Elong Power Holding Ltd 20-F, filed Nov 27, 2024
Elong Power Holding Ltd. (ELPW)
About this 20-F
Elong Power Holding Ltd filed this 20-F on November 27, 2024, covering the fiscal year ended November 21, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended _______________
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☒ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report: November 21, 2024
Commission File Number: 001-42416
Elong Power Holding Limited
(Exact name of Registrant as specified in its charter)
| Not applicable | Cayman Islands | |
| (Translation of Registrant’s name into English) | (Jurisdiction of incorporation or organization) |
Gushan Standard Factory Building Project, Ganzhou New Energy Vehicle Technology City,
Located at West Gushan Road and North Xingguang Road, Ganzhou City, Jiangxi Province, 341000, PRC
(Address of principal executive offices)
Shilin Xun
Tel.: (86) 13011896849
Email: xunshilin@elongpower.com
Gushan Standard Factory Building Project, Ganzhou New Energy Vehicle Technology City,
Located at West Gushan Road and North Xingguang Road, Ganzhou City, Jiangxi Province, 341000, PRC
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Class A ordinary shares, par value $0.00001 per share | ELPW | The Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the shell company report:
On November 21, 2024, the issuer had 50,056,114 ordinary shares (exclusive of 9,000,000 earnout shares), par value $0.00001 per share, outstanding, consisting of 44,278,677 Class A ordinary shares, par value $0.00001 per share and 5,777,437 Class B ordinary shares, par value $0.00001 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☐
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. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ |
| Emerging growth company ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☐
TABLE OF CONTENTS
| i |
On November 21, 2024 (the “Closing Date”), Elong Power Holding Limited, a Cayman Islands exempted company (“Elong” or the “Company”), TMT Acquisition Corp (“TMT” or the “SPAC”) and ELong Power Inc., a Cayman Islands exempted company and a wholly-owned subsidiary of Elong (“Merger Sub”), consummated a business combination (the “Business Combination”) pursuant to the terms of the Amended and Restated Agreement and Plan of Merger, dated February 29, 2024 (the “Business Combination Agreement”). The Business Combination was accomplished by way of the following transaction steps:
| ● | At the closing of the Business Combination (the “Closing”), Merger Sub merged with and into TMT (the “Merger”), with TMT continuing as the surviving entity and becoming a wholly owned subsidiary of Elong. At the effective time of the Merger (the “Effective Time”), (i) each ordinary share of TMT, par value $0.0001 per share (“TMT Ordinary Share”) issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than TMT Excluded Shares and TMT Dissenting Shares (as each is defined below)) converted into one Class A ordinary share of Elong, par value $0.00001 per share (“Elong Class A Ordinary Share”), (ii) each right of TMT (“TMT Right”) issued and outstanding immediately prior to the Effective Time automatically converted in accordance with its terms into 2/10 of one TMT Ordinary Share, and then further converted into 2/10 of one Elong Class A Ordinary Share, and (iii) each unit of TMT, consisting of one TMT Ordinary Share and one TMT Right (“TMT Unit”), issued and outstanding immediately prior to the Effective Time automatically and mandatorily separated into its component parts and the TMT Ordinary Shares and TMT Rights included within such TMT Units automatically converted into Elong Class A Ordinary Shares as described above. |
| ● | Prior to the Closing, Elong effectuated a share surrender (with an effect identical to that of a reverse share split) of the Elong Class A Ordinary Shares and Class B ordinary shares of Elong, par value $0.00001 per share (“Elong Class B Ordinary Shares” and collectively with the Elong Class A Ordinary Shares the “Elong Ordinary Shares”), such that, immediately thereafter, Elong had 45,000,000 Elong Ordinary Shares, consisting of 39,222,563 Elong Class A Ordinary Shares and 5,777,437 Elong Class B Ordinary Shares, issued and outstanding. All of the Elong Class B Ordinary Shares are held by Gracedan Co., Limited (the “Supporting Shareholder”). Because each Elong Class B Ordinary Share entitles the holder thereof to 50 votes on all matters subject to vote at general meetings of Elong, the Supporting Shareholder holds a majority of the total voting power of Elong following the Closing, as described herein. |
| ● | Concurrently with the Closing, Elong consummated the PIPE Financing (as defined below), pursuant to a subscription agreement entered into by Elong and an accredited investor (the “PIPE Investor”) prior to the Closing, which provided for the purchase by the PIPE Investor of $7,000,000 in Elong Class A Ordinary Shares (the “PIPE Financing”). The PIPE Investor, together with 2TM Holding LP, a Delaware limited partnership and sponsor of TMT (the “Sponsor”), and the representative of the underwriters of TMT’s initial public offering (the “Representative”), also entered into the Amended and Restated Registration Rights Agreement with Elong, pursuant to which the Sponsor, the Representative and the PIPE Investors have customary registration rights, including three sets of demand rights and piggy-back rights, with respect to the shares of Elong Class A Ordinary Shares held by such parties following the consummation of the Business Combination. |
| ● | At the Closing, the Supporting Shareholder deposited 300,000 Elong Class B Ordinary Shares (the “Indemnification Shares”) with Continental as escrow agent (the “Escrow Agent”), which shall be held in escrow as security for the Supporting Shareholder’s indemnification obligations on behalf of Elong and be subject to surrender and forfeiture under the terms of Business Combination Agreement and the escrow agreement entered into and effective as of the Closing with Continental escrow agent (the “Escrow Agent”, such escrow agreement the “Indemnification Escrow Agreement”). |
| ● | After the Closing, the Supporting Shareholder will be entitled to receive up to 9,000,000 Elong Class A Ordinary Shares (the “Earnout Shares”) solely upon the achievement of certain financial targets during the fiscal years ended December 31, 2024 and 2025 or upon the completion by Elong of certain change in control transactions, in each case in accordance with the terms of the Business Combination Agreement and the escrow agreement entered into and effective as of the Closing with the Escrow Agent covering the treatment and release of the Earnout Shares (the “Earnout Escrow Agreement”). |
As a result of the Business Combination, TMT became a wholly owned subsidiary of Elong, the security holders of TMT immediately prior to the Effective Time became security holders of Elong, and Elong became a public company. In this Shell Company Report on Form 20-F (this “Report”), Elong as the public company following the consummation of the Business Combination is sometimes referred to as “New Elong.”
The Elong Class A Ordinary Shares are trading on the Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “ELPW”.
| 1 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements provide our current expectations or forecasts of future events of the Company. Forward-looking statements include all statements other than statements of historical fact, including statements about the Company’s expectations, beliefs, plans, objectives, intentions, assumptions and other statements. These forward-looking statements include, but are not limited to, statements relating to expectations for future financial performance, business strategies, financings and expectations for the Company’s business. Forward-looking statements may include statements preceded by, followed by or that include the words “may”, “can”, “should”, “will”, “estimate”, “plan”, “project”, “forecast”, “intend”, “expect”, “anticipate”, “believe”, “seek”, “target” or similar expressions, but not all forward-looking statements include such terms.
The forward-looking statements in this Report are based on information available as of the date of this Report and Company management’s current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Although we believe the expectations reflected in the forward-looking statements were reasonable at the time made, they cannot guarantee future results, level of activity, volume of sales, performance or achievements. Moreover, no one assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should carefully consider the cautionary statements contained or referred to in connection with the forward-looking statements contained in this Report.
You should not place undue reliance on these forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ include:
| ● | changes in domestic and foreign business, market, financial, political and legal conditions; |
| ● | inability to obtain financing, equity, debt, or convertible debt financings to fund our operations on favorable terms or at all (including where such inability results in additional costs being incurred, and/or additional funding not be available, under existing financing arrangements); |
| ● | growth in demand for our products being lower than expected, or eventuating later than expected (including but not limited to delay in commencement of wheel programs); |
| ● | increase in prices of labor or materials, or adverse movements in foreign exchange; |
| ● | disruption to global supply chains; |
| ● | downward pricing pressure from customers; |
| ● | the inability to maintain the listing of the Company’s securities on a U.S. securities exchange; |
| ● | the failure to realize the anticipated benefits of the Business Combination and related transactions; |
| ● | risks related to the rollout of our business strategy and the timing of expected business milestones; |
| ● | the effects of competition on our future business and our ability to grow and manage growth, establish and maintain relationships with customers, and retain management and key employees; |
| ● | the outcome of any legal proceedings that may be instituted against us or any of our respective directors or officers; |
| ● | the impact of any pandemic or other public health crisis, such as the COVID-19 pandemic, and governmental responses; |
| ● | risks related to Elong’s industry; |
| ● | changes in laws and regulations; |
| ● | risks and uncertainties related to being based in and having substantially all operations in China; and |
| ● | other risks and uncertainties described in the section of this Report entitled “Risk Factors.” |
| 2 |
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
| A. | Directors and Senior Management |
The directors and executive officers of the Company upon the consummation of the Business Combination are set forth in the Form F-4, in the section titled “Management of New Elong Following the Business Combination,” which is incorporated herein by reference.
The business address for each of the directors and executive officers of the Company is Gushan Standard Factory Building Project, Ganzhou New Energy Vehicle Technology City, Located at West Gushan Road and North Xingguang Road, Ganzhou City, Jiangxi Province, 341000, PRC.
| B. | Advisers |
Graubard Miller has represented Elong and Merger Sub as U.S. securities counsel in connection with the Business Combination. The address of Graubard Miller is The Chrysler Building, 405 Lexington Avenue, 44th Floor, New York, New York 10174. Graubard Miller will continue to act as U.S. securities counsel for New Elong following the Closing of the Business Combination.
Harney Westwood & Riegels has represented Elong and Merger Sub on matters of Cayman Islands law. The address of Harney Westwood & Riegels is Suite 2505, NO.688, West Nanjing Road, Jing An District, Shanghai, 200041, China.
Han Kun Law Offices has represented Elong and Merger Sub on matters of PRC law. The address of Han Kun Law Offices is 20/F, Kerry Plaza Tower 3, 1-1 Zhongxinsi Road, Futian District, Shenzhen 518048, Guangdong, PRC.
The Crone Law Group has represented TMT in connection with the Business Combination. The address of The Crone Law Group is 420 Lexington Avenue, Suite 2446, New York, New York 10170.
Ogier has represented has TMT on matters of Cayman Islands law. The address of Ogier is 11th Floor, Central Tower, 28 Queen's Road Central, Central, Hong Kong.
| C. | Auditors |
UHY LLP, an independent registered public accounting firm, has acted as the accounting firm for each of Elong and TMT. The address of UHY LLP is 1185 Avenue of Americas, 38th Floor, New York, New York 10036. UHY LLP will continue to act as the accounting firm for New Elong following the Closing of the Business Combination.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
| 3 |
| A. | [Reserved] |
| B. | Capitalization and Indebtedness |
Capitalization and Indebtedness
The following table sets forth the ownership of the Company on an unaudited pro forma combined basis as of June 30, 2024, after giving effect to the Business Combination.
| Post-Business Combination | ||||||||
| TMT public stockholders | 42,114 | 0.1 | % | |||||
| Shares of TMT public stockholders issuable upon conversion of TMT Rights at closing | 1,200,000 | 2.0 | % | |||||
| TMT Sponsors and its permitted transferees | 1,870,000 | 3.2 | % | |||||
| Shares of TMT founders and its permitted transferees issuable upon conversion of TMT founder rights | 74,000 | 0.1 | % | |||||
| TMT underwriter shares | 270,000 | 0.5 | % | |||||
| Finder shares | 900,000 | 1.5 | % | |||||
| Elong Class A and B Ordinary Shares | 45,000,000 | 76.2 | % | |||||
| Elong Earnout shares | 9,000,000 | 15.2 | % | |||||
| PIPE Investors | 700,000 | 1.2 | % | |||||
| Total shares at closing | 59,056,114 | 100.0 | % | |||||
The following table sets forth, on the basis of generally accepted accounting principles in the United States, our consolidated capitalization and indebtedness on an unaudited pro forma combined basis as of June 30, 2024, after giving effect to the Business Combination.
| U.S. Dollars | ||||
| Total liabilities | 41,212,924 | |||
| Shareholders’ equity: | ||||
| Elong Class A ordinary shares | 532 | |||
| Elong Class B ordinary shares | 57 | |||
| Additional paid-in capital | 53,438,274 | |||
| Statutory reserve | 708,470 | |||
| Retained earnings (accumulated deficit) | (53,933,954 | ) | ||
| Accumulated other comprehensive loss | 561,622 | |||
| Total equity | 775,001 | |||
| Total capitalization | 41,987,925 | |||
For more information, see the unaudited pro forma condensed combined financial information of the Company and TMT contained in Exhibit 99.3 to this Report.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
| D. | Risk Factors |
The risk factors associated with the Company are described in the Form F-4 in the section titled “Risk Factors,” which is incorporated herein by reference.
ITEM 4. INFORMATION ON THE COMPANY
| A. | History and Development of the Company |
The legal name of the Company is Elong Power Holding Limited. The Company was incorporated as an exempted company under the laws of Cayman Islands. The history and development of the Company and the material terms of the Business Combination are described in the Form F-4 in the sections titled “Summary of the Proxy Statement/Prospectus,” “Proposal No. 1 — The Business Combination Proposal,” “Information About Elong” and “Description of Share Capital of New Elong,” which are incorporated herein by reference. See “Explanatory Note” in this Report for additional information regarding the Company and the Business Combination. Certain information about the Company is set forth in “Item 4.B — Business Overview” and is incorporated herein by reference.
| 4 |
The Company’s registered office is c/o Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands, and the Company’s principal executive office is Gushan Standard Factory Building Project, Ganzhou New Energy Vehicle Technology City, located at West Gushan Road and North Xingguang Road, Ganzhou City, Jiangxi Province, 341000, PRC. The Company’s principal website address is https://www.elongpower.com/. We do not incorporate the information contained on, or accessible through, the Company’s websites into this Report, and you should not consider it a part of this Report. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website is www.sec.gov.
| B. | Business Overview |
Following and as a result of the Business Combination, all business of the Company is conducted through its subsidiaries. A description of the business is included in the Form F-4 in the sections titled “Information About Elong” and “Elong Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are incorporated herein by reference.
| C. | Organizational Structure |
Following the consummation of the Business Combination, Merger Sub has merged with and into TMT with TMT surviving as a wholly-owned subsidiary of the Company. All principal subsidiaries of the Company are set forth in Exhibit 8.1 to this Report.
| D. | Property, Plants and Equipment |
Information regarding the Company’s property and equipment is described in the Form F-4 in the section titled “Information About Elong” in the subsections titled “— Our Strategy,” “— Research and Development,” “— Our Production,” and “— Our Facilities,” which are incorporated herein by reference.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The discussion and analysis of the financial condition and results of operation of the Company for the fiscal years ended December 31, 2023 and 2022 is included in the Form F-4 in the section titled “Elong’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated herein by reference. The discussion and analysis of the financial condition and results of operation of the Company for the six months ended June 30, 2024 and 2023 is included in Exhibit 99.1 to this Report, which is incorporated herein by reference.
