CREG 10-Q
Smart Powerr Corp. (CREG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Rong Cheng Yun Gu Building Keji 3rd Road Shaan Xi Province, | ||
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
| N/A |
(Former name, former address and former fiscal year, if changed since last report)
Securities 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 pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 13, 2025, there were
SMART POWERR CORP.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2025
TABLE OF CONTENTS
| Page | |||
| Cautionary Note Regarding Forward-Looking Statements | ii | ||
| PART I – FINANCIAL INFORMATION | 1 | ||
| Item 1. | Financial Statements | 1 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27 | |
| Item 4. | Controls and Procedures | 28 | |
| PART II – OTHER INFORMATION | 29 | ||
| Item 1. | Legal Proceedings | 29 | |
| Item 1A. | Risk Factors | 29 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 | |
| Item 3. | Defaults Upon Senior Securities | 29 | |
| Item 4. | Mine Safety Disclosures | 29 | |
| Item 5. | Other Information | 29 | |
| Item 6. | Exhibits | 30 | |
| SIGNATURES | 36 | ||
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”), including, without limitation, statements under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of 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”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to those discussed under the heading “Risk Factors” in any of our filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
ii
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SMART POWERR CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2025 (UNAUDITED) AND DECEMBER 31, 2024
(IN U.S. DOLLARS, EXCEPT FOR SHARE DATA)
| UNAUDITED | AUDITED | |||||||
| SEPTEMBER 30, 2025 | DECEMBER 31, 2024 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| VAT receivable | ||||||||
| Advance to supplier | ||||||||
| Short term loan receivables | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Right-of-use asset, net | ||||||||
| Intangible Asset, net | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Contract liabilities | ||||||||
| Taxes payable | ||||||||
| Accrued interest on notes | ||||||||
| Notes payable, net of unamortized OID of $ | ||||||||
| Accrued liabilities and other payables | ||||||||
| Lease liability | ||||||||
| Payable for purchase of | ||||||||
| Interest payable on entrusted loans | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Income tax payable | ||||||||
| Lease liability | ||||||||
| Total noncurrent liabilities | ||||||||
| Total liabilities | ||||||||
| CONTINGENCIES AND COMMITMENTS | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements
1
SMART POWERR CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| NINE MONTHS ENDED SEPTEMBER 30, | THREE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | ||||||||||||||||
| Cost of revenues | ( | ) | ( | ) | ||||||||||||
| Gross Profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Loss on note conversion | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ( | ) | ||||||||||||||
| Total non-operating income (expenses), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation income | ||||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | ||||||||||||
| Weighted average shares used for computing basic and diluted loss per share | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements
2
SMART POWERR CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2025 and 2024
(UNAUDITED)
| Common Stock | Paid in | Statutory | Accumulated Other | Accumulated | Total stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Reserves | Loss | Deficit | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| offering of the common stock | ||||||||||||||||||||||||||||
| Balance as of March 31, 2025 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of long-term notes into common shares | ||||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| Balance as of June 30, 2025 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of long-term notes into common shares | ||||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| Offering of the common stock | ||||||||||||||||||||||||||||
| Balance as of SEPTEMBER 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Common Stock | Paid in | Statutory | Other Comprehensive | Accumulated | ||||||||||||||||||||||||
| Shares | Amount | Capital | Reserves | Loss | Deficit | Total | ||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of long-term notes into common shares | ||||||||||||||||||||||||||||
| Transfer to statutory reserves | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of long-term notes into common shares | ( | ) | ||||||||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||
| Transfer to statutory reserves | - | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Conversion of long-term notes into common shares | ||||||||||||||||||||||||||||
| Transfer to statutory reserves | - | |||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| Balance as of SEPTEMBER 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
3
SMART POWERR CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| NINE MONTHS PERIOD ENDED SEPTEMBER 30, | ||||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Operating lease expenses | ||||||||
| Loss on note conversion | ||||||||
| Stock compensation expense | ||||||||
| Interest expense | ||||||||
| Advance to supplier | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Contract Liabilities | ||||||||
| Taxes payable | ( | ) | ||||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Net cash generated from (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Short term loan receivable increase | ||||||||
| Short term loan receivable collection | ||||||||
| Purchase of Fixed assets | ( | ) | ||||||
| Net cash generated from investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITY: | ||||||||
| Issuance of common stock | ||||||||
| Net cash provided by financing activity | ||||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH | ||||||||
| NET INCREASE IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| Supplemental disclosure of cash information: | ||||||||
| Income tax paid | $ | |||||||
| Interest paid | $ | |||||||
| Supplemental disclosure of non-cash information | ||||||||
| Right-of-use assets obtained in exchange for lease liabilities | ||||||||
| Offering of the common stock | ||||||||
| Conversion of notes into common shares | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements
4
SMART POWERR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2025 AND 2024
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Smart Powerr Corp. (the “Company” “we” or “SPC”) was incorporated in Nevada, and was formerly known as China Recycling Entergy Corporation. The Company was incorporated on May 8, 1980 as Boulder Brewing Company under the laws of the State of Colorado. On September 6, 2001, the Company changed its state of incorporation to the State of Nevada. In 2004, the Company changed its name from Boulder Brewing Company to China Digital Wireless, Inc. and on March 8, 2007, again changed its name from China Digital Wireless, Inc. to China Recycling Energy Corporation, and most recently to Smart Powerr Corp. in March of 2022. The Company, through its subsidiaries, provides energy saving solutions and services, including selling and leasing energy saving systems and equipment to customers, project investment, investment management, economic information consulting, technical services, financial leasing, purchase of financial leasing assets, disposal and repair of financial leasing assets, consulting and ensuring of financial leasing transactions in the Peoples Republic of China (“PRC”).
The Company is primarily
conducted through its wholly-owned subsidiaries, Yinghua and Sifeng, Sifeng’s wholly-owned subsidiaries, Huahong and Shanghai TCH,
Shanghai TCH’s wholly-owned subsidiaries, Xi’an TCH, Xi’an TCH’s wholly-owned subsidiary Erdos TCH and Xi’an
TCH’s
The Company is in the process of transforming and expanding into an energy storage integrated solution provider. and plan to pursue disciplined and targeted expansion strategies for market areas we currently do not serve. We actively seek and explore opportunities to apply energy storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes, large scale photovoltaic (PV) and wind power stations, remote islands without electricity, and smart energy cities with multi-energy supplies.
