 30, 2026
| By: | /s/ Jinwu Huang |
|
| Name: | Jinwu Huang |
|
| Title: | Chief Financial Officer |
|
EXHIBIT 15.1
|
|
|
|
上海宇钧（杭州）律师事务所 UNIVERSAL LAW OFFICES OF HANGZHOU |
|
|
|
|
Date: January 30, 2026
To: CN ENERGY GROUP. INC.
Building 1-B, Room 303, No. 268 Shiniu Road
Liandu District, Lishui City, Zhejiang Province
The People’s Republic of China
Dear Mesdames/Sirs,
As we has been acting as the company's “PRC Counsel” since February 6, 2024, we consent to the references to our firm under the mentions of “PRC Counsel” in connection with the annual report on Form 20-F of CN ENERGY GROUP. INC. (the “Company”) for the fiscal year ended September 30, 2025, including all amendments or supplements thereto (the “Annual Report”), filed by the Company with the Securities and Exchange Commission (the “SEC”) on or about January 30, 2025 under the U.S. Securities Act of 1933 (as amended). We also consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, or under the U.S. Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.
| Sincerely yours, |
|
|
|
|
|
|
| /s/ Mixue Shen |
|
|
| Mixue Shen |
|
|
| Attorney at Law |
|
|
| Universal Law Offices Of Hangzhou |
|
|
| 地址：浙江省杭州市萧山区建设四路10907、10909、10911、10913号 |
| Add：Nos. 10907, 10909, 10911 and 10913, Jianshe 4th Road, Xiaoshan District, Hangzhou, Zhejiang Province, PRC |
|
|
| 电话 Tel：0571-57158338 传真 Fax：0571-57158338 |
EXHIBIT 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion of our Auditors’ Report, dated January 30, 2026, on the consolidated financial statements of CN Energy Group. Inc. and its subsidiaries (“Auditors’ Report”), in this Annual Report on Form 20-F for the year ended September 30, 2025 and the incorporation by reference of our Auditors’ Report into the Registration Statement on Form F-3 filed with the SEC on December 22, 2025 (File No. 333-292319), including all prospectus supplements thereof.
| /s/ Enrome LLP |
|
|
|
|
|
|
| Singapore |
|
|
|
|
|
|
| January 30, 2026 |
|
|
| Enrome LLP | 143 Cecil Street #19-03/04 | admin@enrome-group.com |
|
| GB Building Singapore 069542 | www.enrome-group.com |
EXHIBIT 21.1
CN ENERGY GROUP. INC.
中北能源集团有限公司
LIST OF SUBSIDIARIES OF THE REGISTRANT
| Name of Subsidiary |
| Jurisdiction of Incorporation or Organization |
| CN Energy USA Inc. |
| Delaware |
| Pathenbot Group Inc. |
| California |
| CNEY Holdings LLC |
| Utah |
| Ewforest Group Limited |
| Hong Kong |
| MZ Mining International Co., Ltd |
| Hong Kong |
| Hangzhou Tanmulaixin Activated Carbon Co., Ltd. |
| People’s Republic of China |
| Zhejiang CN Energy New Material Co., Ltd. |
| People’s Republic of China |
| Zhoushan Xinyue Trading Co., Ltd. |
| People’s Republic of China |
| MZ Pintai Mining (Zhejiang) Co., Ltd |
| People’s Republic of China |
| Yunnan Yuemu Agriculture and Forestry Technology Co., Ltd |
| People’s Republic of China |