The discussion and analysis of the financial condition and results of operation of TMT for the fiscal years ended December 31, 2023 and 2022 is included in the Form F-4 in the section titled “TMT’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated herein by reference. The discussion and analysis of the financial condition and results of operation of TMT for the nine months ended September 30, 2024 and 2023 is included in Item 2 of Part I of TMT’s Quarterly Report on Form 10-Q, filed by TMT on November 19, 2024, which is incorporated herein by reference.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
| A. | Directors and Senior Management |
The following table sets forth certain information relating to the executive officers and directors of the Company as of the date of this Report.
| Name | Age | Position Held | ||
| Xiaodan Liu | 45 | Chief Executive Officer and Chairwoman of the Board of Directors | ||
| Jingdong Qu | 59 | Executive Director | ||
| Luyi Wang | 30 | Chief Financial Officer | ||
| Tung Kok Keow | 55 | Independent Director Nominee | ||
| Lawrence Leighton | 88 | Independent Director Nominee | ||
| David Chung-Hua Bolocan | 59 | Independent Director Nominee |
Executive Officers
Xiaodan Liu has served as our Chief Executive Officer since May 2023 and our Chairwoman of the Board of Directors since October 2023. From November 2020 to May 2023, Ms. Liu served as Chief Executive Officer and Chairman of the Board of Directors at Beijing Yuanlin Technology Development Co., Ltd., an investment company focusing on the high-tech area. From May 2012 to October 2020, she served as Chief Executive Officer and Chairman of the Board of Directors at Satcom Technology (Beijing) Co., a company mainly engaged in rubber and plastic products industry. From 2003 to 2008, Ms. Liu served as sales director at Dalian Toyota Automobile Trading Co., Ltd, an automobile trading company, where she was responsible for sales management. From March 2024 to now, Ms. Liu served as director at Phylion Battery Co., Ltd., a lithium battery manufacturing company. Ms. Liu received a bachelor’s degree in International Trade from Kyoto University, Japan.
Jingdong Qu has been a member of the New Elong Board since the consummation of the Business Combination. He has served as the chairman of New Dragon Fund since November 2012. From December 2009 to January 2012, Mr. Qu served as Chief Executive Officer at Patriot Electronics, a high-tech enterprise focusing on the production and sales of digital products. From 2007 to December 2009, he served as the managing director of Samsung Electronics Greater China and global vice president. At that time, he drove the rapid development of Samsung’s China business. Mr Qu received a bachelor’s degree in computer science from Beijing Institute of Technology and received an M.B.A. degree from Tsinghua University. Mr. Qu has more than 30 years of experience in entrepreneurship, management and investment, and is an influential investor in China.
Luyi Wang has served as our Chief Financial Officer since July 2024. From November 2019 to March 2021, she served as the director of the finance department at Hawkhead Automotive, Inc., a company engaged in the manufacturing and sales of friction material. From April 2021 to April 2023, she worked as an auditor at Forvis Mazars, a financial services company. From May 2023 to May 2024, she resumed serving as the director of the finance department at Hawkhead Automotive, Inc. Ms. Wang received a graduate degree in accounting from Chapman University and a bachelor’s degree from Chongqing University.
Non-Employee Directors
Tung Kok Keow has been a member of the New Elong Board since the consummation of the Business Combination. From 2000 to 2010, he served as senior associate in the Malaysian Industry-Government Group for High Technology (MIGHT), an agency of the Prime Minister’s Department supervised by the Science Advisor to the PM. Since the end of his tenure at MIGHT, Mr. Tung has served as a consultant or in executive positions to various companies as well as non-profit government organizations. Mr. Tung also served as Advisor to the Malaysian Prime Minister’s Special Envoy to the PRC, and as Advisor to the Taipei Investors’ Association of Malaysia. Mr. Tung received a M.B.A. for Executives degree from Peking University.
Lawrence Leighton has been a member of the New Elong Board since the consummation of the Business Combination. Mr. Leighton is a seasoned international investment banker with approximately 50 years of experience. He has worked with many major international companies throughout his career, including Pernod Ricard SA (ENXTPA: RI) and Verizon Communications Inc. (NYSE: VZ). Mr. Leighton has served as a Managing Director of Bentley Associates, a boutique investment bank, since 1997 and transitioned to Senior Advisor in 2022. In 1989, he became President and Chief Executive Officer of UI USA, the US subsidiary of Union d’Ètudes et d’Investissements, the merchant banking arm of Credit Agricôle, the largest bank in France, serving in that role until 1993. From 1982 to 1989, Mr. Leighton served as a Managing Director of Chase Bank. Previously, from 1978 to 1982, he was a Limited Partner at Bear, Stearns & Co., focusing on international mergers and acquisitions. Starting in 1974 and ending in 1978, he was with Norton Simon as the Director of Strategic Planning/Mergers & Acquisitions. Before Norton Simon, Mr. Leighton was with Clark, Dodge & Co. where he became Co-Head of the Corporate Finance Department. He has been a member of the board of directors of Bon Natural Life Limited, a natural products and ingredients business, from June 2021 to June 2023, and Bowen Acquisition Corp, a blank check company that has entered into a definitive agreement for an initial business combination, since July 2023. Mr. Leighton received a B.S.E. degree from Princeton University and an M.B.A. from Harvard Business School. Mr. Leighton is a U.S. Citizen.
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David Chung-Hua Bolocan has been a member of the New Elong Board since the consummation of the Business Combination. From 1994 to 2000, he served as Senior Engagement Manager in Mitchell Madison Group, a consulting company. From 2001 to 2006, he served as Executive Vice President – CMO and Head of Corporate Initiatives Group in Bank of America. From 2006 to 2018, he served in executive positions to various companies. From August 2018 to June 2021, he served as Business Line CEO for Retail Bank Deposits and Payments Business in BBVA Compass (now part of PNC). From June 2021 to March 2022, he served as head of deposit and payments for LendingClub, a fintech company. Since June 2022, he has served as a Senior Director at Western Alliance Bank. Mr. Bolocan also served as an Independent Director for Cellular Biomedicine Group, Inc., a NASDAQ listed company, from 2012 to 2016, and UTime Limited, a NASDAQ listed company, from April 2019 to May 2023. Mr. Bolocan received an M.S./M.B.A. from the MIT Sloan School of Management and a B.A. from Harvard University in Computer Science and Economics
Committees of the Board of the Directors
The Elong board of directors has an audit committee, compensation committee and nominating and corporate governance committee. All of the committees comply with all applicable requirements of the Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations as further described below. The responsibilities of each of the committees of the Elong board of directors are described below. Each member of these committees is appointed by the Elong board of directors and will serve for such term or terms as the board may determine or until such member’s earlier resignation or death.
Each of these committees has a written charter. The charters are available on Elong’s corporate website at http://elongpower.com. The information on any of Elong’s website is deemed not to be incorporated in this Form 20-F or to be part of this Form 20-F.
Audit Committee
Elong’s audit committee consists of Messrs. Keow, Leighton and Bolocan, with Mr. Bolocan serving as chair. Elong has affirmatively determined that each expected member of the audit committee qualifies as independent under Nasdaq rules applicable to board members generally and to audit committee members. Under Nasdaq rules, audit committee members must satisfy the additional independence criteria set forth in Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules of Nasdaq. In order to be considered independent for purposes of Rule 10A-3 of the Exchange Act and under the rules of Nasdaq, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.
Elong’s audit committee will be responsible for, among other things:
| ● | appointing, compensating, retaining, evaluating, terminating and overseeing Elong’s independent registered public accounting firm; | |
| ● | discussing with Elong’s independent registered public accounting firm their independence from management; | |
| ● | reviewing, with Elong’s independent registered public accounting firm, the scope and results of their audit; | |
| ● | approving all audit and permissible non-audit services to be performed by Elong’s independent registered public accounting firm; | |
| ● | overseeing the financial reporting process and discussing with management and Elong’s independent registered public accounting firm the quarterly and annual financial statements that Elong files with the SEC; | |
| ● | overseeing Elong’s financial and accounting controls and compliance with legal and regulatory requirements; | |
| ● | reviewing Elong’s policies on risk assessment and risk management; | |
| ● | reviewing related person transactions; and | |
| ● | establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters. |
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Audit Committee Financial Expert
The parties have determined that Mr. Bolocan will qualify as the “audit committee financial expert,” as that term is defined in Item 401(h) of Regulation S-K.
Under Nasdaq rules, the audit committee must at all times be composed exclusively of independent directors who are “financially literate.” Nasdaq rules define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and statement of cash flows. All expected members of Elong’s audit committee meet the standard for financial literacy. In addition, Elong must certify to Nasdaq the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. Any member of the audit committee who qualifies as an “audit committee financial expert” also qualifies as financially sophisticated under Nasdaq rules. Accordingly, Mr. Bolocan will qualify as financially sophisticated under Nasdaq rules.
Compensation Committee
Elong’s compensation committee consists of Messrs. Keow, Leighton and Bolocan, with Mr. Leighton serving as chair. Elong has affirmatively determined that each expected member of the compensation committee qualifies as independent under Nasdaq rules applicable to board members generally and to compensation committee members. Under Nasdaq rules, compensation committee members must satisfy the additional independence criteria set forth in Rule 10C-1 of the Exchange Act and the rules of Nasdaq. To be considered independent for purposes of Rule 10C-1 of the Exchange Act and under the rules of Nasdaq, the board of directors must affirmatively determine that the member of the compensation committee is independent, including a consideration of all factors specifically relevant to determining whether the director has a relationship to the company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to: (i) the source of compensation of such director, including any consulting, advisory or other compensatory fee paid by the company to such director; and (ii) whether such director is affiliated with the company, a subsidiary of the company or an affiliate of a subsidiary of the company. In addition, each expected member of the compensation committee is a “non-employee directors” as defined in Rule 16b-3 of the Exchange Act.
Elong’s compensation committee is responsible for, among other things:
| ● | reviewing and approving the corporate goals and objectives, evaluating the performance of and reviewing and approving the compensation of Elong’s chief executive officer, and the chief executive officer may not be present during voting or deliberations on his or her compensation; | |
| ● | overseeing an evaluation of the performance of and reviewing and setting or making recommendations to The Elong board of directors regarding the compensation of Elong’s other executive officers; | |
| ● | reviewing and approving or making recommendations to The Elong board of directors regarding Elong’s incentive compensation and equity-based plans, policies and programs; | |
| ● | reviewing and approving all employment agreement and severance arrangements for Elong’s executive officers; | |
| ● | making recommendations to The Elong board of directors regarding the compensation of Elong’s directors; and | |
| ● | retaining and overseeing any compensation consultants. |
Nominating and Corporate Governance Committee
Elong’s nominating and corporate governance committee consists of Messrs. Keow, Leighton and Bolocan, with Mr. Keow serving as chair. Elong has affirmatively determined that each member qualifies as independent under Nasdaq rules.
Elong’s nominating and corporate governance committee is responsible for, among other things:
| ● | identifying individuals qualified to become members of the New Elong Board, consistent with criteria approved by the New Elong Board; | |
| ● | overseeing succession planning for New Elong’s Chief Executive Officer and other executive officers; | |
| ● | periodically reviewing the leadership structure of the New Elong Board and recommending any proposed changes to the New Elong Board; | |
| ● | overseeing an annual evaluation of the effectiveness of the New Elong Board and its committees; and | |
| ● | developing and recommending to the New Elong Board a set of corporate governance guidelines. |
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| B. | Compensation |
Information pertaining to the compensation of the directors and executive officers of the Company is set forth in the Form F-4, in the sections titled “Executive Compensation” and “Management of New Elong Following the Business Combination — New Elong Non-Employee Director Compensation Policy,” which are incorporated herein by reference.
| C. | Board Practices |
Information pertaining to the Company’s board practices is set forth in the Form F-4, in the section titled “Management of New Elong Following the Business Combination” in the subsections titled “— Composition of the Board of Directors,” “— Committees of the Board of Directors,” “— Code of Ethics,” and “— Risk Oversight,” which are incorporated herein by reference.
| D. | Employees |
Information pertaining to the Company’s employees is set forth in the Form F-4, in the section titled “Information About Elong — Our Employees,” which is incorporated herein by reference.
| E. | Share Ownership |
Ownership of the Company’s Ordinary Shares by its directors and executive officers upon the consummation of the Business Combination is set forth in Item 7.A of this Report.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| A. | Major Shareholders |
The following table sets forth information regarding the beneficial ownership of Ordinary Shares as of November 21, 2024 by:
| ● | each person known by us to be the beneficial owner of more than 5% of Ordinary Shares; |
| ● | each of our directors and executive officers; and |
| ● | all our directors and executive officers as a group. |
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Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if that person possesses sole or shared voting or investment power over that security. A person is also deemed to be a beneficial owner of securities that the person has a right to acquire within 60 days including, without limitation, through the exercise of any option, warrant or other right or the conversion of any other security. Such securities, however, are deemed to be outstanding only for the purpose of computing the percentage beneficial ownership of that person but are not deemed to be outstanding for the purpose of computing the percentage beneficial ownership of any other person. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
The calculations of the percentage of beneficial ownership are based on 50,056,114 Ordinary Shares (exclusive of 9,000,000 earnout shares) issued and outstanding, as of November 21, 2024, consisting of 44,278,677 Class A Ordinary Shares and 5,777,437 Class B Ordinary Shares.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all Ordinary Shares beneficially owned by them.
Name and Address of Beneficial Owners | Number of Shares (All Classes) (#) | Pct. (%) | Vot. Pct. (%) | |||||||||
| Executive Officers and Directors(1): | ||||||||||||
| Xiaodan Liu(2) | 5,777,437 | 11.5 | % | 86.7 | % | |||||||
| Jingdong Qu | - | 0.0 | % | 0.0 | % | |||||||
| Luyi Wang | - | 0.0 | % | 0.0 | % | |||||||
| Tung Kok Keow | - | 0.0 | % | 0.0 | % | |||||||
| Lawrence Leighton | - | 0.0 | % | 0.0 | % | |||||||
| David Chung-Hua Bolocan | - | 0.0 | % | 0.0 | % | |||||||
| All Directors and Executive Officers as a Group (6 Individuals) | 5,777,437 | 11.5 | % | 86.7 | % | |||||||
| Greater than 5% Holders: | ||||||||||||
| Zibo Economic Development Zone Yingke Jinwutong Venture Capital Partnership(3) | 8,028,939 | 16.0 | % | 2.4 | % | |||||||
| Shenzhen Jinpenglong Transportation Technology Co., Ltd.(4) | 6,700,530 | 13.4 | % | 2.0 | % | |||||||
| Xingzheng Investment Management Co., Ltd.(3) | 6,622,670 | 13.2 | % | 2.0 | % | |||||||
| Xiamen Jiupaiyuanjiang Investment Partnership(3) | 4,715,145 | 9.4 | % | 1.4 | % | |||||||
| Pingtan Yingke Jiatai Venture Capital Partnership(3) | 3,711,739 | 7.4 | % | 1.1 | % | |||||||
| * | Less than 1%. | |
| (1) | Unless otherwise noted, the business address of each shareholder is Gushan Standard Factory Building Project, Ganzhou New Energy Vehicle Technology City, located at West Gushan Road and North Xingguang Road, Ganzhou City, Jiangxi Province, 341000, PRC. | |
| (2) | The beneficial ownership of Ms. Liu consists of 5,777,437 Elong Class B Ordinary Shares held by the Supporting Shareholder, GRACEDAN CO., LIMITED. At the Closing, the Supporting Shareholder deposited 300,000 Elong Class B Ordinary Shares in escrow as security for the Supporting Shareholder’s indemnification obligations on behalf of Elong. Elong may issue up to an additional 9,000,000 Elong Class A Ordinary Shares to the Supporting Shareholder to the extent the conditions to payment of the Earnout Shares are satisfied. Taking into account the Earnout Shares, Ms. Liu would control approximately 87.0% of the voting power of New Elong’s total issued and outstanding share capital. The Elong Ordinary Shares held by the Support Shareholder are subject to restrictions on transfer pursuant to the Lock-Up Agreement. The beneficial ownership of Ms. Liu does not reflect up to 2,100,000 Elong Ordinary Shares that may be transferred by the Supporting Shareholder to the PIPE Investors after the Closing. In order to induce the PIPE Investors to sign the subscription agreements, the Supporting Shareholder agreed to transfer additional shares to the PIPE Investors after the Closing, so that their effective purchase price per share would be equal to 85% of the then-current market price of the Elong Class A Ordinary Shares on the date the shares are registered for resale or eligible to be sold pursuant to Rule 144 (or on the first anniversary of the Closing, if earlier), but in any event not less than $2.50. Ms. Liu may be deemed to beneficially own the Elong Ordinary Shares held by the Supporting Shareholder by virtue of her control over the Supporting Shareholder. Ms. Liu disclaims beneficial ownership of the shares held by the Supporting Shareholder other than to the extent of her pecuniary interest in such shares. |
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| (3) | The beneficial ownership of each of Zibo Economic Development Zone Yingke Jinwutong Venture Capital Partnership, Shenzhen Jinpenglong Transportation Technology Co., Ltd., Xingzheng Investment Management Co., Ltd.,Xiamen Jiupaiyuanjiang Investment Partnership, and Pingtan Yingke Jiatai Venture Capital Partnership consists of Elong Class A Ordinary Shares. The Elong Ordinary Shares held by each entity are subject to restrictions on transfer pursuant to the Lock-Up Agreement. |
| B. | Related Party Transactions |
Information pertaining to the Company’s related party transactions is set forth in the Form F-4 in the section titled “Certain Relationships and Related Person Transactions,” which is incorporated herein by reference.
| C. | Interests of Experts and Counsel |
None.
| A. | Consolidated Statements and Other Financial Information |
Financial Statements
The following financial statements of the Company and TMT are included in this report or by reference:
| ● | Interim unaudited consolidated financial statements of the Company as of June 30, 2024 and for the six months ended June 30, 2024 and 2023. |
| ● | Audited consolidated financial statements of the Company as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022 contained in the Form F-4 filed on June 27, 2024 are incorporated herein by reference. |
| ● | Interim unaudited condensed consolidated financial statements of TMT as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 contained in the Form 10-Q filed by TMT on November 19, 2024 are incorporated herein by reference. |
| ● | Audited consolidated financial statements of TMT as December 31, 2023 and 2022 for the years ended December 31, 2023 and 2022 contained in the Form F-4 filed on June 27, 2024 are incorporated herein by reference. |
See Item 18 of Part III of this Report.