The Company’s organizational chart as of September 30, 2025 is as follows:
5
Erdos TCH – Joint Venture
On April 14, 2009, the
Company formed a joint venture (the “JV”) with Erdos Metallurgy Co., Ltd. (“Erdos”) to recycle waste heat from
Erdos’ metal refining plants to generate power and steam to be sold back to Erdos. The name of the JV was Inner Mongolia Erdos TCH
Energy Saving Development Co., Ltd. (“Erdos TCH”) with a term of
Formation of Zhongxun
On March 24, 2014, Xi’an
TCH incorporated a subsidiary, Zhongxun Energy Investment (Beijing) Co., Ltd. (“Zhongxun”) with registered capital of $
Formation of Yinghua
On February 11, 2015,
the Company incorporated a subsidiary, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) with registered capital of
$
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements (“CFS”) are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of the Company’s operating entities is Chinese Renminbi (“RMB”). The accompanying consolidated financial statements are translated from RMB and presented in U.S. dollars (“USD”).
Principle of Consolidation
The CFS
include the accounts of SPC and its subsidiaries, Shanghai Yinghua Financial Leasing Co., Ltd. (“Yinghua”) and Sifang
Holdings; Sifang Holdings’ wholly owned subsidiaries, Huahong New Energy Technology Co., Ltd. (“Huahong”) and Shanghai
TCH Energy Tech Co., Ltd. (“Shanghai TCH”); Shanghai TCH’s wholly-owned subsidiary, Xi’an TCH Energy Tech Co.,
Ltd. (“Xi’an TCH”); and Xi’an TCH’s subsidiaries, 1) Erdos TCH Energy Saving Development Co., Ltd (“Erdos
TCH”),
6
Uses and Sources of Liquidity
For the
nine months ended September 30, 2025 and 2024, the Company had a net income of $
Use of Estimates
In preparing these CFS in accordance with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets as well as revenues and expenses during the period reported. Actual results may differ from these estimates. On an on-going basis, management evaluates its estimates, including those allowances for bad debt, income taxes, and contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources.
Revenue Recognition
A) Sales-type Leasing and Related Revenue Recognition
The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842. The Company’s sales type lease contracts for revenue recognition fall under ASC 842. During the nine months ended September 30, 2025 and 2024, the Company did not sell any new power generating projects.
The Company constructs and leases waste energy recycling power generating projects to its customers. The Company typically transfers legal ownership of the waste energy recycling power generating projects to its customers at the end of the lease.
The Company finances construction of waste energy recycling power generating projects. The sales and cost of sales are recognized at the inception of the lease, which is when control is transferred to the lessee. The Company accounts for the transfer of control as a sales type lease in accordance with ASC 842-10-25-2. The underlying asset is derecognized, and revenue is recorded when collection of payments is probable. This is in accordance with the revenue recognition principle in ASC 606 - Revenue from contracts with customers. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payments consist of the gross lease payments net of executory costs and contingent rentals, if any. Unearned interest is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the inception of the lease, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of value-added tax.
7
B) Contingent Rental Income
The Company records income from actual electricity generated of each project in the period the income is earned, which is when the electricity is generated. Contingent rent is not part of minimum lease payments.
C) Operation and Maintenance Income
The Company
records income from perform operation and maintenance services to third parties in the period the income is earned, which is based on
the service performance fulfilled over time. During the nine months ended September 30, 2025, the Company signed RMB
Operating Leases
The Company determines if an arrangement is a lease or contains a lease at inception. Lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for an operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized impairment of ROU assets as of September 30, 2025 and December 31, 2024.
Operating leases are included in ROU and lease liabilities (current and non-current), on the consolidated balance sheets.
Cash
Cash includes cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date.
Accounts Receivable
The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2025 and December 31, 2024, the Company had accounts receivable.
Advance to suppliers
Advance to suppliers consist of balances paid to suppliers for materials that have not been received. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance.
Short term loan receivables
The Company provided loans to certain third parties for the purpose of making use of its cash.
8
The Company monitors all loans receivable for delinquency and provides for estimated losses for specific receivables that are not likely to be collected. Management periodically assesses the collectability of these loans receivable. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of September 30, 2025 and December 31, 2024, the Company did not accrue allowance against short term loan receivables.
Concentration of Credit Risk
Cash includes
cash on hand and demand deposits in accounts maintained within China. Balances at financial institutions and state-owned banks within the
PRC are covered by insurance up to RMB
Certain other financial instruments, which subject the Company to concentration of credit risk, consist of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its customers’ financial condition and customer payment practices to minimize collection risk on accounts receivable.
The operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC.
Intangible Asset, net
Intangible
| Software |
Impairment of Long-lived Assets
In accordance with FASB ASC Topic 360, “Property, Plant, and Equipment,” the Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If the total expected undiscounted future net cash flows are less than the carrying amount of the asset, a loss is recognized for the difference between the fair value (“FV”) and carrying amount of the asset. The Company did not record any impairment for the three months ended September 30, 2025 and 2024.
Contract liabilities
Contract liabilities represent advance payments collected from third-party payers. They represent obligations that will be satisfied by providing services to the customer.
As of September 30, 2025 and December 31, 2024, deferred tax assets consisted of the following:
| For the Years Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Balance at the beginning of the period/year | $ | $ | ||||||
| Addition of cash received in advance | ||||||||
| Deduction of revenue recognition | ||||||||
| Balance at the end of the period/year | $ | $ | ||||||
Accounts and other payables
Accounts and other payables represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid. They are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities.
Accounts and other payables are initially recognized as fair value, and subsequently carried at amortized cost using the effective interest method.
9
Borrowings
Borrowings are presented as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the financial year end date, in which case they are presented as non-current liabilities.
Borrowings are initially recognized at fair value (net of transaction costs) and subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using an effective interest method.
Borrowing costs are recognized in profit or loss using the effective interest method.
Cost of Sales
Cost of sales consists primarily of the direct material of the power generating system and expenses incurred directly for project construction for sales-type leasing and sales tax and additions for contingent rental income.
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under FASB ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the CFS in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income. At September 30, 2025 and December 31, 2024, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Statement of Cash Flows
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, other receivables, accounts payable, accrued liabilities and short-term debts, the carrying amounts approximate their FVs due to their short maturities. Receivables on sales-type leases are based on interest rates implicit in the lease.
10
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the FV of financial instruments held by the Company. FASB ASC Topic 825, “Financial Instruments,” defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements for FV measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to FV measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging.”
Stock-Based Compensation
The Company accounts for share-based compensation awards to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date FV of the equity instrument issued and recognized as compensation expense over the requisite service period.
The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the FV of the equity instrument issued or committed to be issued, as this is more reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.
The Company follows ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.