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Legal Proceedings
Legal or arbitration proceedings are described in the Form F-4 in the section titled “Information About Elong — Legal Proceedings,” which is incorporated herein by reference.
Dividend Policy
The Company’s policy on dividend distributions is described in the Form F-4 in the sections titled “Summary of the Proxy Statement/Prospectus – Cash and Asset Flows Through Organization – Dividend Distribution and Taxation,” “Ticker Symbols and Dividend Information—Dividends” and “Government Regulations Applicable to Elong’s Business —Regulations Relating to Dividend Distributions,” which are incorporated herein by reference.
| A. | Offer and Listing Details |
The Elong Class A Ordinary Shares are listed on Nasdaq under the symbol “ELPW.” Holders of Elong Class A Ordinary Shares should obtain current market quotations for their securities.
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
The Elong Class A Ordinary Shares are listed on Nasdaq under the symbol “ELPW.”
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
| A. | Share Capital |
The Company’s authorized share capital is $50,000 divided into 5,000,000,000 Elong Ordinary Shares, comprising 4,000,000,000 Elong Class A ordinary shares of a par value of $0.00001 each and 1,000,000,000 Elong Class B Ordinary Shares of a par value of $0.00001 each. As of November 21, 2024, subsequent to the Closing, 50,056,114 Elong Ordinary Shares (exclusive of 9,000,000 earnout shares) were issued and outstanding, including 44,278,677 Elong Class A Ordinary Shares and 5,777,437 Elong Class B Ordinary Shares.
| B. | Memorandum and Articles of Association |
The Second Amended and Restated Articles of Association of the Company (“Company Charter”) effective as of November 21, 2024 are filed as part of this Report.
The description of the Company Charter is contained in the Form F-4 in the sections titled “Proposal 5: The Non-Binding Governance Proposals” and “Description of Share Capital of New Elong,” which are incorporated herein by reference.
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| C. | Material Contracts |
Material Contracts Relating to the Business Combination
Business Combination Agreement
The description of the Business Combination Agreement in the Form F-4 in the section titled “Proposal No. 1 — The Business Combination Proposal” is incorporated herein by reference.
Related Agreements
The description of the material provisions of certain additional agreements entered into pursuant to the Business Combination Agreement in the Form F-4 in the section titled “Proposal No. 1 — The Business Combination Proposal — Related Agreements — Transaction Documents” is incorporated herein by reference.
Other Material Contracts
Restructuring Framework Agreement of Huizhou Yipeng Energy Technology Co., Ltd, dated as of October 8, 2023
On October 8, 2023, in connection with the corporate restructuring described in the Form F-4 in the section titled “Elong’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Huizhou Yipeng entered into the Restructuring Framework Agreement with the original shareholders of Huizhou Yipeng and certain other parties, pursuant to which, among other things, the parties thereto carried out the restructuring so that Elong acquired all equity interests of Huizhou Yipeng and the original shareholders’ shareholding in Huizhou Yipeng were converted into ownership interests in Elong.
Enterprise Settlement Agreement for the Gushan standard factory building project of Ganzhou New Energy Automobile Science and Technology City, dated as of August 3, 2023
On August 3, 2023, in connection with the lease of factories in Ganzhou, Ganzhou Yipeng entered into the Enterprise Settlement Agreement with Ganzhou New Energy Automobile Science and Technology City Construction and Development Co., Ltd, pursuant to which, among other things, Ganzhou Yipeng agreed to lease the standard factory located the west of Gushan Road, Ganzhou New Energy Automobile Science and Technology City for production purpose and the lease term commenced from August 1, 2020 to December 31, 2041.
| D. | Exchange Controls |
PRC exchange control regulations that restrict Elong’s ability to convert Renminbi into foreign currency is described in the Form F-4 in the section titled “Government Regulations Applicable to Elong’s Business — Regulations Relating to Foreign Exchange” which are incorporated herein by reference.
There are no governmental laws, decrees, regulations or other legislation in the Cayman Islands that may affect the import or export of capital, including the availability of cash and cash equivalents for use by the Company, or that may affect the remittance of dividends, interest, or other payments by the Company to non-resident holders of its Ordinary Shares. There is no limitation imposed by the laws of the Cayman Islands or in the Company Charter on the right of non-residents to hold or vote shares.
| E. | Taxation |
Information pertaining to tax considerations is set forth in the Form F-4 in the sections titled “Material U.S. Federal Income Tax Considerations” and “Certain Material Cayman Islands Tax Considerations,” which are incorporated herein by reference.
| F. | Dividends and Paying Agents |
The Company’s policy on dividend distributions is described in the Form F-4 in the sections titled “Summary of the Proxy Statement/Prospectus – Cash and Asset Flows Through Organization – Dividend Distribution and Taxation,” “Ticker Symbols and Dividend Information—Dividends” and “Government Regulations Applicable to Elong’s Business —Regulations Relating to Dividend Distributions,” which are incorporated herein by reference. The Company has not identified a paying agent.
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| G. | Statement by Experts |
The consolidated financial statements of the Elong and its subsidiaries and TMT incorporated by reference in this Report have been so incorporated by reference in reliance upon such report of UHY LLP, an independent registered public accounting firm, upon the authority of the said firm as expert in accounting and auditing.
| H. | Documents on Display |
We are subject to certain of the informational filing requirements of the Exchange Act. Since we are a “foreign private issuer,” we are exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of our shares. In addition, we are not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we are required to file with the SEC an Annual Report on Form 20-F containing financial statements audited by an independent accounting firm. We may, but are not required, to furnish to the SEC, on Form 6-K, unaudited financial information after each of our first three fiscal quarters. The SEC also maintains a website at http://www.sec.gov that contains reports and other information that we file with or furnish electronically with the SEC.
| I. | Subsidiary Information |
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information on market risk is set forth in the Form F-4 in the section titled “Elong’s Management’s Discussion and Analysis of Financial Condition and Results of Operation — Quantitative and Qualitative Disclosures about Market Risk,” which is incorporated herein by reference.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
| 14 |
Not applicable.
| 15 |
Not applicable.
The audited consolidated financial statements of the Company and its subsidiaries as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022 contained in the Form F-4 filed on June 27, 2024 are incorporated herein by reference.
The interim unaudited consolidated financial statements of the Company as of June 30, 2024 and for the six months ended June 30, 2024 and 2023 contained in Exhibit 99.2 to this Report are incorporated herein by reference.
The audited consolidated financial statements of TMT as of December 31, 2023 and 2022 for the years ended December 31, 2023 and 2022 contained in the Form F-4 filed on June 27, 2024 are incorporated herein by reference.
The interim unaudited condensed consolidated financial statements of TMT as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 contained in Item 1 of Part I of TMT’s Quarterly Report on Form 10-Q, filed by TMT on November 19, 2024, are incorporated herein by reference.
The unaudited pro forma condensed combined financial information of the Company and TMT contained in Exhibit 99.3 to this Report is incorporated herein by reference.
| 16 |
EXHIBIT INDEX
| * | Filed herewith. |
| † | Indicates a management contract or any compensatory plan, contract or arrangement. |
| # | Schedules and annexes have been omitted |
| 17 |
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Report on its behalf.
| Elong Power Holding Limited | ||
| November 27, 2024 | By: | /s/ Xiaodan Liu |
| Name: | Xiaodan Liu | |
| Title: | Chief Executive Officer and | |
| Chairwoman of the Board | ||
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Exhibit 4.4
INDEMNIFICATION AGREEMENT
This agreement, made and entered into effective as of November 21, 2024 (“Agreement”), by and between Elong Power Holding Limited, a Cayman Islands exempted company (the “Company”), and the undersigned indemnitee (“Indemnitee”).
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that the ability to attract and retain qualified officers and directors is in the best interests of the Company’s shareholders; and
WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify such persons to the fullest extent permitted by applicable law so that such persons will serve or continue to serve the Company free from undue concern that they will not be adequately indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the Company’s Amended and Restated Memorandum and Articles of Association and any resolutions adopted pursuant thereto and shall neither be deemed to be a substitute therefor nor to diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve on behalf of the Company on the condition that Indemnitee be indemnified according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 “Change in Control” means a change in control of the Company occurring after the date hereof of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”), whether or not the Company is then subject to such reporting requirement provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the date hereof (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a person who is an officer or director of the Company on the date hereof (or any of such person’s affiliates), is or becomes “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the then outstanding securities of the Company without the prior approval of at least two-thirds of the members of the Board in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which (A) members of the Board in office immediately prior to such transaction or event constitute less than a majority of the Board thereafter or (B) the voting securities of the Company outstanding immediately prior to such transaction do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such transaction with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (including for this purpose any new director whose election or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the Board.
1.2 “Corporate Status” means the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. In addition, service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, agent or fiduciary of any other enterprise if Indemnitee is or was serving as a director, officer, employee, agent or fiduciary of such enterprise and (A) such enterprise is or at the time of such service was an affiliate of the Company, (B) such enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or an affiliate of the Company or (C) the Company or an affiliate of the Company directly or indirectly caused Indemnitee to be nominated, elected, appointed, designated, employed, engaged or selected to serve in such capacity
1.3 “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
1.4 “Expenses” means all reasonable attorneys’ fees, retainers, court costs (including trial and appeals), transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, appealing, preparing to appeal (including without limitation the premium, security for, and other costs relating to any costs bond, supersedes bond, or other appeal bond or its equivalent), investigating, or being or preparing to be a witness in a Proceeding.
1.5 “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any other matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” does not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. Except as provided in the first sentence of Section 9.3 hereof, Independent Counsel shall be selected by (a) the Disinterested Directors or (b) a committee of the Board consisting of two or more Disinterested Directors or if (a) and (b) above are not possible, then by a majority of the full Board.
1.6 “Proceeding” means any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether conducted by or on behalf of the Company or any other party, whether civil, criminal, administrative or investigative, and whether formal or informal, except one initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce Indemnitee’s rights under this Agreement.
2. Services by Indemnitee.
Indemnitee agrees to serve as a director, officer or employee of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law).
3. Indemnification - General.
The Company shall indemnify, and, subject to Sections 17 and 27 hereof, advance Expenses to, Indemnitee as provided in this Agreement to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as any amendment to or interpretation of applicable law may thereafter from time-to-time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement.
4. Proceedings Other Than Proceedings by or in the Right of the Company.
Indemnitee shall be entitled to the rights of indemnification provided in this Agreement if, by reason of Indemnitee’s Corporate Status, Indemnitee is, was or is threatened to be made, a party to any threatened, pending or completed Proceeding, other than a Proceeding by or in the right of the Company. Pursuant to this Agreement, subject to Sections 17 and 27 hereof, Indemnitee shall be indemnified against Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, Indemnitee had no reasonable cause to believe Indemnitee’s conduct was unlawful.
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5. Proceedings by or in the Right of the Company.
Indemnitee shall be entitled to the rights of indemnification provided in this Agreement if, by reason of Indemnitee’s Corporate Status, Indemnitee was or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Agreement, subject to Sections 17 and 27 hereof, Indemnitee shall be indemnified against amounts paid in settlement and Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with the defense or settlement of any such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. Notwithstanding the foregoing, no indemnification under this paragraph shall be made in respect of (1) a threatened or pending Proceeding which is settled or otherwise disposed of, or (2) any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company, by a court of competent jurisdiction and subject to no further appeal, unless and only to the extent that the court in which such Proceeding shall have been brought, was brought or is pending, shall determine, upon application, that Indemnitee is fairly and reasonably entitled to indemnity for such portion of the settlement amount and Expenses as the court deems proper.
6. Indemnification for Expenses of Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement except for Sections 17 and 27 hereof, to the extent that Indemnitee is, by reason of his or her Corporate Status, a party to and is successful, on the merits, procedurally or otherwise, in any Proceeding, Indemnitee shall be indemnified against all judgments, penalties, fines, amounts paid in settlement and Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith (in each case, to the fullest extent permitted by applicable law). If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits, procedurally or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines, amounts paid in settlement and Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each successfully resolved claim, issue or matter (in each case, to the fullest extent permitted by applicable law). For purposes of this Agreement, the term “successful, on the merits or otherwise,” includes, but is not limited to, (i) any termination, withdrawal, or dismissal (with or without prejudice) of any Proceeding against the Indemnitee without any express finding of liability or guilt against Indemnitee, including a settlement (with or without court approval), a motion for summary judgment, or a plea of nolo contendere or its equivalent, and (ii) the expiration of 90 days after the making of any claim or threat of a Proceeding without the institution of the same and without any promise or payment made to induce a settlement.
7. Indemnification for Expenses as a Witness.
Notwithstanding any other provision of this Agreement except for Sections 17 and 27 hereof, to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a witness in any Proceeding, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.
8. Advancement of Expenses and Other Amounts.
Subject to Sections 17 and 27 hereof, the Company shall advance all Expenses and, when eligible hereunder, judgments, penalties, fines, and amounts paid in settlement, incurred by or on behalf of Indemnitee in connection with any Proceeding within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses and, when eligible hereunder, judgments, penalties, fines and amounts paid in settlement, incurred by Indemnitee. In connection with any request for advancement of Expenses, judgments, penalties, fines or amounts paid in settlement, Indemnitee shall not be required to provide any documentation or information to the extent that the provision thereof would undermine or otherwise jeopardize attorney-client privilege. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the advance (without interest) if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to further appeal, that Indemnitee is not entitled to be indemnified by the Company. No other form of undertaking shall be required other than the execution of this Agreement. The Company’s obligation in respect of the advancement of Expenses and, when eligible hereunder, judgments, penalties, fines and amounts paid in settlement in connection with a criminal Proceeding in which Indemnitee is a defendant shall terminate at such time as Indemnitee pleads guilty or is convicted after trial and such conviction becomes final and no longer subject to appeal. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay such amounts and, subject to judgments, penalties, fines and amounts paid in settlement being eligible for indemnification hereunder, without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Without limiting the generality or effect of the foregoing, within thirty days after any request by Indemnitee, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. The Company shall not seek from a court, or agree to, a “bar order” which would have the effect of prohibiting or limiting the Indemnitee’s rights to receive advancement of Expenses and, when eligible hereunder, judgments, penalties, fines and amounts paid in settlement under this Agreement.