Basic and Diluted Earnings per Share
The Company presents net income (loss) per share (“EPS”) in accordance with FASB ASC Topic 260, “Earning Per Share.” Accordingly, basic income (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of shares outstanding, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income by the weighted-average number of common shares outstanding as well as common share equivalents outstanding for the period determined using the treasury-stock method for stock options and warrants and the if-converted method for convertible notes. The Company made an accounting policy election to use the if-converted method for convertible securities that are eligible to receive common stock dividends, if declared. Diluted EPS reflect the potential dilution that could occur based on the exercise of stock options or warrants or conversion of convertible securities using the if-converted method.
11
For the
nine months ended September 30, 2025 and 2024, the basic and diluted income (loss) per share were the same due to the anti-dilutive features
of the warrants and options. For the nine months ended September 30, 2025 and 2024,
Foreign Currency Translation and Comprehensive Income (Loss)
The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into U.S. Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income.” Gains and losses resulting from foreign currency transactions are included in income.
The Company follows FASB ASC Topic 220, “Comprehensive Income.” Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.
Segment Reporting
FASB ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making operating
decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure,
or any other manner in which management disaggregates a company. FASB ASC Topic 280 has no effect on the Company’s CFS as substantially
all of the Company’s operations are conducted in
New Accounting Pronouncements
In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The ASU 2025-01 amends the effective date of Update 2024-03 to clarify 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. This update is aimed to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). The Company’s management does not believe the adoption of ASU 2025-01 will have a material impact on its financial statements and disclosures.
In April 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. The ASU 2025-04 amendments in Accounting Standards Update No. 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements—Share Based Consideration Payable to a Customer, require that a grantor apply the guidance in Topic 718, Compensation—Stock Compensation, to measure and classify share-based consideration payable to a customer (the “Topic 718 approach”). The Company’s management currently does not have offer to provide consideration to a customer (or to other parties that purchase the entity’s goods or services from the customer) to incentivize the customer (or its customers) to purchase goods and services, and does not believe the adoption of ASU 2025-01 will have a material impact on its financial statements and disclosures.
In May 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in this Update introduce a practical expedient for all entities and an accounting policy election for entities other than public business entities related to applying Subtopic 326-20 to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. (1) Practical expedient. In developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. (2) Accounting policy election. An entity other than a public business entity that elects the practical expedient is permitted to make an accounting policy election to consider collection activity after the balance sheet date when estimating expected credit losses. The amendments will be effective for annual reporting periods beginning after December 15, 2025, 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. The Company’s management does not believe the adoption of ASU 2025-05 will have a material impact on its financial statements and disclosures.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS.
12
3. SHORT-TERM LOAN RECEIVABLE
As of December
31, 2024, the Company had $
As of September 30, 2025, there is outstanding short-term loan receivables.
4. ADVANCE TO SUPPLIERS
By 2025,
Zhenran Limited had completed the contract and developed the smart cloud platform. A total of $
On June
19, 2023, the Company entered a purchase agreement with Hubei Bangyu New Energy Technology Co., Ltd. (“Bangyu”). The total
contract amount was $
On August
23, 2021, the Company entered a Market Research and Project Development Service Agreement with a consulting company in Xi’an
for a service period of 12 months. The consulting company will perform market research for new energy industry including photovoltaic
and energy storage, develop potential new customers and due diligence check, assisting the Company for business cooperation negotiation
and relevant agreements preparation. Total contract amount is $
As of September 30, 2025, there is outstanding short-term loan receivables.
13
5. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following as of September 30, 2025 and December 31, 2024:
| 2025 | 2024 | |||||||
| Education and union fund and social insurance payable | $ | $ | ||||||
| Accrued payroll and welfare | ||||||||
| Accrued litigation | ||||||||
| professional fee | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Accrued litigation was mainly for court enforcement fee, fee to lawyer, penalty and other fees (see Note 14).
6. TAXES PAYABLE
Taxes payable consisted of the following as of September 30, 2025 and December 31, 2024:
| 2025 | 2024 | |||||||
| Income tax | $ | $ | ||||||
| Other | ||||||||
| Total | ||||||||
| Current | ||||||||
| Noncurrent | $ | - | $ | |||||
As of September
30, 2025, income tax payable included $
7. DEFERRED TAX, NET
Deferred tax assets resulted from asset impairment loss which was temporarily non-tax deductible for tax purposes but expensed in accordance with US GAAP; interest income in sales-type leases which was recognized as income for tax purposes but not for book purpose as it did not meet revenue recognition in accordance with US GAAP; accrued employee social insurance that can be deducted for tax purposes in the future, and the difference between tax and accounting basis of cost of fixed assets which was capitalized for tax purposes and expensed as part of cost of systems in accordance with US GAAP. Deferred tax liability arose from the difference between tax and accounting basis of net investment in sales-type leases.
As of September 30, 2025 and December 31, 2024, deferred tax assets consisted of the following:
| 2025 | 2024 | |||||||
| Accrued expenses | $ | $ | ||||||
| Write-off Erdos TCH net investment in sales-type leases * | ||||||||
| Impairment loss of Xi’an TCH’s investment into the HYREF fund | ||||||||
| US NOL | ||||||||
| PRC NOL | ||||||||
| Total deferred tax assets | ||||||||
| Less: valuation allowance for deferred tax assets | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
| * | This represents the tax basis of Erdos TCH investment in sales type leases, which was written off under US GAAP upon modification of lease terms, which made the lease payments contingent upon generation of electricity. |
14
8. ENTRUSTED LOAN PAYABLE
Entrusted Loan Payable (HYREF Loan)
The HYREF
Fund was established in July 2013 with a total fund of RMB
The term
of this loan was for
Repayment of HYREF loan
1. Transfer of Chengli project as partial repayment
On December
29, 2018, Xi’an Zhonghong, Xi’an TCH, HYREF, Guohua Ku, and Chonggong Bai entered into a CDQ WHPG Station Fixed Assets Transfer
Agreement, pursuant to which Xi’an Zhonghong transferred Chengli CDQ WHPG station as the repayment for the loan of RMB
Xi’an TCH is a secondary limited partner of HYREF. The FV of the CDQ WHPG station applied in the transfer was determined by the parties based upon the appraisal report issued by Zhonglian Assets Appraisal Group (Shaanxi) Co., Ltd. as of August 15, 2018. However, per the discussion below, Xi’an Zhonghong, Xi’an TCH, Guohua Ku and Chonggong Bai (the “Buyers”) entered into a Buy Back Agreement, also agreed to buy back the Station when conditions under the Buy Back Agreement are met. Due to the Buy Back agreement, the loan was not deemed repaid, and therefore the Company recognized Chengli project as assets subject to buyback and kept the loan payable remained recognized under ASC 405-20-40-1 as of December 31, 2020. The Buy Back agreement was terminated in April 2021 (see 2 below for detail).