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9. Procedure for Determination of Entitlement to Indemnification.
9.1 To obtain indemnification under this Agreement in connection with any Proceeding, and for the duration thereof, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of any such request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.
9.2 Upon written request by Indemnitee for indemnification pursuant to Section 9.1 hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in such case: (i) if a Change in Control shall have occurred, by Independent Counsel (unless Indemnitee shall request that such determination be made by the Board or the shareholders, in which case such determination shall be made in the manner provided for in clauses (ii) or (iii) of this Section 9.2) in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred, at the election of the Company, (A) by the Board by a majority vote of a quorum consisting of Disinterested Directors, or (B) if a quorum of the Board consisting of Disinterested Directors is not obtainable, by a majority of a committee of the Board consisting of two or more Disinterested Directors, or (C) by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee, or (D) by the shareholders of the Company, by a majority vote of a quorum consisting of shareholders who are not parties to the proceeding, or if no such quorum is obtainable, by a majority vote of shareholders who are not parties to such proceeding; or (iii) as provided in Section 10.2 of this Agreement. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
9.3 If a Change in Control shall have occurred, Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board), and Indemnitee (or the Board, as the case may be) shall give written notice to the other party advising it of the identity of Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within seven days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 1 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 9.1 hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction, for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 9.2 hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with its actions pursuant to this Agreement, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 9.3, regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement date of any judicial proceeding pursuant to Section 11.1(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
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10. Presumptions and Effects of Certain Proceedings.
10.1 In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9.1 of this Agreement, and the Company shall have the burden of proof to overcome that presumption by clear and convincing evidence in connection with the making by any person, persons or entity of any determination contrary to that presumption.
10.2 If the person, persons or entity empowered or selected under Section 9 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) prohibition of such indemnification under applicable law, as determined by a court of competent jurisdiction in a final judgment, not subject to further appeal; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith require(s) such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, however, that the foregoing provisions of this Section 10.2 shall not apply (i) if the determination of entitlement to indemnification is to be made by the shareholders pursuant to Section 9.2 of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the shareholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of shareholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9.2 of this Agreement. In connection with each meeting at which a shareholder determination will be made, the Company shall solicit proxies that expressly include a proposal to indemnify or reimburse the Indemnitee. The Company shall afford the Indemnitee ample opportunity to present evidence of the facts upon which the Indemnitee relies for indemnification in any Company proxy statement relating to such shareholder determination. Subject to the fiduciary duties of its members under applicable law, the Board will not recommend against indemnification or reimbursement in any proxy statement relating to the proposal to indemnify or reimburse the Indemnitee.
10.3 The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.
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10.4 Reliance as Safe Harbor.
For purposes of this Agreement, the Indemnitee shall be deemed to have acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, to have had no reasonable cause to believe Indemnitee’s conduct was unlawful, if Indemnitee’s action is based on (i) the records or books of account of the Company, or another enterprise, including financial statements, (ii) information supplied to Indemnitee by the officers of the Company or another enterprise in the course of their duties, (iii) the advice of legal counsel for the Company or another enterprise, or of an independent certified public accountant or an appraiser or other expert selected with reasonable care by the Company or another enterprise. The term “another enterprise” as used in this Section shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which the Indemnitee is or was serving at the request of the Company as a director, officer, partner, trustee, employee or agent. The provisions of this Section shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth herein. Whether or not the foregoing provisions of this Section 10.4 are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal Proceeding, to have had no reasonable cause to believe Indemnitee’s conduct was unlawful. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
11. Remedies of Indemnitee.
11.1 In the event that (i) a determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) the determination of indemnification is to be made by Independent Counsel pursuant to Section 9.2 of this Agreement and such determination shall not have been made and delivered in a written opinion within sixty (60) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 7 of this Agreement within thirty (30) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the Cayman Islands, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification or advancement of Expenses, judgments, penalties, fines or, when eligible hereunder, amounts paid in settlement. The Company shall not oppose Indemnitee’s right to seek any such adjudication.
11.2 In the event that a determination shall have been made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.
11.3 If a determination shall have been made or deemed to have been made pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) prohibition of such indemnification under applicable law.
11.4 The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement.
11.5 In the event that Indemnitee, pursuant to this Section 11, seeks a judicial adjudication of his or her rights under, or to recover damages for breach of, this Agreement or any other agreement, including any other indemnification, contribution or advancement agreement, or any provision of the certificate of incorporation or by-laws of the Company now or hereafter in effect, or for recovery under directors’ and officers’ liability insurance policies maintained by the Company, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the kinds described in the definition of Expenses) actually and reasonably incurred by Indemnitee in such judicial adjudication, but only if Indemnitee prevails therein. In any suit brought by the Company to recover an advancement of Expenses pursuant to the terms of an undertaking, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such suit in the event the Indemnitee has been successful, on the merits or otherwise, in defense of such suit. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive less than all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication shall be appropriately prorated. In addition, the Company shall, if so requested by Indemnitee, advance the foregoing expenses to Indemnitee, subject to and in accordance with Section 8.
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12. Procedure Regarding Indemnification.
With respect to any Proceedings, the Indemnitee, prior to taking any action with respect to such Proceeding, shall consult with the Company as to the procedure to be followed in defending, settling, or compromising the Proceeding and may not consent to any settlement or compromise of the Proceeding without the written consent of the Company (which consent may not be unreasonably withheld or delayed). The Company shall be entitled to participate in defending, settling or compromising any Proceeding and to assume the defense of such Proceeding with counsel of its choice and shall assume such defense if requested by the Indemnitee. Notwithstanding the election by, or obligation of, the Company to assume the defense of a Proceeding, the Indemnitee shall have the right to participate in the defense of such Proceeding and to employ counsel of Indemnitee’s choice, but the fees and expenses of such counsel shall be at the expense of the Indemnitee unless (i) the employment of such counsel has been authorized in writing by the Company, (ii) Indemnitee shall have reasonably determined that there is a conflict of interest between the Company and Indemnitee in the conduct of the defense of the Proceeding, (iii) the Indemnitee has reasonably concluded that there may be defenses available to Indemnitee which are different from or additional to those available to the Company (in which latter case the Company shall not have the right to direct the defense of such Proceeding on behalf of the Indemnitee), (iv) after a Change in Control, the employment of counsel by Indemnitee has been approved by the Independent Counsel, (v) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, or (vi) the fees and expenses are non-duplicative and reasonably incurred in connection with Indemnitee’s role in the Proceedings, despite the Company’s assumption of the defense, in each of which cases all Expenses of the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company, or as to which Indemnitee shall have made the determination provided for in (ii) above or under the circumstances provided for in (iii) and (iv) above. Indemnitee agrees that any such separate counsel retained by Indemnitee will be not more than one additional firm of attorneys , and such firm shall be a member of any approved list of panel counsel under the Company’s applicable directors’ and officers’ liability insurance policy, should the applicable policy provide for a panel of approved counsel and should such approved panel list comprise law firms with well-established reputations in the type of litigation at issue. For clarity, the fact of a firm’s being part of a panel shall not be evidence of a firm’s having a well-established national reputation for the type of litigation at issue. If the Company assumes the defense of a Proceeding, then counsel for the Company and Indemnitee shall keep Indemnitee reasonably informed of the status of the Proceeding and promptly send to Indemnitee copies of all documents filed or produced in the Proceeding, and the Company shall not compromise or settle any such Proceeding without the written consent of the Indemnitee (which consent may not be unreasonably withheld or delayed) if the relief provided shall be other than monetary damages and shall promptly notify the Indemnitee of any settlement and the amount thereof.
13. Non-Exclusivity; Survival of Rights; Insurance; Subrogation; Contribution.
13.1 The rights of indemnification and to receive advancement of Expenses and, when eligible hereunder, judgments, penalties, fines and amounts paid in settlement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation or by-laws of the Company, any agreement, a vote of shareholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in Indemnitee’s Corporate Status prior to such amendment, alteration or repeal.
13.2 To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee, agent or fiduciary under such policy or policies.
13.3 In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are reasonably necessary to enable the Company to bring suit to enforce such rights.
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13.4 The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
13.5 If a determination is made that Indemnitee is not entitled to indemnification, after Indemnitee submits a written request therefor, under this Agreement, then in respect of any threatened, pending or completed Proceeding in which the Company is jointly liability with the Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of Expenses, judgments, penalties, fines and amounts paid in settlement by the Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and the Indemnitee on the other hand from the transaction from which Proceeding arose, and (ii) the relative fault of the Company on the one hand and of the Indemnitee on the other hand in connection with the events that resulted in such Expenses, judgments, penalties, fines or amounts paid in settlement, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of the Indemnitee on the other hand shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses, judgments, fines or amounts paid in settlement. The Company agrees that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or any other method of allocation that does not take into account the foregoing equitable considerations. The determination as to the amount of the contribution, if any, shall be made by: (i) a court of competent jurisdiction upon the application of both the Indemnitee and the Company (if the Proceeding had been brought in, and final determination had been rendered by such court); (ii) the Board by a majority vote of a quorum consisting of Disinterested Directors; or (iii) Independent Counsel, if a quorum is not obtainable for purpose of (ii) above, or, even if obtainable, a quorum of Disinterested Directors so directs.
14. Duration of Agreement.
This Agreement shall continue so long as Indemnitee may be subject to or a witness in any possible Proceeding in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder, and until one (1) year after the final termination of any such Proceeding then pending (including any rights of appeal thereto) and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating thereto (including any rights of appeal thereto). This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, heirs, executors, personal representatives and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform to the fullest extent permitted by applicable law.
15. Severability.
If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
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16. Entire Agreement.
This Agreement constitutes the entire agreement between the Company and the Indemnitee with respect to the subject matter hereof and supersedes all prior agreements, understanding, negotiations and discussion, both written and oral, between the parties hereto with respect to such subject matter (the “Prior Agreements”); provided, however, that if this Agreement shall ever be held void or unenforceable for any reasons whatsoever, and is not reformed pursuant to Section 15 hereof, then (i) this Agreement shall not be deemed to have superseded any Prior Agreements; (ii) all of such Prior Agreements shall be deemed to be in full force and effect notwithstanding the execution of this Agreement; and (iii) the Indemnitee shall be entitled to maximum indemnification benefits provided under any Prior Agreements, as well as those provided under applicable law, the certificate of incorporation or by-laws of the Company, a vote of shareholders or resolution of directors.
17. Exception to Right of Indemnification or Advancement of Expenses.
17.1 Except as provided in Section 11.5, Indemnitee shall not be entitled to indemnification or advancement of Expenses, judgments, penalties, fines and amounts paid in settlement under this Agreement with respect to any Proceeding, or any claim therein, brought or made by Indemnitee against the Company.
17.2 Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding, or any claim therein, arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Exchange Act or Company similar successor statute.
18. Covenant Not to Sue; Limitation of Actions; Release of Claims.
No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Company (or any of its subsidiaries) against the Indemnitee, Indemnitee’s spouse, heirs, executors, personal representatives or administrators after the expiration of two (2) years from the date of accrual of such cause of action and any claim or cause of action of the Company (or any of its subsidiaries) shall be extinguished and deemed released unless asserted by the filing of a legal action within such two (2) year period; provided, however, that if any shorter period of limitation is otherwise applicable to any such cause of action, such shorter period shall govern.
19. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.
20. Headings.
The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
21. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
22. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating any Proceeding or matter which may be subject to indemnification or advancement of Expenses, judgments, penalties, fines or amounts paid in settlement covered hereunder. The failure to notify the Company on a timely basis shall not constitute a waiver of Indemnitee’s rights under this Agreement, except to the extent that such failure or delay (i) causes the amounts paid or to be paid by the Company to be greater than they otherwise would have been, (ii) adversely affects the Company’s ability to obtain for itself or Indemnitee coverage or proceeds under any insurance policy available to the Company or Indemnitee, or (iii) otherwise results in prejudice to the Company.
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23. Notices.
All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom such notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
If to Indemnitee, to the address set forth in the signature page hereto.
If to the Company, to:
Elong Power Holding Limited
Gushan Standard Factory Building Project, Ganzhou New Energy Vehicle Technology City,
located at West Gushan Road and North Xingguang Road,
Ganzhou City, Jiangxi Province, 341000
PRC
or to such other address or such other person as Indemnitee or the Company shall designate in writing in accordance with this Section, except that notices regarding changes in notices shall be effective only upon receipt.
24. Governing Law.
The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and performed in that state without giving effect to the principles of conflicts of laws. The Company and Indemnitee each hereby irrevocably consents to the jurisdiction of the courts of the State of New York for all purposes in connection with any action or proceeding that arises out of or relates to this Agreement and agrees that any action instituted under this Agreement shall be brought only in the courts of the State of New York.
25. Monetary Damages Insufficient; Specific Performance.
The Company and Indemnitee agree that a monetary remedy for breach of this Agreement may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm (having agreed that actual and irreparable harm will result in not forcing the Company to specifically perform its obligations pursuant to this Agreement) and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of a bond or undertaking. If Indemnitee seeks mandatory injunctive relief, it shall not be a defense to enforcement of the Company’s obligations set forth in this Agreement that Indemnitee has an adequate remedy at law for damages.
26. Notice by Company.
If the Indemnitee is the subject of, or is, to the knowledge of the Company, implicated in any way during an investigation, whether formal or informal, that is related to Indemnitee’s Corporate Status and that reasonably could lead to a Proceeding for which indemnification can be provided under this Agreement, the Company shall notify the Indemnitee of such investigation and shall share (to the extent legally permissible) with Indemnitee any information it has provided to any third parties concerning the investigation (“Shared Information”). By executing this Agreement, Indemnitee agrees that such Shared Information is material non-public information that Indemnitee is obligated to hold in confidence and may not disclose publicly; provided, however, that Indemnitee may use the Shared Information and disclose such Shared Information to Indemnitee’s legal counsel and third parties, in each case solely in connection with defending Indemnitee from legal liability.
27. Mutual Acknowledgment.
Both the Company and Indemnitee acknowledge that, in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future in certain circumstances to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court for a determination of the Company’s right under public policy to indemnify Indemnitee.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
| ELONG POWER HOLDING LIMITED | ||
| By: | ||
| Name: | Xiaodan Liu | |
| Title: | Chief Executive Officer | |
| INDEMNITEE | ||
| Name: | ||
| Address: | ||
[Signature Page to Indemnification Agreement]
Exhibit 4.8
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of November 21, 2024, is made and entered into by and among Elong Power Holding Limited, a Cayman Islands exempted company (the “Company”), 2TM Holding LP, a Delaware limited partnership company (the “Sponsor”) and each additional undersigned party listed on the signature page hereto (each such party, together with the Sponsor, and any person or entity who hereafter becomes a party to this Agreement pursuant to Section 5.2 of this Agreement, a “Holder” and collectively the “Holders” and together with the Sponsor and the Company, the “Parties”). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Merger Agreement (as defined below).
RECITALS
WHEREAS, the Company entered into that certain Amended and Restated Agreement and Plan of Merger, dated as of February 29, 2024 (the “Merger Agreement”), by and among (i) the Company, (ii) TMT Acquisition Corp, a Cayman Islands exempted company (the “SPAC”) and (iii) ELong Power Inc., a Cayman Islands exempted company and a wholly-owned subsidiary of the Company (“Merger Sub”);
WHEREAS, the Merger Agreement provides, among other things, that, upon the terms and subject to the conditions thereof, Merger Sub will merge with and into the SPAC, with the SPAC continuing as the surviving entity and becoming a wholly-owned subsidiary of the Company, and at the Effective Time each issued and outstanding share of SPAC Ordinary Shares will be exchanged for such number of Company Class A Ordinary Shares as specified in the Merger Agreement;
WHEREAS, certain of the Holders (the “Sponsor Group”) are parties to that certain Registration Rights Agreement, dated March 27, 2023, by and among the SPAC, Sponsor and Maxim Group LLC (the “Prior Agreement”), pursuant to which the SPAC provided the Sponsor Group with certain rights relating to the registration of the securities held by them; and
WHEREAS, as a condition of, and as a material inducement for the parties to enter into and consummate the transactions contemplated by the Merger Agreement, the Parties desire to enter into this Agreement in connection with the Closing and to provide the Holders with certain rights relating to the registration of certain securities of the Company that will held by the Holders after the consummation of and as a result of the Business Combination.
NOW, THEREFORE, in consideration of the representations, covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The terms defined in this Article I shall, for all purposes of this Agreement, have the respective meanings set forth below:
“Adverse Disclosure” shall mean any public disclosure of material non-public information, which disclosure, in the good faith judgment of the Chief Executive Officer or principal financial officer of the Company, after consultation with counsel to the Company, (i) would be required to be made in any Registration Statement or Prospectus in order for the applicable Registration Statement or Prospectus not to contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein (in the case of any prospectus and any preliminary prospectus, in the light of the circumstances under which they were made) not misleading, (ii) would not be required to be made at such time if the Registration Statement were not being filed, and (iii) the Company has a bona fide business purpose for not making such information public.
“Agreement” shall have the meaning given in the Preamble.
“Board” shall mean the Board of Directors of the Company.
“Commission” shall mean the Securities and Exchange Commission.
“Company” shall have the meaning given in the Preamble.
“Demand Registration” shall have the meaning given in subsection 2.1.1.
“Demanding Holder” shall have the meaning given in subsection 2.1.1.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as it may be amended from time to time.
“Existing Shareholders” shall mean the shareholders of the Company as of immediately prior to the Effective Time who are party hereto as “Holders.”
“Form F-1” shall have the meaning given in subsection 2.1.1.
“Form F-3” shall have the meaning given in subsection 2.3.
“Founder Shares” shall mean the Company Class A Ordinary Shares to be exchanged for the SPAC Founder Shares pursuant to the Merger Agreement.
“Holders” shall have the meaning given in the Preamble.
“Maximum Number of Securities” shall have the meaning given in subsection 2.1.4.
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“Misstatement” shall mean an untrue statement of a material fact or an omission to state a material fact required to be stated in a Registration Statement or Prospectus, or necessary to make the statements in a Registration Statement or Prospectus not misleading (in the case of a Prospectus, in the light of the circumstances under which they were made).
“Parties” shall have the meaning given in the Preamble.
“Permitted Transferees” shall mean a person or entity to whom a holder of a SPAC Private Placement Unit is permitted to transfer such SPAC Private Placement Unit, or the underlying SPAC Ordinary Shares or Private Placement Shares, pursuant to this Agreement or any other applicable agreement.
“Piggyback Registration” shall have the meaning given in subsection 2.2.1.
“PIPE” shall mean the offer and sale of Company Class A Ordinary Shares and/or securities exercisable or exchangeable for, or convertible into, Company Class A Ordinary Shares, for cash, in a private placement or transaction pursuant to Regulation S to be consummated concurrently with the transactions contemplated by Merger Agreement.
“PIPE Documents” shall mean all subscription, securities purchase or similar agreements providing for the sale of the securities to the PIPE Investors in the PIPE, together with all other agreements and documents attached to, referenced in or otherwise executed or delivered in connection with such agreements or the transactions contemplated thereby, including the governing instrument of any security to be sold in the PIPE that is exercisable or exchangeable for, or convertible into, Company Class A Ordinary Shares.
“PIPE Investors” shall mean the purchasers in the PIPE who are party hereto as “Holders.”
“Prior Agreement” shall have the meaning given in the Recitals.
“Private Placement Shares” shall mean the Company Class A Ordinary Shares to be exchanged for the SPAC Ordinary Shares underlying the SPAC Private Placement Units pursuant to the Merger Agreement.
“Promissory Note Shares” means any Company Class A Ordinary Shares that may be exchanged for any SPAC Ordinary Shares underlying the convertible notes issued as evidence of Trust Account extension deposits or working capital loans made to the SPAC prior to the date hereof.
“Pro Rata” shall have the meaning given in subsection 2.1.4.
“Prospectus” shall mean the prospectus included in any Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all post-effective amendments and including all material incorporated by reference in such prospectus.
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“Registrable Security” shall mean (a) the Company Class A Ordinary Shares issued or issuable upon the conversion of any SPAC Ordinary Shares underlying the Founder Shares, the Representative Shares or the Private Placement Shares, (b) the Company Class A Ordinary Shares issued or issuable to the PIPE Investors pursuant to the PIPE Documents, and (c) any other equity security of the Company issued or issuable with respect to any such Company Class A Ordinary Shares by way of a share dividend or share split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization; provided, however, that, as to any particular Registrable Security, such securities shall cease to be Registrable Securities when: (A) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement; (B) such securities shall have been otherwise transferred, new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of such securities shall not require registration under the Securities Act; (C) such securities shall have ceased to be outstanding; (D) such securities may be sold without registration pursuant to Rule 144 promulgated under the Securities Act (or any successor rule promulgated thereafter by the Commission) (but with no volume or other restrictions or limitations); or (E) such securities have been sold to, or through, a broker, dealer or underwriter in a public distribution or other public securities transaction.
“Registration” shall mean a registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective.
“Registration Expenses” shall mean the out-of-pocket expenses of a Registration, including, without limitation, the following:
(A) all registration and filing fees (including fees with respect to filings required to be made with the Financial Industry Regulatory Authority, Inc.) and any securities exchange on which the Company Class A Ordinary Shares are then listed;
(B) fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the Underwriters in connection with blue sky qualifications of Registrable Securities);
(C) printing, messenger, telephone and delivery expenses;
(D) reasonable fees and disbursements of counsel for the Company;
(E) reasonable fees and disbursements of all independent registered public accountants of the Company incurred specifically in connection with such Registration; and
(F) reasonable fees and expenses of one (1) legal counsel selected by the majority-in-interest of the Demanding Holders initiating a Demand Registration to be registered for offer and sale in the applicable Registration.
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“Registration Statement” shall mean any registration statement that covers the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all material incorporated by reference in such registration statement.
“Representative Shares” shall mean the Company Class A Ordinary Shares to be exchanged for the SPAC Representative Shares pursuant to the Merger Agreement;
“Requesting Holder” shall have the meaning given in subsection 2.1.1.
“Securities Act” shall mean the Securities Act of 1933, as amended from time to time.
“SPAC Founder Shares” shall mean the 1,500,000 SPAC Ordinary Shares issued to the Sponsor pursuant to the SPAC IPO.
“SPAC IPO” shall mean the initial public offering of TMT Acquisition Corp, consummated on March 30, 2023.
“SPAC Private Placement Unit” shall mean the SPAC Units initially purchased by Sponsor under that certain Unit Subscription Agreement entered into between the SPAC and the Sponsor, dated March 27, 2023, pursuant to which the Sponsor agreed to purchase an aggregate of 370,000 SPAC Units at a purchase price of $10.00 per SPAC Unit. Prior to separation and conversion pursuant to the Merger Agreement, each SPAC Private Placement Unit was comprised of one SPAC Ordinary Share and one right to receive two-tenths (2/10) of one SPAC Ordinary Share.
SPAC Representative Shares” shall mean the 270,000 SPAC Ordinary Shares issued to Maxim Group LLC pursuant to the SPAC IPO.
“Sponsor” shall have the meaning given in the Recitals.
“Sponsor Group” shall have the meaning given in the Recitals.
“Underwriter” shall mean a securities dealer who purchases any Registrable Securities as principal in an Underwritten Offering (as defined below) and not as part of such dealer’s market-making activities.
“Underwritten Registration” or “Underwritten Offering” shall mean a Registration in which securities of the Company are sold to an Underwriter in a firm commitment underwriting for distribution to the public.
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ARTICLE II
REGISTRATIONS
2.1 Demand Registration.
2.1.1 Request for Registration. Subject to the provisions of subsection 2.1.4 and Section 2.4 hereof, at any time and from time to time on or after the date hereof, the Holders of at least a majority in interest of either (i) the then-outstanding number of Registrable Securities or (ii) the then-outstanding number of Registrable Securities held by PIPE Investors (the “Demanding Holders”) may make a written demand for Registration under the Securities Act of all or part of their Registrable Securities, which written demand shall describe the amount and type of securities to be included in such Registration and the intended method(s) of distribution thereof (such written demand a “Demand Registration”). The Company shall, within ten (10) days of the Company’s receipt of the Demand Registration, notify, in writing, all other Holders of Registrable Securities of such demand, and each Holder of Registrable Securities who thereafter wishes to include all or a portion of such Holder’s Registrable Securities in a Registration pursuant to a Demand Registration (each such Holder that includes all or a portion of such Holder’s Registrable Securities in such Registration, a “Requesting Holder”) shall so notify the Company, in writing, within five (5) days after the receipt by the Holder of the notice from the Company. Upon receipt by the Company of any such written notification from a Requesting Holder(s) to the Company, such Requesting Holder(s) shall be entitled to have their Registrable Securities included in a Registration pursuant to a Demand Registration and the Company shall effect, as soon thereafter as practicable, but not more than thirty (30) days immediately after the Company’s receipt of the Demand Registration, the Registration of all Registrable Securities requested by the Demanding Holders and Requesting Holders pursuant to such Demand Registration. Under no circumstances shall the Company be obligated to effect more than an aggregate of three (3) Registrations pursuant to a Demand Registration under this subsection 2.1.1 with respect to any or all Registrable Securities; provided, however, that a Registration shall not be counted for such purposes unless a Form F-1 or any similar long-form registration statement that may be available at such time (“Form F-1”) has become effective and all of the Registrable Securities requested by the Requesting Holders to be registered on behalf of the Requesting Holders in such Form F-1 Registration have been sold, in accordance with Section 3.1 of this Agreement.
2.1.2 Effective Registration. Notwithstanding the provisions of subsection 2.1.1 above or any other part of this Agreement, a Registration pursuant to a Demand Registration shall not count as a Registration unless and until (i) the Registration Statement filed with the Commission with respect to a Registration pursuant to a Demand Registration has been declared effective by the Commission and (ii) the Company has complied with all of its obligations under this Agreement with respect thereto; provided, further, that if, after such Registration Statement has been declared effective, an offering of Registrable Securities in a Registration pursuant to a Demand Registration is subsequently interfered with by any stop order or injunction of the Commission, federal or state court or any other governmental agency the Registration Statement with respect to such Registration shall be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise terminated, and (ii) a majority-in-interest of the Demanding Holders initiating such Demand Registration thereafter affirmatively elect to continue with such Registration and accordingly notify the Company in writing, but in no event later than five (5) days, of such election; and provided, further, that the Company shall not be obligated or required to file another Registration Statement until the Registration Statement that has been previously filed with respect to a Registration pursuant to a Demand Registration becomes effective or is subsequently terminated.
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2.1.3 Underwritten Offering. Subject to the provisions of subsection 2.1.4 and Section 2.4 hereof, if a majority-in-interest of the Demanding Holders so advise the Company as part of their Demand Registration that the offering of the Registrable Securities pursuant to such Demand Registration shall be in the form of an Underwritten Offering, then the right of such Demanding Holder or Requesting Holder (if any) to include its Registrable Securities in such Registration shall be conditioned upon such Holder’s participation in such Underwritten Offering and the inclusion of such Holder’s Registrable Securities in such Underwritten Offering to the extent provided herein. All such Holders proposing to distribute their Registrable Securities through an Underwritten Offering under this subsection 2.1.3 shall enter into an underwriting agreement in customary form with the Underwriter(s) selected for such Underwritten Offering by the majority-in-interest of the Demanding Holders initiating the Demand Registration.
2.1.4 Reduction of Underwritten Offering. If the managing Underwriter or Underwriters in an Underwritten Registration pursuant to a Demand Registration, in good faith, advises the Company, the Demanding Holders and the Requesting Holders (if any) in writing that the dollar amount or number of Registrable Securities that the Demanding Holders and the Requesting Holders (if any) desire to sell, taken together with all other Company Class A Ordinary Shares or other equity securities that the Company desires to sell and the Company Class A Ordinary Shares, if any, as to which a Registration has been requested pursuant to separate written contractual piggy-back registration rights held by any other shareholders who desire to sell, exceeds the maximum dollar amount or maximum number of equity securities that can be sold in the Underwritten Offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of such securities, as applicable, the “Maximum Number of Securities”), then the Company shall include in such Underwritten Offering, as follows: (i) first, the Registrable Securities of the Demanding Holders and the Requesting Holders (if any) (pro rata based on the respective number of Registrable Securities that each Demanding Holder and Requesting Holder (if any) has requested be included in such Underwritten Registration and the aggregate number of Registrable Securities that the Demanding Holders and Requesting Holders have requested be included in such Underwritten Registration (such proportion is referred to herein as “Pro Rata”)) that can be sold without exceeding the Maximum Number of Securities; (ii) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (i), the Registrable Securities of Holders (Pro Rata, based on the respective number of Registrable Securities that each Holder has so requested) exercising their rights to register their Registrable Securities pursuant to subsection 2.2.1 hereof, without exceeding the Maximum Number of Securities; and (iii) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i) and (ii), the Company Class A Ordinary Shares or other equity securities that the Company desires to sell, which can be sold without exceeding the Maximum Number of Securities; and (iv) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (i), (ii) and (iii), the Company Class A Ordinary Shares or other equity securities of other persons or entities that the Company is obligated to register in a Registration pursuant to separate written contractual arrangements with such persons and that can be sold without exceeding the Maximum Number of Securities.
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2.1.5 Demand Registration Withdrawal. A majority-in-interest of the Demanding Holders initiating a Demand Registration or a majority-in-interest of the Requesting Holders (if any), pursuant to a Registration under subsection 2.1.1 shall have the right to withdraw from a Registration pursuant to such Demand Registration for any or no reason whatsoever upon written notification to the Company and the Underwriter or Underwriters (if any) of their intention to withdraw from such Registration prior to the effectiveness of the Registration Statement filed with the Commission with respect to the Registration of their Registrable Securities pursuant to such Demand Registration. Notwithstanding anything to the contrary in this Agreement, the Company shall be responsible for the Registration Expenses incurred in connection with a Registration pursuant to a Demand Registration as provided in Section 3.3 prior to its withdrawal under this subsection 2.1.5.
2.2 Piggyback Registration.
2.2.1 Piggyback Rights. If, at any time on or after the date hereof, the Company proposes to file a Registration Statement under the Securities Act with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into equity securities, for its own account or for the account of shareholders of the Company (or by the Company and by the shareholders of the Company including, without limitation, pursuant to Section 2.1 hereof), other than a Registration Statement (i) filed in connection with any employee share option or other benefit plan, (ii) for an exchange offer or offering of securities solely to the Company’s existing shareholders, (iii) for an offering of debt that is convertible into equity securities of the Company or (iv) for a dividend reinvestment plan, then the Company shall give written notice of such proposed filing to all of the Holders of Registrable Securities as soon as practicable but not less than ten (10) days before the anticipated filing date of such Registration Statement, which notice shall (A) describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing Underwriter or Underwriters, if any, in such offering, and (B) offer to all of the Holders of Registrable Securities the opportunity to register the sale of such number of Registrable Securities as such Holders may request in writing within five (5) days after receipt of such written notice (such Registration a “Piggyback Registration”). The Company shall, in good faith, cause such Registrable Securities to be included in such Piggyback Registration and shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed Underwritten Offering to permit the Registrable Securities requested by the Holders pursuant to this subsection 2.2.1 to be included in a Piggyback Registration on the same terms and conditions as any similar securities of the Company included in such Registration and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All such Holders proposing to distribute their Registrable Securities through an Underwritten Offering under this subsection 2.2.1 shall enter into an underwriting agreement in customary form with the Underwriter(s) selected for such Underwritten Offering by the Company.