2. Buy Back Agreement
On December 29, 2018, Xi’an TCH, Xi’an Zhonghong, HYREF, Guohua Ku, Chonggong Bai and Xi’an Hanneng Enterprises Management Consulting Co. Ltd. (“Xi’an Hanneng”) entered into a Buy Back Agreement.
Pursuant
to the Buy Back Agreement, the Buyers jointly and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng which
was transferred to HYREF by Chonggong Bai (see 3 below), and a CDQ WHPG station in Boxing County which was transferred to HYREF by Xi’an
Zhonghong. The buy-back price for the Xi’an Hanneng’s equity was based on the higher of (i) the market price of the equity
shares at the time of buy-back; or (ii) the original transfer price of the equity shares plus bank interest. The buy-back price for the
Station was based on the higher of (i) the FV of the Station on the date transferred; or (ii) the loan balance at the date of the transfer
plus interest accrued through that date. HYREF could request that the Buyers buy back the equity shares of Xi’an Hanneng and/or
the CDQ WHPG station if one of the following conditions is met: (i) HYREF holds the equity shares of Xi’an Hanneng until December
31, 2021; (ii) Xi’an Huaxin New Energy Co., Ltd., is delisted from The National Equities Exchange And Quotations Co., Ltd., a Chinese
over-the-counter trading system (the “NEEQ”); (iii) Xi’an Huaxin New Energy, or any of the Buyers or its affiliates
has a credit problem, including not being able to issue an auditor report or standard auditor report or any control person or executive
of the Buyers is involved in crimes and is under prosecution or has other material credit problems, to HYREF’s reasonable belief;
(iv) if Xi’an Zhonghong fails to timely make repayment on principal or interest of the loan agreement, its supplemental agreement
or extension agreement; (v) the Buyers or any party to the Debt Repayment Agreement materially breaches the Debt Repayment Agreement or
its related transaction documents, including but not limited to the Share Transfer Agreement, the Pledged Assets Transfer Agreement, the
Entrusted Loan Agreement and their guarantee agreements and supplemental agreements. Due to halted trading of Huaxin stock by NEEQ
for not filing its 2018 annual report, on December 19, 2019, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai jointly
and severally agreed to buy back all outstanding capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai
earlier. The total buy back price was RMB
15
On April
9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement (termination
agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of
the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from the buyers other
than keeping the CDQ WHPG station from Chengli project. The Company recorded a gain of approximately $
3. Transfer of Xuzhou Huayu Project and Shenqiu Phase I & II project to Mr. Bai for partial repayment of HYREF loan
On January
4, 2019, Xi’an Zhonghong, Xi’an TCH, and Mr. Chonggong Bai entered into a Projects Transfer Agreement, pursuant to which Xi’an
Zhonghong transferred a CDQ WHPG station (under construction) located in Xuzhou City for Xuzhou Huayu Coking Co., Ltd. (“Xuzhou
Huayu Project”) to Mr. Bai for RMB
On February 15, 2019, Xi’an Zhonghong completed the transfer of the Xuzhou Huayu Project and Xi’an TCH completed the transfer of Shenqiu Phase I and II Projects to Mr. Bai, and on January 10, 2019, Mr. Bai transferred all the equity shares of his wholly owned company, Xi’an Hanneng, to HYREF as repayment of Xi’an Zhonghong’s loan to HYREF as consideration for the transfer of the Xuzhou Huayu Project and Shenqiu Phase I and II Projects.
Xi’an
Hanneng is a holding company and was supposed to own
On December
19, 2019, Xi’an TCH, Xi’an Zhonghong, Guohua Ku and Chonggong Bai jointly and severally agreed to buy back all outstanding
capital equity of Xi’an Hanneng which was transferred to HYREF by Chonggong Bai earlier. The total buy back price was RMB
4. The lender
agreed to extend the repayment of RMB
Xi’an
TCH had investment RMB
As of September 30 2025, Xi’an TCH has repaid
the principal of RMB
16
9. NOTE PAYABLE, NET
Promissory Notes in December 2020
On December
4, 2020, the Company entered into a Note Purchase Agreement with an institutional investor, pursuant to which the Company issued the Purchaser
a Promissory Note of $
During the
year ended December 31, 2021, the Company entered into several Exchange Agreements with the lender, pursuant to the Agreements, the Company
and Lender partitioned new Promissory Notes of $
Promissory Notes in April 2021
On April 2, 2021, the Company
entered into a Note Purchase Agreement with an institutional investor, pursuant to which the Company issued to the Purchaser a Promissory
Note of $
17
10. STOCKHOLDERS’ EQUITY
Warrants
Following is a summary of the activities of warrants that were issued from equity financing for the year ended September 30, 2025:
| Number of Warrants | Average Exercise Price | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding at January 1, 2025 | ||||||||||||
| Exercisable at January 1, 2025 | ||||||||||||
| Granted | - | |||||||||||
| Exchanged | - | |||||||||||
| Forfeited | - | |||||||||||
| Expired | - | |||||||||||
| Outstanding at September 30, 2025 | ||||||||||||
| Exercisable at September 30, 2025 | ||||||||||||
11. STOCK-BASED COMPENSATION PLAN
Options to Employees and Directors
On June
19, 2015, the stockholders of the Company approved the China Recycling Energy Corporation Omnibus Equity Plan (the “Plan”)
at its annual meeting. The total shares of Common Stock authorized for issuance during the term of the Plan is
The following table summarizes option activity with respect to employees and independent directors for the year ended September 30, 2025:
| Number of Shares | Average Exercise Price per Share | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding at January 1, 2025 | $ | |||||||||||
| Exercisable at January 1, 2025 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding at September 30, 2025 | $ | |||||||||||
| Exercisable at September 30, 2025 | $ | |||||||||||
Restricted Stock
In April
2025, the Compensation Committee of the Company, which administers the Plan, granted two employees
The Company recognized US$
18
12. INCOME TAX
The Company’s
Chinese subsidiaries are governed by the Income Tax Law of the PRC concerning privately-run enterprises, which are generally subject to
tax at
The Company’s
subsidiaries generate all of their income from their PRC operations. All of the Company’s Chinese subsidiaries’ effective
income tax rate for 2024 and 2023 was
There is no income tax for companies domiciled in the Cayman Islands. Accordingly, the Company’s CFS do not present any income tax provisions related to Cayman Islands tax jurisdiction, where Sifang Holding is domiciled.