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2.2.2 Reduction of Piggyback Registration. If the managing Underwriter or Underwriters in an Underwritten Registration that is to be a Piggyback Registration, in good faith, advises the Company and the Holders of Registrable Securities participating in the Piggyback Registration in writing that the dollar amount or number of the Company Class A Ordinary Shares that the Company desires to sell, taken together with (i) the Company Class A Ordinary Shares, if any, as to which Registration has been demanded pursuant to separate written contractual arrangements with persons or entities other than the Holders of Registrable Securities hereunder (ii) the Registrable Securities as to which registration has been requested pursuant to Section 2.2 hereof, and (iii) the Company Class A Ordinary Shares, if any, as to which Registration has been requested pursuant to separate written contractual piggy-back registration rights of other shareholders of the Company, exceeds the Maximum Number of Securities, then:
(a) If the Registration is undertaken for the Company’s account, the Company shall include in any such Registration (A) first, the Company Class A Ordinary Shares or other equity securities that the Company desires to sell, which can be sold without exceeding the Maximum Number of Securities; (B) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (A), the Registrable Securities of Holders exercising their rights to register their Registrable Securities pursuant to subsection 2.2.1 hereof, Pro Rata, which can be sold without exceeding the Maximum Number of Securities; and (C) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A) and (B), the Company Class A Ordinary Shares, if any, as to which Registration has been requested pursuant to written contractual piggy-back registration rights of other shareholders of the Company, which can be sold without exceeding the Maximum Number of Securities;
(b) If the Registration is pursuant to a request by persons or entities other than the Holders of Registrable Securities, then the Company shall include in any such Registration (A) first, the Company Class A Ordinary Shares or other equity securities, if any, of such requesting persons or entities, other than the Holders of Registrable Securities, which can be sold without exceeding the Maximum Number of Securities; (B) second, to the extent that the Maximum Number of Securities has not been reached under the foregoing clause (A), the Registrable Securities of Holders exercising their rights to register their Registrable Securities pursuant to subsection 2.2.1, pro rata based on the number of Registrable Securities that each Holder has requested be included in such Underwritten Registration and the aggregate number of Registrable Securities that the Holders have requested to be included in such Underwritten Registration, which can be sold without exceeding the Maximum Number of Securities; (C) third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A) and (B), the Company Class A Ordinary Shares or other equity securities that the Company desires to sell, which can be sold without exceeding the Maximum Number of Securities; and (D) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A), (B) and (C), the Company Class A Ordinary Shares or other equity securities for the account of other persons or entities that the Company is obligated to register pursuant to separate written contractual arrangements with such persons or entities, which can be sold without exceeding the Maximum Number of Securities.
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2.2.3 Piggyback Registration Withdrawal. Any Holder of Registrable Securities shall have the right to withdraw from a Piggyback Registration for any or no reason whatsoever upon written notification to the Company and the Underwriter or Underwriters (if any) of his, her or its intention to withdraw from such Piggyback Registration prior to the effectiveness of the Registration Statement filed with the Commission with respect to such Piggyback Registration. The Company (whether on its own good faith determination or as the result of a request for withdrawal by persons pursuant to separate written contractual obligations) may withdraw a Registration Statement filed with the Commission in connection with a Piggyback Registration at any time prior to the effectiveness of such Registration Statement. Notwithstanding anything to the contrary in this Agreement, the Company shall be responsible for the Registration Expenses incurred in connection with the Piggyback Registration as provided in Section 3.2 prior to its withdrawal under this subsection 2.2.3.
2.2.4 Unlimited Piggyback Registration Rights. For purposes of clarity, any Registration effected pursuant to Section 2.2 hereof shall not be counted as a Registration pursuant to a Demand Registration effected under Section 2.1 hereof.
2.3 Registrations on Form F-3. The Holders of Registrable Securities may at any time, and from time to time, request in writing that the Company, pursuant to Rule 415 under the Securities Act (or any successor rule promulgated thereafter by the Commission), register the resale of any or all of their Registrable Securities on Form F-3 or any similar short form registration statement that may be available at such time (“Form F-3”); provided, however, that the Company shall not be obligated to effect such request through an Underwritten Offering. Within five (5) days of the Company’s receipt of a written request from a Holder or Holders of Registrable Securities for a Registration on Form F-3, the Company shall promptly give written notice of the proposed Registration on Form F-3 to all other Holders of Registrable Securities, and each Holder of Registrable Securities who thereafter wishes to include all or a portion of such Holder’s Registrable Securities in such Registration on Form F-3 shall so notify the Company, in writing, within ten (10) days after the receipt by the Holder of the notice from the Company. As soon as practicable thereafter, but not more than twelve (12) days after the Company’s initial receipt of such written request for a Registration on Form F-3, the Company shall register all or such portion of such Holder’s Registrable Securities as are specified in such written request, together with all or such portion of Registrable Securities of any other Holder or Holders joining in such request as are specified in the written notification given by such Holder or Holders; provided, however, that the Company shall not be obligated to effect any such Registration pursuant to Section 2.3 hereof if (i) a Form F-3 is not available for such offering; or (ii) the Holders of Registrable Securities, together with the Holders of any other equity securities of the Company entitled to inclusion in such Registration, propose to sell the Registrable Securities and such other equity securities (if any) at any aggregate price to the public of less than $5,000,000.
2.4 Restrictions on Registration Rights. If (A) during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of, and ending on a date one hundred and twenty (120) days after the effective date of, a Company initiated Registration and provided that the Company has delivered written notice to the Holders prior to receipt of a Demand Registration pursuant to subsection 2.1.1 and it continues to actively employ, in good faith, all reasonable efforts to cause the applicable Registration Statement to become effective; (B) the Holders have requested an Underwritten Registration and the Company and the Holders are unable to obtain the commitment of underwriters to firmly underwrite the offer; or (C) in the good faith judgment of the Board such Registration would be seriously detrimental to the Company and the Board concludes as a result that it is essential to defer the filing of such Registration Statement at such time, then in each case the Company shall furnish to such Holders a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board it would be seriously detrimental to the Company for such Registration Statement to be filed in the near future and that it is therefore essential to defer the filing of such Registration Statement. In such event, the Company shall have the right to defer such filing for a period of not more than thirty (30) days.
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ARTICLE III
COMPANY PROCEDURES
3.1 General Procedures. If at any time on or after the date hereof the Company is required to effect the Registration of Registrable Securities, the Company shall use its best efforts to effect such Registration to permit the sale of such Registrable Securities in accordance with the intended plan of distribution thereof, and pursuant thereto the Company shall, as expeditiously as possible:
3.1.1 prepare and file with the Commission as soon as practicable a Registration Statement with respect to such Registrable Securities and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective until all Registrable Securities covered by such Registration Statement have been sold;
3.1.2 prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be requested by the Holders or any Underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective until all Registrable Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to the Prospectus;
3.1.3 prior to filing a Registration Statement or Prospectus, or any amendment or supplement thereto, furnish without charge to the Underwriters, if any, and the Holders of Registrable Securities included in such Registration, and such Holders’ legal counsel, copies of such Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all exhibits thereto and documents incorporated by reference therein), the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such other documents as the Underwriters and the Holders of Registrable Securities included in such Registration or the legal counsel for any such Holders may request in order to facilitate the disposition of the Registrable Securities owned by such Holders;
3.1.4 prior to any public offering of Registrable Securities, use its best efforts to (i) register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States as the Holders of Registrable Securities included in such Registration Statement (in light of their intended plan of distribution) may request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be necessary or advisable to enable the Holders of Registrable Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify or take any action to which it would be subject to general service of process or taxation in any such jurisdiction where it is not then otherwise so subject;
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3.1.5 cause all such Registrable Securities included in any registration to be listed on such exchanges or otherwise designated for trading in the same manner as similar securities issued by the Company are then listed or designated or, if no such similar securities are then listed or designated, in a manner satisfactory to the holders of a majority-in-interest of the Registrable Securities included in such registration;
3.1.6 provide a transfer agent as applicable, and registrar for all such Registrable Securities no later than the effective date of such Registration Statement;
3.1.7 advise each seller of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued;
3.1.8 at least two (2) business days prior to the filing of any Registration Statement or Prospectus or any amendment or supplement to such Registration Statement or Prospectus or any document that is to be incorporated by reference into such Registration Statement or Prospectus, furnish a copy thereof to each seller of such Registrable Securities or its counsel;
3.1.9 notify the Holders at any time when a Prospectus relating to such Registration Statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes a Misstatement, and then to correct such Misstatement as set forth in Section 3.4 hereof;
3.1.10 permit a representative of the Holders (such representative to be selected by a majority of the participating Holders), the Underwriters, if any, and any attorney or accountant retained by such Holders or Underwriter to participate, at each such person’s own expense, in the preparation of the Registration Statement, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such representative, Underwriter, attorney or accountant in connection with the Registration; provided, however, that such representatives or Underwriters enter into a confidentiality agreement, in form and substance reasonably satisfactory to the Company, prior to the release or disclosure of any such information;
3.1.11 obtain a “cold comfort” letter from the Company’s independent registered public accountants in the event of an Underwritten Registration which the participating Holders may rely on, in customary form and covering such matters of the type customarily covered by “cold comfort” letters as the managing Underwriter may reasonably request, and reasonably satisfactory to a majority-in-interest of the participating Holders;
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3.1.12 on the date the Registrable Securities are delivered for sale pursuant to an Underwritten Registration, obtain an opinion, dated such date, of counsel representing the Company for the purposes of such Registration, addressed to the Holders, the placement agent or sales agent, if any, and the Underwriters, if any, covering such legal matters with respect to the Registration in respect of which such opinion is being given as the Holders, placement agent, sales agent, or Underwriter may reasonably request and as are customarily included in such opinions and negative assurance letters, and reasonably satisfactory to a majority in interest of the participating Holders;
3.1.13 in the event of any Underwritten Offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing Underwriter of such offering;
3.1.14 make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months beginning with the first day of the Company’s first full calendar quarter after the effective date of the Registration Statement which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any successor rule promulgated thereafter by the Commission);
3.1.15 if the Registration involves the Registration of Registrable Securities involving gross proceeds in excess of $60,000,000, use its reasonable efforts to make available senior executives of the Company to participate in customary “road show” presentations that may be reasonably requested by the Underwriter in any Underwritten Offering; and
3.1.16 otherwise, in good faith, cooperate reasonably with, and take such customary actions as may reasonably be requested by the Holders, in connection with such Registration.
3.2 Registration Expenses. The Registration Expenses of all Registrations shall be borne by the Company. It is acknowledged by the Holders that the Holders shall bear all incremental selling expenses relating to the sale of Registrable Securities, such as Underwriters’ commissions and discounts, brokerage fees, Underwriter marketing costs and, other than as set forth in the definition of “Registration Expenses,” all reasonable fees and expenses of any legal counsel representing the Holders.
3.3 Requirements for Participation in Underwritten Offerings. No person may participate in any Underwritten Offering for equity securities of the Company pursuant to a Registration initiated by the Company hereunder unless such person (i) agrees to sell such person’s securities on the basis provided in any underwriting arrangements approved by the Company and (ii) completes and executes all customary questionnaires, powers of attorney, indemnities, lock-up agreements, underwriting agreements and other customary documents as may be reasonably required under the terms of such underwriting arrangements.
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3.4 Suspension of Sales; Adverse Disclosure. Upon receipt of written notice from the Company that a Registration Statement or Prospectus contains a Misstatement, each of the Holders shall forthwith discontinue disposition of Registrable Securities until it has received copies of a supplemented or amended Prospectus correcting the Misstatement (it being understood that the Company hereby covenants to prepare and file such supplement or amendment as soon as practicable after the time of such notice), or until it is advised in writing by the Company that the use of the Prospectus may be resumed. If the filing, initial effectiveness or continued use of a Registration Statement in respect of any Registration at any time would require the Company to make an Adverse Disclosure or would require the inclusion in such Registration Statement of financial statements that are unavailable to the Company for reasons beyond the Company’s control, the Company may, upon giving prompt written notice of such action to the Holders, delay the filing or initial effectiveness of, or suspend use of, such Registration Statement for the shortest period of time, but in no event more than sixty (60) days, determined in good faith by the Company to be necessary for such purpose. In the event the Company exercises its rights under the preceding sentence, the Holders agree to suspend, immediately upon their receipt of the notice referred to above, their use of the Prospectus relating to any Registration in connection with any sale or offer to sell Registrable Securities. The Company shall immediately notify the Holders of the expiration of any period during which it exercised its rights under this Section 3.4.
3.5 Reporting Obligations. As long as any Holder shall own Registrable Securities, the Company, at all times while it shall be a reporting company under the Exchange Act, covenants to file timely (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true and complete copies of all such filings. The Company further covenants that it shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell the Company Class A Ordinary Shares held by such Holder without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act (or any successor rule promulgated thereafter by the Commission), including providing any legal opinions. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
4.1 Indemnification.
4.1.1 The Company agrees to indemnify, to the extent permitted by law, each Holder of Registrable Securities, its officers and directors and each person who controls such Holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including attorneys’ fees) caused by any untrue or alleged untrue statement of material fact contained in any Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such Holder expressly for use therein. The Company shall indemnify the Underwriters, their officers and directors and each person who controls such Underwriters (within the meaning of the Securities Act) to the same extent as provided in the foregoing with respect to the indemnification of the Holder.
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4.1.2 In connection with any Registration Statement in which a Holder of Registrable Securities is participating, such Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and agents and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses (including without limitation reasonable attorneys’ fees) resulting from any untrue statement of material fact contained in the Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such Holder expressly for use therein; provided, however, that the obligation to indemnify shall be several, not joint and several, among such Holders of Registrable Securities, and the liability of each such Holder of Registrable Securities shall be in proportion to and limited to the net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. The Holders of Registrable Securities shall indemnify the Underwriters, their officers, directors and each person who controls such Underwriters (within the meaning of the Securities Act) to the same extent as provided in the foregoing with respect to indemnification of the Company.
4.1.3 Any person entitled to indemnification herein shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person’s right to indemnification hereunder to the extent such failure has not materially prejudiced the indemnifying party) and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. No indemnifying party shall, without the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement which cannot be settled in all respects by the payment of money (and such money is so paid by the indemnifying party pursuant to the terms of such settlement) or which settlement does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
4.1.4 The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and shall survive the transfer of securities. The Company and each Holder of Registrable Securities participating in an offering also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Company’s or such Holder’s indemnification is unavailable for any reason.