The US parent company,
SPC is taxed in the US and, as of September 30, 2025, had net operating loss (“NOL”) carry forwards for income taxes of $
As of September
30, 2025, the Company’s PRC subsidiaries had $
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine months ended September 30, 2025 and 2024:
| 2025 | 2024 | |||||||
| U.S. statutory rates benefit | ( | )% | ( | )% | ||||
| Tax rate difference – current provision | % | ( | )% | |||||
| Permanent differences | ( | )% | % | |||||
| Change in valuation allowance | % | % | ||||||
| Tax expense per financial statements | % | % | ||||||
The provision for income tax expense for the nine months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Income tax expense – current | $ | $ | ||||||
| Total income tax expense | $ | $ | ||||||
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended September 30, 2025 and 2024:
| 2025 | 2024 | |||||||
| U.S. statutory rates benefit | ( | )% | ( | )% | ||||
| Tax rate difference – current provision | % | ( | )% | |||||
| Permanent differences | | % | % | |||||
| Change in valuation allowance | % | % | ||||||
| Tax expense per financial statements | % | % | ||||||
The provision for income tax expense (benefit) for the three months ended September 30, 2025 and 2024 consisted of the following:
| 2025 | 2024 | |||||||
| Income tax expense – current | $ | $ | ||||||
| Total income tax expense | $ | $ | ||||||
19
13. STATUTORY RESERVES
Pursuant to the corporate law of the PRC effective January 1, 2006, the Company is only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Surplus Reserve Fund
The Company’s
Chinese subsidiaries are required to transfer
The surplus
reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may
be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their
shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such
issue is not less than
The maximum
statutory reserve amount has not been reached for any subsidiary.
| Name of Chinese Subsidiaries | Registered Capital | Maximum Statutory Reserve Amount | Statutory reserve at September 30, 2025 | Statutory reserve at December 31, 2024 | ||||||||
| Shanghai TCH | $ | $ | ¥ | ¥ | ||||||||
| Xi’an TCH | ¥ | ¥ | ¥ | ¥ | ||||||||
| Erdos TCH | ¥ | ¥ | ¥ | ¥ | ||||||||
| Xi’an Zhonghong | ¥ | ¥ | Did not accrue yet due to accumulated deficit | Did not accrue yet due to accumulated deficit | ||||||||
| Shaanxi Huahong | $ | $ | Did not accrue yet due to accumulated deficit | Did not accrue yet due to accumulated deficit | ||||||||
| Zhongxun | ¥ | ¥ | Did not accrue yet due to accumulated deficit | Did not accrue yet due to accumulated deficit | ||||||||
Common Welfare Fund
The common
welfare fund is a voluntary fund to which the Company can transfer
20
14. CONTINGENCIES
China maintains a “closed” capital account, meaning companies, banks, and individuals cannot move money in or out of the country except in accordance with strict rules. The People’s Bank of China (PBOC) and State Administration of Foreign Exchange (SAFE) regulate the flow of foreign exchange in and out of the country. For inward or outward foreign currency transactions, the Company needs to make a timely declaration to the bank with sufficient supporting documents to declare the nature of the business transaction. The Company’s sales, purchases and expense transactions are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. Remittances in currencies other than RMB may require certain supporting documentation in order to make the remittance.
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Litigation
1) In November
2019, Beijing Hongyuan Recycling Energy Investment Center (“BIPC”), or Hongyuan, filed a lawsuit with the Beijing Intermediate
People’s Court against Xi’an TCH to compel Xi’an TCH to repurchase certain stock pursuant to a stock repurchase option
agreement. On April 9, 2021, the court rendered a judgment in favor of Hongyuan. Xi’an TCH filed a motion for retrial to High People’s
Court of Beijing on April 13, 2022, because Xi’an TCH paid RMB
As of this
report date, Xi’an Zhonghong is waiting for Court’s decision on retrial petition that was submitted in April 2022. During
this waiting period, BIPC entered the execution procedure, and there is a balance of RMB
2) On June
28, 2021, Beijing No.4 Intermediate People’s Court of Beijing entered into a judgement that Xi’an Zhonghong Technology Co.,
Ltd. should pay the loan principal of RMB
In November 2024,
15. LEASE
On January
1, 2024, Xi’an TCH entered into a lease for its office from January 1, 2024 through December 31, 2026. The monthly rent was
RMB
The Company’s operating ROU assets and lease liabilities were as follows:
| September 30, 2025 | December 31, 2024 | |||||||
| Right-of-use assets, net | $ | $ | ||||||
| Current lease liabilities | $ | $ | ||||||
| Non-current lease liabilities | ||||||||
| Total lease liabilities | ||||||||
21
The components of lease costs, lease term and discount rate with respect of the office lease with an initial term of more than 12 months are as follows:
| September 30, 2025 | December 31, 2024 | |||||||
| Operating lease cost – amortization of ROU | $ | $ | ||||||
| Operating lease cost – interest expense on lease liability | $ | $ | ||||||
| Weighted Average Remaining Lease Term - Operating leases | ||||||||
| Weighted Average Discount Rate - Operating leases | % | % | ||||||
The following is a schedule, by years, of maturities of the office lease liabilities as of September 30, 2025:
| For the year ended September 30, 2025, | $ | |||
| For the year ended September 30, 2026 | $ | |||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities |
Employment Agreement
On May 6, 2024, the Company
entered another employment agreement with Mr. Shi for 24 months with monthly salary of RMB
16. SUBSEQUENT EVENTS
The Company previously sold and issued to Bucktown
Capital, LLC certain Promissory Note dated April 2, 2021 in the original principal amount of $
On October 13, 2025, the compensation committee
(the “Compensation Committee”) of the Company’s board of directors (the “Board”) and the Board adopted the Inducement
Plan, pursuant to which the Company reserved up to
On October 15, 2025, the Company granted
On October 23, 2025, the Company received entered
into securities purchase agreements with certain accredited investors (the “Investors”), pursuant to which the Company agreed
to issue and sell, in a private placement (the “Private Placement”), an aggregate of
The Company issued the
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Report and other reports filed by the Company from time to time with the SEC (collectively the “filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “may”, “will”, “should”, “would”, “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors (including the statements in the section “results of operations” below), and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Report, which attempts to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations, and prospects.
Our financial statements are prepared in US Dollars and in accordance with accounting principles generally accepted in the United States. See “Foreign Currency Translation and Comprehensive Income (Loss)” below for information concerning the exchange rates at which Renminbi (“RMB”) were translated into US Dollars (“USD”) at various pertinent dates and for pertinent periods.