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4.1.5 If the indemnification provided under Section 4.1 hereof from the indemnifying party is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities and expenses referred to herein, then the indemnifying party, in lieu of indemnifying the indemnified party, shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities and expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, was made by, or relates to information supplied by, such indemnifying party or indemnified party, and the indemnifying party’s and indemnified party’s relative intent, knowledge, access to information and opportunity to correct or prevent such action; provided, however, that the liability of any Holder under this subsection 4.1.5 shall be limited to the amount of the net proceeds received by such Holder in such offering giving rise to such liability. The amount paid or payable by a party as a result of the losses or other liabilities referred to above shall be deemed to include, subject to the limitations set forth in subsections 4.1.1, 4.1.2 and 4.1.3 above, any legal or other fees, charges or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this subsection 4.1.5 were determined by pro rata allocation or by any other method of allocation, which does not take account of the equitable considerations referred to in this subsection 4.1.5. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution pursuant to this subsection 4.1.5 from any person who was not guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
5.1 Notices. Any notice or communication under this Agreement must be in writing and given by (i) deposit in the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, (ii) delivery in person or by courier service providing evidence of delivery, or (iii) transmission by hand delivery, electronic mail, telecopy, telegram or facsimile. Each notice or communication that is mailed, delivered, or transmitted in the manner described above shall be deemed sufficiently given, served, sent, and received, in the case of mailed notices, on the third (3rd) business day following the date on which it is mailed and, in the case of notices delivered by courier service, hand delivery, electronic mail, telecopy, telegram or facsimile, at such time as it is delivered to the addressee (with the delivery receipt or the affidavit of messenger) or at such time as delivery is refused by the addressee upon presentation. Any notice or communication under this Agreement must be addressed, if to the Company, to: [●], and, if to any Holder, at such Holder’s address or contact information as set forth in the Company’s books and records. Any Party may change its address for notice at any time and from time to time by written notice to the other Parties, and such change of address shall become effective thirty (30) days after delivery of such notice as provided in this Section 5.1.
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5.2 Assignment; No Third Party Beneficiaries.
5.2.1 This Agreement and the rights, duties and obligations of the Company hereunder may not be assigned or delegated by the Company in whole or in part.
5.2.2 This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties and its successors and the permitted assigns of the Holders, which shall include Permitted Transferees.
5.2.3 This Agreement shall not confer any rights or benefits on any persons that are Parties, other than as expressly set forth in this Agreement and Section 5.2 hereof.
5.2.4 No assignment by any Party of such Party’s rights, duties and obligations hereunder shall be binding upon or obligate the Company unless and until the Company shall have received (i) written notice of such assignment as provided in Section 5.1 hereof and (ii) the written agreement of the assignee, in a form reasonably satisfactory to the Company, to be bound by the terms and provisions of this Agreement (which may be accomplished by an addendum or certificate of joinder to this Agreement). Any transfer or assignment made other than as provided in this Section 5.2 shall be null and void.
5.3 Counterparts. This Agreement may be executed in multiple counterparts (including facsimile or PDF counterparts), each of which shall be deemed an original, and all of which together shall constitute the same instrument, but only one of which need be produced.
5.4 Governing Law; Venue. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT (I) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO AGREEMENTS AMONG NEW YORK RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS OF SUCH JURISDICTION AND (II) THE VENUE FOR ANY ACTION TAKEN WITH RESPECT TO THIS AGREEMENT SHALL BE ANY STATE OR FEDERAL COURT IN NEW YORK COUNTY IN THE STATE OF NEW YORK.
5.5 Amendments and Modifications. Upon the written consent of the Company and the Holders of at least a majority in interest of the Registrable Securities at the time in question, compliance with any of the provisions, covenants and conditions set forth in this Agreement may be waived, or any of such provisions, covenants or conditions may be amended or modified; provided, however, that notwithstanding the foregoing, any amendment hereto or waiver hereof that adversely affects one Holder, solely in its capacity as a holder of the shares of the Company, in a manner that is materially different from the other Holders (in such capacity) shall require the consent of the Holder so affected. No course of dealing between any Holder or the Company and any other Party or any failure or delay on the part of a Holder or the Company in exercising any rights or remedies under this Agreement shall operate as a waiver of any rights or remedies of any Holder or the Company. No single or partial exercise of any rights or remedies under this Agreement by a party shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or thereunder by such Party.
5.6 Other Registration Rights. The Company represents and warrants that no person, other than a Holder of Registrable Securities, has any right to require the Company to register any securities of the Company for sale or to include such securities of the Company in any Registration filed by the Company for the sale of securities for its own account or for the account of any other person. Further, the Company represents and warrants that this Agreement supersedes any other registration rights agreement or agreement with similar terms and conditions, including the Prior Agreement, and in the event of a conflict between any such agreement or agreements and this Agreement, the terms of this Agreement shall prevail.
5.7 Term. This Agreement shall terminate upon the earlier of (i) the tenth anniversary of the date of this Agreement or (ii) the date as of which (A) all of the Registrable Securities have been sold pursuant to a Registration Statement (but in no event prior to the applicable period referred to in Section 4(a)(3) of the Securities Act and Rule 174 thereunder (or any successor rule promulgated thereafter by the Commission)) or (B) the Holders of all Registrable Securities are permitted to sell the Registrable Securities under Rule 144 (or any similar provision) under the Securities Act without limitation on the amount of securities sold or the manner of sale. The provisions of Section 3.5 and Article IV shall survive any termination.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
| COMPANY: | ||
eLong Power Holding Limited a Cayman Islands exempted company |
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| By: | ||
| Name: | Xiaodan Liu | |
| Title: | Director | |
[Signature Page to Amended and Restated Registration Rights Agreement]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above.
| HOLDER: | ||
| Holder Name | ||
| Signature | ||
| Signatory Name (if an entity) | ||
| Signatory Title (if an entity) |
[Signature Page to Amended and Restated Registration Rights Agreement]
Exhibit 11.1
Elong Power Holding Limited
Code of Ethics and Business Conduct
1. Introduction.
1.1 The Board of Directors of Elong Power Holding Limited (together with its subsidiaries, the “Company”) has adopted this Code of Ethics and Business Conduct (the “Code”) in order to:
(a) promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest;
(b) promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company;
(c) promote compliance with applicable governmental laws, rules and regulations;
(d) promote the protection of Company assets, including corporate opportunities and confidential information;
(e) promote fair dealing practices;
(f) deter wrongdoing; and
(g) ensure accountability for adherence to the Code.
1.2 All directors, officers and employees are required to be familiar with the Code, comply with its provisions and report any suspected violations as described below in Section 10, Reporting and Enforcement.
2. Honest and Ethical Conduct.
2.1 The Company’s policy is to promote high standards of integrity by conducting its affairs honestly and ethically.
2.2 Each director, officer and employee must act with integrity and observe the highest ethical standards of business conduct in his or her dealings with the Company’s customers, suppliers, partners, service providers, competitors, employees and anyone else with whom he or she has contact in the course of performing his or her job.
3. Conflicts of Interest.
3.1 A conflict of interest occurs when an individual’s private interest (or the interest of a member of his or her family) interferes, or even appears to interfere, with the interests of the Company as a whole. A conflict of interest can arise when an employee, officer or director (or a member of his or her family) takes actions or has interests that may make it difficult to perform his or her work for the Company objectively and effectively. Conflicts of interest also arise when an employee, officer or director (or a member of his or her family) receives improper personal benefits as a result of his or her position in the Company.
3.2 Loans by the Company to, or guarantees by the Company of obligations of, employees or their family members are of special concern and could constitute improper personal benefits to the recipients of such loans or guarantees, depending on the facts and circumstances. Loans by the Company to, or guarantees by the Company of obligations of, any director, officer, or their family members are expressly prohibited.
3.3 Whether or not a conflict of interest exists or will exist can be unclear. Conflicts of interest should be avoided unless specifically authorized as described in Section 3.4.
3.4 Persons other than directors and executive officers who have questions about a potential conflict of interest or who become aware of an actual or potential conflict should discuss the matter with, and seek a determination and prior authorization or approval from, their supervisor or the Compliance Officer. A supervisor may not authorize or approve conflict of interest matters or make determinations as to whether a problematic conflict of interest exists without first providing the Compliance Officer with a written description of the activity and seeking the Compliance Officer’s written approval. If the supervisor is themself involved in the potential or actual conflict, the matter should instead be discussed directly with the Compliance Officer.
Directors and executive officers must seek determinations and prior authorizations or approvals of potential conflicts of interest exclusively from the Audit Committee.
4. Compliance.
4.1 Employees, officers and directors should comply, both in letter and spirit, with all applicable laws, rules and regulations in the cities, states and countries in which the Company operates.
4.2 Although not all employees, officers and directors are expected to know the details of all applicable laws, rules and regulations, it is important to know enough to determine when to seek advice from appropriate personnel. Questions about compliance should be addressed to the Legal Department.
4.3 No director, officer or employee may purchase or sell any Company securities while in possession of material nonpublic information regarding the Company, nor may any director, officer or employee purchase or sell another company’s securities while in possession of material nonpublic information regarding that company. It is against Company policies and illegal for any director, officer or employee to use material nonpublic information regarding the Company or any other company to:
(a) obtain profit for themself; or
(b) directly or indirectly “tip” others who might make an investment decision on the basis of that information.
5. Disclosure.
5.1 The Company’s periodic reports and other documents filed with the SEC, including all financial statements and other financial information, must comply with applicable federal securities laws and SEC rules.
5.2 Each director, officer and employee who contributes in any way to the preparation or verification of the Company’s financial statements and other financial information must ensure that the Company’s books, records and accounts are accurately maintained. Each director, officer and employee must cooperate fully with the Company’s accounting and internal audit departments, as well as the Company’s independent public accountants and counsel.
5.3 Each director, officer and employee who is involved in the Company’s disclosure process must:
(a) be familiar with and comply with the Company’s disclosure controls and procedures and its internal control over financial reporting; and
(b) take all necessary steps to ensure that all filings with the SEC and all other public communications about the financial and business condition of the Company provide full, fair, accurate, timely and understandable disclosure.
6. Protection and Proper Use of Company Assets.
6.1 All directors, officers and employees should protect the Company’s assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company’s profitability and are prohibited.
6.2 All Company assets should be used only for legitimate business purposes. Any suspected incident of fraud or theft should be reported for investigation immediately.
6.3 The obligation to protect Company assets includes the Company’s proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business and marketing plans, engineering and manufacturing ideas, designs, databases, records and any nonpublic financial data or reports. Unauthorized use or distribution of this information is prohibited and could also be illegal and result in civil or criminal penalties.
7. Corporate Opportunities. All directors, officers and employees owe a duty to the Company to advance its interests when the opportunity arises. Directors, officers and employees are prohibited from taking for themselves personally (or for the benefit of friends or family members) opportunities that are discovered through the use of Company assets, property, information or position. Directors, officers and employees may not use Company assets, property, information or position for personal gain (including gain of friends or family members). In addition, no director, officer or employee may compete with the Company.
8. Confidentiality. Directors, officers and employees should maintain the confidentiality of information entrusted to them by the Company or by its customers, suppliers or partners, except when disclosure is expressly authorized or is required or permitted by law. Confidential information includes all nonpublic information (regardless of its source) that might be of use to the Company’s competitors or harmful to the Company or its customers, suppliers or partners if disclosed.
9. Fair Dealing. Each director, officer and employee must deal fairly with the Company’s customers, suppliers, partners, service providers, competitors, employees and anyone else with whom he or she has contact in the course of performing his or her job. No director, officer or employee may take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of facts or any other unfair dealing practice.
10. Reporting and Enforcement.
10.1 Reporting and Investigation of Violations.
(a) Actions prohibited by this Code involving directors or executive officers must be reported to the Audit Committee.
(b) Actions prohibited by this Code involving anyone other than a director or executive officer must be reported to the reporting person’s supervisor or the Compliance Officer.
(c) After receiving a report of an alleged prohibited action, the Audit Committee, the relevant supervisor, or the Compliance Officer must promptly take all appropriate actions necessary to investigate.
(d) All directors, officers and employees are expected to cooperate in any internal investigation of misconduct.
10.2 Enforcement.
(a) The Company must ensure prompt and consistent action against violations of this Code.
(b) If, after investigating a report of an alleged prohibited action by a director or executive officer, the Audit Committee determines that a violation of this Code has occurred, the Audit Committee will report such determination to the Board of Directors.
(c) If, after investigating a report of an alleged prohibited action by any other person, the relevant supervisor or the Compliance Officer determines that a violation of this Code has occurred, the relevant supervisor or Compliance Officer will report such determination to the General Counsel.
(d) Upon receipt of a determination that there has been a violation of this Code, the Board of Directors or the General Counsel will take such preventative or disciplinary action as it deems appropriate, including, but not limited to, reassignment, demotion, dismissal and, in the event of criminal conduct or other serious violations of the law, notification of appropriate governmental authorities.
10.3 Waivers.
(a) Each of the Board of Directors (in the case of a violation by a director or executive officer) and the General Counsel (in the case of a violation by any other person) may, in its discretion, waive any violation of this Code.
(b) Any waiver for a director or an executive officer shall be disclosed as required by SEC and Nasdaq rules.
10.4 Prohibition on Retaliation.
The Company does not tolerate acts of retaliation against any director, officer or employee who makes a good faith report of known or suspected acts of misconduct or other violations of this Code.
Acknowledgment of Receipt and Review
To be signed and returned to the Compliance Officer.
I, the undersigned, acknowledge that I have received and read a copy of the Elong Power Holding Limited (the “Company”) Code of Ethics (the “Code”) and Business Conduct. I understand the contents of the Code and I agree to comply with the policies and procedures set out in the Code.
I understand that I should approach the Compliance Officer if I have any questions about the Code generally or any questions about reporting a suspected conflict of interest or other violation of the Code.
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| (Signature) | ||
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| (Please print name) | ||
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Date: |
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Exhibit 11.2
Elong Power Holding Limited
Policy on Insider Trading
This Insider Trading Policy describes the standards of Elong Power Holding Limited and its subsidiaries (the “Company”) on trading, and causing the trading of, the Company’s securities or securities of certain other publicly traded companies while in possession of confidential information. This Policy is divided into two parts: the first part prohibits trading in certain circumstances and applies to all directors, officers, employees and consultants of the Company and their respective immediate family members, and the second part imposes special additional trading restrictions and applies to all (i) directors of the Company, (ii) executive officers of the Company (together with the directors, “Company Insiders”) and (iii) persons that the Company may designate from time to time as “Covered Persons” because of their position, responsibilities or their actual or potential access to material information ((i) through (iii), collectively, “Covered Persons”).
One of the principal purposes of the federal securities laws is to prohibit so-called “insider trading.” Simply stated, insider trading occurs when a person uses material nonpublic information obtained through involvement with the Company to make decisions to purchase, sell, give away or otherwise trade the Company’s securities or the securities of certain other companies or to provide that information to others outside the Company. The prohibitions against insider trading apply to trades, tips and recommendations by virtually any person, including all persons associated with the Company, if the information involved is “material” and “nonpublic.” These terms are defined in this Policy under Part I, Section 3 below. The prohibitions would apply to any director, officer, employee or consultant who buys or sells securities on the basis of material nonpublic information that he or she obtained about the Company, its customers, suppliers, partners, competitors or other companies with which the Company has contractual relationships or may be negotiating transactions.
PART I
| 1. | Applicability |
This Policy applies to all trading or other transactions in (i) the Company’s securities, including common stock, options and any other securities that the Company may issue, such as preferred stock, notes, bonds and convertible securities, as well as to derivative securities relating to any of the Company’s securities, whether or not issued by the Company and (ii) the securities of certain other companies, including common stock, options and other securities issued by those companies as well as derivative securities relating to any of those companies’ securities, where the person trading used information obtained while working for the Company.
This Policy applies to all officers, employees and consultants of the Company and to all members of the Company’s board of directors and their respective family members.
| 2. | General Policy: No Trading or Causing Trading While in Possession of Material Nonpublic Information |
(a) No director, officer, employee, consultant or any of their immediate family members may purchase or sell, or offer to purchase or sell, any Company security, whether or not issued by the Company, while in possession of material nonpublic information about the Company. (The terms “material” and “nonpublic” are defined in Part I, Section 3(a) and (b) below.)
(b) No director, officer, employee, consultant or any of their immediate family members who knows of any material nonpublic information about the Company may communicate that information to (“tip”) any other person, including family members and friends, or otherwise disclose such information without the Company’s authorization.