Overview
RESULTS OF OPERATIONS
Comparison of Operating Results for the years ended September 30, 2025 and 2024
The following table sets forth our operating results for the designated periods, expressed as a percentage of net sales.
| 2025 | % of Sales | 2024 | % of Sales | |||||||||||||
| Sales | $ | 173,659 | 100 | % | $ | - | - | % | ||||||||
| Cost of sales | (94,028 | ) | (54 | )% | - | - | % | |||||||||
| Gross profit | 79,631 | 46 | % | - | - | % | ||||||||||
| Total operating expenses | 2,480,809 | 1,429 | % | 747,540 | - | % | ||||||||||
| Loss from operations | (2,401,178 | ) | (1,383 | )% | (747,540 | ) | - | % | ||||||||
| Total non-operating income (expenses), net | 10,965 | 6 | % | (190,577 | ) | - | % | |||||||||
| Loss before income tax | (2,390,213 | ) | (1,376 | )% | (938,117 | ) | - | % | ||||||||
| Income tax expense | 39,437 | 23 | % | 14,168 | - | % | ||||||||||
| Net loss | (2,429,650 | ) | (1,399 | )% | $ | (952,285 | ) | - | % | |||||||
SALES.
Total sales for the nine months ended September 30, 2025, amounted to $ 173,659. The company signed an Operation and Maintenance Contract for a power station. The contract has total amount RMB1.8 million (US$0.2 million), starting from March 1, 2025 to February 28, 2035 for 10 years with a third party. The Company recognized the revenue based on the time period.
COST OF SALES.
Cost of sales for the nine months ended September 30, 2025, was $94,028.
GROSS PROFIT.
For the nine months ended September 30, 2025, the gross margin was 46%.
OPERATING EXPENSES.
Operating expenses consisted of general and administrative expenses (“G&A”) totaling $2,480,809 for the nine months ended September 30, 2025, compared to $747,540 for the nine months ended September 30, 2024. This represented an increase of $1,733,269 year-over-year. The increase was mainly attributable to an increase in financing costs of $948,648 and share-based compensation of $831,520.
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NET NON-OPERATING INCOME (EXPENSES).
Net non-operating expenses consisted of gain or loss from note conversion, interest income, interest expenses, and other miscellaneous expenses. For the nine months ended September 30, 2025, net non-operating income were $10,965 compared to non-operating expenses of $190,577 for the nine months ended September 30, 2024. The primary reason was the provision of financial support to other companies, which generated interest income of $98,999, coupled with the reversal of a $200,000 provision for impaired prepayments, offsetting by the interest expenses of $251,414.
INCOME TAX EXPENSE.
Income tax expense was $39,437 for the nine months ended September 30, 2025, compared with income tax expense of $14,168 for the nine months ended September 30, 2024. The consolidated effective income tax rate for the nine months ended September 30, 2025, and 2024 were -0.23% and 1.5%, respectively. In 2025, Management concluded that the realizability of related tax benefits from these losses was uncertain due to the continuing operating losses at the US parent company. Accordingly, a 100% valuation allowance was provided against the deferred tax asset.
NET LOSS.
Net loss for the nine months ended September 30, 2025, was $2,429,650 compared to loss of $952,285 for the nine months ended September 30, 2024, representing an increase in net loss of $1,477,365 The increase in net loss was mainly driven by rising operating expenses and the reversal of impairment provision, as previously discussed.
Comparison of Results of Operations for the three months ended September 30, 2025 and 2024
The following table sets forth the results of our operations for the periods indicated as a percentage of net sales. Certain columns may not add due to rounding.
| 2025 | %of Sales | 2024 | %of Sales | |||||||||||||
| Sales | $ | 90,820 | 100 | % | $ | - | - | % | ||||||||
| Cost of sales | (46,610 | ) | (51 | )% | - | - | % | |||||||||
| Gross profit | 44,210 | 49 | % | - | - | % | ||||||||||
| Interest income on sales-type leases | - | - | % | - | - | % | ||||||||||
| Total operating expenses | 257,700 | 284 | % | 188,295 | - | % | ||||||||||
| Loss from operations | (213,490 | ) | (235 | )% | (188,295 | ) | - | % | ||||||||
| Total non-operating income (expenses), net | (82,194 | ) | (91 | )% | (74,436 | ) | - | % | ||||||||
| Loss before income tax | (295,684 | ) | (326 | )% | (262,731 | ) | - | % | ||||||||
| Income tax expense | 4,690 | 5 | % | - | - | % | ||||||||||
| Net loss | $ | (300,374 | ) | (331 | )% | $ | (262,731 | ) | - | % | ||||||
SALES. Total sales for the three months ended September 30, 2025 and 2024 were $90,820.
COST OF SALES. Cost of sales for the three months ended September 30, 2025 and 2024 were $46,610.
GROSS PROFIT. Gross profit for the three months ended September 30, 2025 and 2024 were $44,210 with gross margin of 49%.
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OPERATING EXPENSES. Operating expenses consisted of general and administrative expenses (“G&A”) totaling $257,700 for the three months ended September 30, 2025, compared to $188,295 for the three months ended September 30, 2023, an increase of $69,405 or 37%. The increase in operating expenses was mainly due to increased professional fee by $69,734.
NET NON-OPERATING INCOME (EXPENSES). Net non-operating expenses consisted of gain or loss on note conversion, interest income, interest expenses, and miscellaneous expenses. For the three months ended September 30, 2025, net non-operating expenses was $82,194 compared to non-operating income of $74,436 for the three months ended September 30, 2024. For the three months ended September 30, 2025, we had $32,786 interest income, which was partly offset by $114,980 interest expense on note payable. For the three months ended September 30, 2024, we had $27,216 interest income, which was partly offset by $99,520 interest expense on note payable and $1,995 loss on note conversion.
INCOME TAX EXPENSE. Income tax expense was 4,690 for the three months ended September 30, 2025, compared with nil for the three months ended September 30, 2024. The consolidated effective income tax rate for the three months ended September 30, 2025 and 2024 were -1.6% and nil, respectively.
NET LOSS. Net loss for the three months ended September 30, 2025 was $300,374 compared to $262,731 for the three months ended September 30, 2024, an increase of net loss of $37,643. This increase in net loss was mainly due to increased operating expenses by $69,405 , increased income tax expense by $4,690 and increased interest expense on note payable by $15,460, which was partly offset by increased Gross profit by $44,210 and interest income by $5,570 as described above.
LIQUIDITY AND CAPITAL RESOURCES
Comparison of nine months ended September 30, 2025, and 2024
As of September 30, 2025, the Company maintained cash and equivalents of $131.88million, other current assets (excluding cash and equivalents) of $0.26million, current liabilities of $11.37million, and working capital of $120.76million, with a current ratio of11.69:1 and a debt-to-equity ratio of 0.11:1.
The following is a summary of cash flows provided by or used in each of the indicated types of activities, for the six- months periods ended September 30, 2025, and 2024:
| 2025 | 2024 | |||||||
| Cash provided by (used in): | ||||||||
| Operating Activities | $ | 64,443,002 | $ | (330,673 | ) | |||
| Investing activities | 55,202,004 | 68,502,372 | ||||||
| Financing activity | 9,865,400 | – | ||||||
Net cash generated from operating activities was $64.44million for the nine months ended September 30, 2025, compared to $0.33 million net cash used for the nine months ended September 30, 2024. The increase in net cash inflow for the nine months ended September 30, 2025, was mainly driven by the recovery of $65.6 million in advance payments to suppliers, which generated cash inflows.
Net cash provided by investing activities was $55.2 million and $68.5 million respectively for the nine months ended September 30, 2025, and 2024. For the nine months ended September 30, 2025, repayments of short-term loans decreased by $-12.52million. As of September 30, 2025, the Company had recovered a short-term loan of $55,660,131 (RMB406.3 million) from Xi’an Yingtai Energy Conservation Technology Co., Ltd (“Xi’an Yingtai”), an unrelated party of the Company.
Net cash provided by financing activities was $9.87 million during the nine months ended September 30, 2025, primarily attributable to proceeds from equity issuance.
We believe that inflation did not have or is not expected to have a significant adverse impact on our operating results in 2025.
Going Concern
The Company’s financial statements are prepared assuming that the Company will continue as a going concern.
The Company incurred an operating loss of $2.4 million, and reported net loss of $2.4 million for nine months ended September 30, 2025. As the Company implements its future business plan, it may continue to incur operating losses and generate negative operating cash flows.
In 2025, the Company collected back $65.6 million advance to supplier and had positive operating cash flow during the nine months ended September 30, 2025. At the end of September 30, 2025, the Company had accumulated deficit balance of $64.5 million and cash balance of $131.9 million. The Company has collected back RMB405.8 million in accounts receivable and recovered RMB476 million in supplier advances and raised capital through of common stock issuance during the first quarter of 2025.
The Company’s ability to continue as a going concern is dependent upon the successful execution of its business strategy to eventually achieve profitable operations. The accompanying financial statements do not include any adjustments that would be necessary if the Company is unable to continue as a going concern.
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Transfers of Cash to and from Our Subsidiaries
The PRC maintains currency controls and capital transfer regulations that require us to comply with certain requirements on capital movement of. The Company may transfer USD cash to its PRC subsidiaries through following channels: (i) an equity investment (by increasing the Company’s registered capital in a PRC subsidiary), or (ii) a stockholder loan. The Company’s PRC subsidiaries have not transferred any earnings or cash to the Company to date. The Company’s business is primarily conducted through its subsidiaries. The Company functions as a holding entity and its material assets consist solely of the equity interests in its PRC-based subsidiaries. The Company relies on dividends distribution from its subsidiaries to meet its working capital and cash needs, including the funds necessary: (i) to pay dividends or cash distributions to its stockholders, (ii) to service any debt obligations and (iii) to pay operating expenses. Under applicable PRC laws and regulations (noted below), the Company’s PRC subsidiaries are legally required to allocate 10% of annual after-tax income into general reserve fund, prior to payment of dividends. These requirements, combined with other regulatory constraints, materially limit the subsidiaries’ ability to distribute a portion of net assets as dividends to the parent company.
With respect to transferring cash from the Company to its subsidiaries, to increase the Company’s registered capital in a PRC subsidiary, requires submission of the filing to local commerce department, while a stockholder loan requires a filing with the state administration of foreign exchange or its local bureau.
With respect to dividends distribution, we note the following:
| 1. | PRC regulations currently only permit the payment of dividends out of accumulated profits, as determined in accordance with accounting standards and PRC regulations (an in-depth description of the PRC regulations is set forth below); |
| 2. | Under Chinese Accounting Standards (CAS) and the PRC Company Law, our PRC subsidiaries are required to allocate, at least 10% of their annual after-tax net income, to statutory surplus reserves until the cumulative reserve balance reaches 50% of their registered capital; | |
| 3. | Such reserves may not be distributed as cash dividends; |
| 4. | Our PRC subsidiaries may also allocate a portion of their after-tax profits to their staff welfare funds and bonus funds; except in the event of a liquidation, these funds can not be distributed to stockholders; the Company does not participate in a Joint Welfare Fund; | |
| 5. | The incurrence of debt, particularly the instruments governing such debt, may restrict a subsidiary’s ability to pay dividends to stockholders or make other cash distributions; and | |
| 6. | The Company is subject to covenants and consent requirements. |
If, due to the aforementioned reasons, our subsidiaries are unable to pay dividends and/or make other cash payments to the Company when needed, the Company’s ability to conduct operations, make investments, engage in acquisitions, or undertake other working capital-dependent initiatives, may be materially and adversely affected. However, our operations and business, including investment and/or acquisitions by our subsidiaries in China, will not be affected as long as the capital flows remain within PRC.
PRC Regulations
In accordance with PRC regulations on Enterprises with Foreign Investment and their articles of association, a foreign-invested enterprise (“FIE”) established in the PRC is required to provide statutory reserves, which are appropriated from net profit, as reported in the FIE’s PRC statutory financial accounts. A FIE is required to allocate at least 10% of its annual after-tax profit to the surplus reserve until such reserve balance reaches 50% of its respective registered capital (based on the FIE’s PRC statutory accounts). The aforementioned reserves may only be used for specific purposes and may not be distributed as cash dividends. Until such contribution of capital is satisfied, the FIE is not allowed to repatriate profits to its stockholders, unless approved by the State Administration of Foreign Exchange. Once this requirement is satisfied, the remaining funds may be appropriated at the discretion of the FIE’s board of directors. Our subsidiary, Shanghai TCH, qualifies as a FIE and is therefore subject to the aforementioned regulations on distributable profits.
Additionally, in accordance with PRC corporate law, a domestic enterprise is required to maintain a surplus reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its respective registered capital based on the enterprise’s PRC statutory accounts. The aforementioned reserves can only be used for specific purposes and may not be distributed as cash dividends. Xi’an TCH, Huahong, Zhonghong and Erdos TCH were established as domestic enterprises; therefore, each is subject to the above-mentioned restrictions on distributable profits.
As a result of PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside, prior to payment of dividends, in a general reserve fund, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company as a dividend or otherwise.
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Chart of the Company’s Statutory Reserve
Pursuant to PRC corporate law, effective January 1, 2006, the Company is required to appropriate a statutory reserve from its after-tax profit before declaring or paying dividends. The statutory reserve is restricted retained earnings. Our restricted and unrestricted retained earnings under US GAAP are classified as below:
| As of | ||||||||
| September 30, 2025 | December 31, 2024 | |||||||
| Unrestricted accumulated deficit | $ | (64,486,033 | ) | $ | (62,056,383 | ) | ||
| Restricted retained earnings (surplus reserve fund) | 15,191,645 | 15,191,645 | ||||||
| Total accumulated deficit | $ | (49,294,388 | ) | $ | (46,864,738 | ) | ||
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our CFS. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
CONTRACTUAL OBLIGATIONS
The Company’s contractual obligations as of September 30, 2025, are as follows:
| 1 year | More than | See Note | ||||||||||
| Contractual Obligation | or less | 1 year | (for details) | |||||||||
| Interest payable of Entrusted loan | $ | 347,591 | $ | - | 9 | |||||||
| Lease liability obligation | 61,587 | 30,794 | 15 | |||||||||
| Total | $ | 409,178 | $ | 30,794 | ||||||||
The Company believes it has sufficient cash as of September 30, 2025, and a sufficient channel to obtain any loans that may be necessary to meet its working capital needs from commercial institutions. Historically, we have been able to obtain loans or otherwise achieve our financing objectives due to the Chinese government’s support for energy-saving businesses with stable cash inflows, good credit ratings and history. In November 2024, we paid the Entrusted loan principal of $10,548,957 (RMB77 million), with interest still outstanding.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Exchange Rate Risk
Our operations are conducted mainly in the PRC. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in RMB, which is our functional currency. Accordingly, our operating results are affected by changes in the exchange rate between the U.S. dollar and those currencies.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The Company maintains disclosure controls and procedures which are designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) at the end of the period covered by this Report. Based upon that evaluation, our CEO and CFO concluded that, as of September 30, 2025, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
With the participation of the Company’s management, including its CEO and CFO, the Company also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fiscal quarter ended as of September 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on such evaluation, management concluded that, as of the end of the period covered by this Report, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this Report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.
In November 2019, Beijing Hongyuan Recycling Energy Investment Center (“BIPC”), or Hongyuan, filed a lawsuit with the Beijing Intermediate People’s Court against Xi’an TCH to compel Xi’an TCH to repurchase certain stock pursuant to a stock repurchase option agreement. On April 9, 2021, the court rendered a judgment in favor of Hongyuan. Xi’an TCH filed a motion for retrial to High People’s Court of Beijing on April 13, 2022, because Xi’an TCH paid RMB261 million ($37.58 million) principal and interest to Hongyuan as an out-of-court settlement. On April 11, 2022, Xi’an Zhonghong New Energy Technology Co. Ltd., filed an application for retrial and provided relevant evidence to the Beijing High People’s Court on the Civil Judgment No. 264, awaiting trial. On August 10, 2022, Beijing No. 1 Intermediate People’s Court of Beijing issued a Certificate of Active Performance, proving that Xi’an Zhonghong New Energy Technology Co., Ltd. had fulfilled its buyback obligations as disclosed in Note 9 that, on April 9, 2021, Xi’an TCH, Xi’an Zhonghong, Guohua Ku, Chonggong Bai and HYREF entered a Termination of Fulfillment Agreement (termination agreement). Under the termination agreement, the original buyback agreement entered on December 19, 2019 was terminated upon signing of the termination agreement. HYREF will not execute the buy-back option and will not ask for any additional payment from the buyers other than keeping the CDQ WHPG station.
As of the date of this Report, Xi’an Zhonghong is waiting for Court’s decision on retrial petition that was submitted in April 2022. During this waiting period, BIPC entered the execution procedure, and there is a balance of RMB14,204,317 ($2.20 million) between the amount executed by the court and the liability recognized by Xi ‘an TCH, which was mainly the enforcement fee, legal and penalty fee for the original judgement, and was automatically generated by the toll collection system of the People’s court. The Company accrued $2.10 million litigation expense as of December 31, 2024.
On June 28, 2021, Beijing No.4 Intermediate People’s Court of Beijing entered into a judgement that Xi’an Zhonghong Technology Co., Ltd. should pay the loan principal of RMB77 million ($11.06 million) with loan interest of RMB2,418,449 ($0.35 million) to Beijing Hongyuan Recycling Energy Investment Center (Limited Partnership). In the end of 2022, Beijing No.4 Intermediate People’s Court of Beijing entered into the judgment enforcement procedure, which, in addition to the loan principal with interest amount, Xi’an Zhonghong Technology Co., Ltd. was to pay judgment enforcement fee, late fee and other fees of RMB80,288,184 ($11.53 million) in total, the Company recorded these additional fees in 2022. On November 29, 2024, The Company paid Hongyuan RMB77,000,000 ($10.81 million) to Beijing Hongyuan Recycling Energy Investment Center (Limited Partnership).
On October 17, 2022, United States District Court for the District of Nevada (the “Court”) entered into a default judgment against us and our transfer agent, Securities Transfer Corporation that the plaintiff, Newbridge Securities Corporation (the “Plaintiff”) was entitled to payment in the amount of $139,066.0. On May 15, 2024, Securities Transfer Corporation entered into a stipulation with the Plaintiff. Pursuant to this stipulation, the Court ordered the issuance of 128,765 shares of CREG to the Plaintiff and its assignees. The abovementioned shares were issued to the Plaintiff and its assignees as of August 14, 2024.
Item 1A. Risk Factors.
We are a smaller reporting company and accordingly we are not required to provide information required by this Item. Moreover, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K as of and for the year ended December 31, 2024. An investment in our common stock involves various risks. When considering an investment in our company, you should consider carefully all of the risk factors described in our most recent Form 10-K and the registration statement as referenced above. If any of those risks, incorporated by reference in this Form 10-Q, occur, the market price of our shares of common stock could decline and investors could lose all or part of their investment. These risks and uncertainties are not the only ones facing us and there may be additional matters that we are unaware of or that we currently consider immaterial. All of these could adversely affect our business, financial condition, results of operations and cash flows and, thus, the value of an investment in our company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Report:
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31
32
33
34
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SMART POWERR CORP. | ||
| Date: November 13, 2025 | By: | /s/ Guohua Ku |
| Name: | Guohua Ku | |
| Title: | Chairman of the Board and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 13, 2025 | By: | /s/ Yongjiang Shi |
| Name: | Yongjiang Shi | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
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