(c) No director, officer, employee, consultant or any of their immediate family members may purchase or sell any security of any other company while in possession of material nonpublic information that was obtained in the course of his or her involvement with the Company. No director, officer, employee, consultant or any of their immediate family members who know of any such material nonpublic information may communicate that information to, or tip, any other person, including family members and friends, or otherwise disclose such information without the Company’s authorization.
(d) For compliance purposes, you should never trade, tip or recommend securities (or otherwise cause the purchase or sale of securities) while in possession of information that you have reason to believe is material and nonpublic unless you first consult with, and obtain the advance approval of, the Compliance Officer (which is defined in Part I, Section 3(c) below).
| 3. | Definitions |
(a) Material. Insider trading restrictions come into play only if the information you possess is “material.” Materiality, however, involves a relatively low threshold. Information is generally regarded as “material” if it has market significance, that is, if its public dissemination is likely to affect the market price of securities, or if it otherwise is information that a reasonable investor would want to know before making an investment decision.
Information dealing with the following subjects is reasonably likely to be found material in particular situations:
(i) significant changes in the Company’s prospects;
(ii) significant write-downs in assets or increases in reserves;
(iii) developments regarding significant litigation or government agency investigations;
(iv) liquidity problems;
(v) changes in earnings estimates or unusual gains or losses in major operations;
(vi) major changes in the Company’s management or the board of directors;
(vii) changes in dividends;
(viii) extraordinary borrowings;
(ix) major changes in accounting methods or policies;
(x) award or loss of a significant contract;
(xi) cybersecurity risks and incidents, including vulnerabilities and breaches;
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(xii) changes in debt ratings;
(xiii) proposals, plans or agreements, even if preliminary in nature, involving mergers, acquisitions, divestitures, recapitalizations, strategic alliances, licensing arrangements, or purchases or sales of substantial assets; and
(xiv) offerings of Company securities.
Material information is not limited to historical facts but may also include projections and forecasts. With respect to a future event, such as a merger, acquisition or introduction of a new product, the point at which negotiations or product development are determined to be material is determined by balancing the probability that the event will occur against the magnitude of the effect the event would have on a company’s operations or stock price should it occur. Thus, information concerning an event that would have a large effect on stock price, such as a merger, may be material even if the possibility that the event will occur is relatively small. When in doubt about whether particular nonpublic information is material, you should presume it is material.
If you are unsure whether information is material, you should either consult the Compliance Officer before making any decision to disclose such information (other than to persons who need to know it) or to trade in or recommend securities to which that information relates or assume that the information is material.
(b) Nonpublic. Insider trading prohibitions come into play only when you possess information that is material and “nonpublic.” The fact that information has been disclosed to a few members of the public does not make it public for insider trading purposes. To be “public” the information must have been disseminated in a manner designed to reach investors generally, and the investors must be given the opportunity to absorb the information. Even after public disclosure of information about the Company, you must wait until the close of business on the second trading day after the information was publicly disclosed before you can treat the information as public.
Nonpublic information may include:
(i) information available to a select group of analysts or brokers or institutional investors;
(ii) undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; and
(iii) information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been made and enough time has elapsed for the market to respond to a public announcement of the information (normally two trading days).
As with questions of materiality, if you are not sure whether information is considered public, you should either consult with the Compliance Officer or assume that the information is nonpublic and treat it as confidential.
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(c) Compliance Officer. The Company has appointed the Chief Executive Officer as the Compliance Officer for this Policy. The duties of the Compliance Officer include, but are not limited to, the following:
(i) assisting with implementation and enforcement of this Policy;
(ii) circulating this Policy to all directors, officers, employees and consultants and ensuring that this Policy is amended as necessary to remain up-to-date with insider trading laws;
(iii) pre-clearing all trading in securities of the Company by Covered Persons in accordance with the procedures set forth in Part II, Section 3 below;
(iv) providing approval of any Rule 10b5-1 plans under Part II, Section 1(c) below and any prohibited transactions under Part II, Section 4 below; and
(v) providing a reporting system with an effective whistleblower protection mechanism.
| 4. | Exceptions |
The trading restrictions of this Policy do not apply to the following:
(a) 401(k) Plan. Investing 401(k) plan contributions in a Company stock fund in accordance with the terms of the Company’s 401(k) plan. However, any changes in your investment election regarding the Company’s stock are subject to trading restrictions under this Policy.
(b) ESPP. Purchasing Company stock through periodic, automatic payroll contributions to the Company’s employee stock purchase plana (“ESPPs”) if the Company has any ESPPs. However, electing to enroll in an ESPP, making any changes in your elections under an ESPP and selling any Company stock acquired under an ESPP are subject to trading restrictions under this Policy.
(c) Options. Exercising stock options granted under the Company’s incentive equity plans (“Equity Plans”) for cash or the delivery of previously owned Company stock. However, the sale of any shares issued on the exercise of any stock options granted under any Equity Plans and any cashless exercise of any stock options granted under any Equity Plans are subject to trading restrictions under this Policy.
| 5. | Violations of Insider Trading Laws |
Penalties for trading on or communicating material nonpublic information can be severe, both for individuals involved in such unlawful conduct and their employers and supervisors, and may include jail terms, criminal fines, civil penalties and civil enforcement injunctions. Given the severity of the potential penalties, compliance with this Policy is absolutely mandatory.
(a) Legal Penalties. A person who violates insider trading laws by engaging in transactions in a company’s securities when he or she has material nonpublic information can be sentenced to a substantial jail term and required to pay a criminal penalty of several times the amount of profits gained or losses avoided.
In addition, a person who tips others may also be liable for transactions by the tippees to whom he or she has disclosed material nonpublic information. Tippers can be subject to the same penalties and sanctions as the tippees, and the SEC has imposed large penalties even when the tipper did not profit from the transaction.
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The SEC can also seek substantial civil penalties from any person who, at the time of an insider trading violation, “directly or indirectly controlled the person who committed such violation,” which would apply to the Company and/or management and supervisory personnel. These control persons may be held liable for up to the greater of $2,301,065 or three times the amount of the profits gained or losses avoided. Even for violations that result in a small or no profit, the SEC can seek penalties from a company and/or its management and supervisory personnel as control persons.
(b) Company-Imposed Penalties. Persons who violate this Policy may be subject to disciplinary action by the Company, including dismissal for cause. Any exceptions to the Policy, if permitted, may only be granted by the Compliance Officer and must be provided before any activity contrary to the above requirements takes place.
| 6. | Inquiries |
If you have any questions regarding any of the provisions of this Policy, please contact the Compliance Officer, Luyi Wang, by email at wangluyi@elongpower.com or by telephone at (86)186-8610-6992.
PART II
| 1. | Blackout Periods |
All Covered Persons are prohibited from trading in the Company’s securities during blackout periods as defined below.
(a) Regular Blackout Periods. Trading in the Company’s securities is prohibited during the period beginning at the close of the market on the date that is two weeks before the end of each fiscal period for which the Company publicly discloses its financial results and ending at the close of business on the second trading day following the date the Company’s financial results are publicly disclosed and Form 6-K or Form 20-F is filed. During these periods, Covered Persons generally possess or are presumed to possess material nonpublic information about the Company’s financial results.
(b) Other Blackout Periods. From time to time, other types of material nonpublic information regarding the Company (such as negotiation of mergers, acquisitions or dispositions, investigation and assessment of cybersecurity incidents or new product developments) may be pending and not be publicly disclosed. While such material nonpublic information is pending, the Company may impose special blackout periods during which Covered Persons are prohibited from trading in the Company’s securities. If the Company imposes a special blackout period, it will notify the Covered Persons affected.
(c) Exception. These trading restrictions do not apply to transactions under a pre-existing written plan, contract, instruction, or arrangement under Rule 10b5-1 under the Securities Exchange Act of 1934 (an “Approved 10b5-1 Plan”) that meet the following requirements:
(i) it has been reviewed and approved by the Compliance Officer at least five days in advance of being entered into (or, if revised or amended, such proposed revisions or amendments have been reviewed and approved by the Compliance Officer at least five days in advance of being entered into);
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(ii) it provides that no trades may occur thereunder until expiration of the applicable cooling-off period specified in Rule 10b5-1(c)(ii)(B), and no trades occur until after that time. The appropriate cooling-off period will vary based on the status of the Covered Person. For directors and officers, the cooling-off period ends on the later of (x) ninety days after adoption or certain modifications of the 10b5-1 plan; or (y) two business days following disclosure of the Company’s financial results in a Form 20-F or Form 6-K for the quarter in which the 10b5-1 plan was adopted. For all other Covered Persons, the cooling-off period ends 30 days after adoption or modification of the 10b5-1 plan. This required cooling-off period will apply to the entry into a new 10b5-1 plan and any revision or modification of a 10b5-1 plan;
(iii) it is entered into in good faith by the Covered Person, and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1, at a time when the Covered Person is not in possession of material nonpublic information about the Company; and, if the Covered Person is a director or officer, the 10b5-1 plan must include representations by the Covered Person certifying to that effect;
(iv) it gives a third party the discretionary authority to execute such purchases and sales, outside the control of the Covered Person, so long as such third party does not possess any material nonpublic information about the Company; or explicitly specifies the security or securities to be purchased or sold, the number of shares, the prices and/or dates of transactions, or other formula(s) describing such transactions; and
(v) it is the only outstanding Approved 10b5-1 Plan entered into by the Covered Person (subject to the exceptions set out in Rule 10b5-1(c)(ii)(D)).
No Approved 10b5-1 Plan may be adopted during a blackout period.
If you are considering entering into, modifying or terminating an Approved 10b5-1 Plan or have any questions regarding Approved Rule 10b5-1 Plans, please contact the Compliance Officer, Luyi Wang, by email at wangluyi@elongpower.com or by telephone at (86)186-8610-6992. You should consult your own legal and tax advisors before entering into, or modifying or terminating, an Approved 10b5-1 Plan. A trading plan, contract, instruction or arrangement will not qualify as an Approved 10b5-1 Plan without the prior review and approval of the Compliance Officer as described above.
| 2. | Trading Window |
Covered Persons are permitted to trade in the Company’s securities when no blackout period is in effect. Generally, this means that Covered Persons can trade during the period beginning at the close of business on the second trading day following the date the Company’s financial results are publicly disclosed and Form 6-K or Form 20-F is filed and ending at the close of the market on the date that is two weeks before the end of each fiscal quarter. However, even during this trading window, a Covered Person who is in possession of any material nonpublic information should not trade in the Company’s securities until the information has been made publicly available or is no longer material. In addition, the Company may close this trading window if a special blackout period under Part II, Section 1(b) above is imposed and will re-open the trading window once the special blackout period has ended.
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| 3. | Pre-Clearance of Securities Transactions |
(a) Because Company Insiders are likely to obtain material nonpublic information on a regular basis, the Company requires all such persons to refrain from trading, even during a trading window under Part II, Section 2 above, without first pre-clearing all transactions in the Company’s securities.
(b) Subject to the exemption in subsection (d) below, no Company Insider may, directly or indirectly, purchase or sell (or otherwise make any transfer, gift, pledge or loan of) any Company security at any time without first obtaining prior approval from the Compliance Officer. These procedures also apply to transactions by such person’s spouse, other persons living in such person’s household and minor children and to transactions by entities over which such person exercises control.
(c) The Compliance Officer shall record the date each request is received and the date and time each request is approved or disapproved. Unless revoked, a grant of permission will normally remain valid until the close of trading two business days following the day on which it was granted. If the transaction does not occur during the two-day period, pre-clearance of the transaction must be re-requested.
(d) Pre-clearance is not required for purchases and sales of securities under an Approved 10b5-1 Plan once the applicable cooling-off period has expired. No trades may be made under an Approved 10b5-1 Plan until expiration of the applicable cooling-off period. With respect to any purchase or sale under an Approved 10b5-1 Plan, the third party effecting transactions on behalf of the Company Insider should be instructed to send duplicate confirmations of all such transactions to the Compliance Officer.
| 4. | Prohibited Transactions |
(a) Company Insiders are prohibited from trading in the Company’s equity securities during a blackout period imposed under an “individual account” retirement or pension plan of the Company, during which at least 50% of the plan participants are unable to purchase, sell or otherwise acquire or transfer an interest in equity securities of the Company, due to a temporary suspension of trading by the Company or the plan fiduciary.
(b) Covered Persons, including any person’s spouse, other persons living in such person’s household and minor children and entities over which such person exercises control, are prohibited from engaging in the following transactions in the Company’s securities unless advance approval is obtained from the Compliance Officer:
(i) Short-term trading. Company Insiders who purchase Company securities may not sell any Company securities of the same class for at least six months after the purchase;
(ii) Short sales. Covered Persons may not sell the Company’s securities short;
(iii) Options trading. Covered Persons may not buy or sell puts or calls or other derivative securities on the Company’s securities;
(iv) Trading on margin or pledging. Covered Persons may not hold Company securities in a margin account or pledge Company securities as collateral for a loan; and
(v) Hedging. Covered Persons may not enter into hedging or monetization transactions or similar arrangements with respect to Company securities.
| 5. | Acknowledgment and Certification |
All Covered Persons are required to sign the attached acknowledgment and certification.
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ACKNOWLEDGMENT AND CERTIFICATION
The undersigned does hereby acknowledge receipt of the Elong Power Holding Limited (the “Company”) Insider Trading Policy (the “Policy”). The undersigned has read and understands (or has had explained) such Policy and agrees to be governed by such Policy at all times in connection with the purchase and sale of securities and the confidentiality of nonpublic information.
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Date: |
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Exhibit 99.1
ELONG’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, all references in this section to the “Company,” “Elong,” “Elong Power,” “we,” “us,” or “our” refer to Elong Power Holding Limited. Other capitalized terms used but not defined in this exhibit have the meanings given to them in the Shell Company Report on Form 20-F to which this exhibit is attached (the “Form 20-F”).
The following discussion and analysis of our financial condition and results of operations for the six months ended June 30, 2024, should be read together with our unaudited condensed consolidated financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors. We caution that assumptions, expectations, projections, intentions, or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see the information set forth and incorporated by reference in the Form 20-F under “Cautionary Note Regarding Forward-Looking Statements” and under Item 3.D, “Risk Factors.”
Overview
Elong Power was incorporated under the laws of the Cayman Islands on August 18, 2023. Elong Power, through its subsidiaries noted below, specializes in the R&D, production and market application of high-power lithium-ion battery packs, cells and parts for electric vehicles and construction machinery. The Company’s lower-cost, high power and fast-charging battery packs are designed specifically for commercial vehicles and specialty vehicles.
Prior to the incorporation of Elong and starting in January 2014, the business was carried out under Huizhou City Yipeng Energy Technology Co., Ltd. (“Huizhou Yipeng”) and its subsidiaries. Elong and its subsidiaries were controlled by a group of shareholders, individual and institutional, with voting agreements to vote consensually concerning operation and development matters.
Through our operating subsidiaries, we are committed to the R&D, manufacturing, sales and service of high-power lithium-ion batteries for electric vehicles and construction machinery, as well as large-capacity, long-cycle lithium-ion batteries for energy storage systems. With a comprehensive product and technology system that includes battery cells, modules, system integration, and battery management system (“BMS”) development, based on high-power lithium-ion batteries and battery system products for long-cycle energy storage devices, we will offer advanced energy applications and full lifecycle services, with a product portfolio covering lithium manganese oxide and lithium iron phosphate, among others, to meet the needs of high-power applications and energy storage applications in various scenarios.
Huizhou Yipeng Energy Technology Co., Ltd. (“Huizhou Yipeng”) was established in 2014 and is recognized as a high-tech enterprise in Guangdong Province; Ganzhou Yipeng Energy Technology Co., Ltd. (“Ganzhou Yipeng”) is a wholly-owned subsidiary of Huizhou Yipeng, established in 2018, being a large-scale industrial enterprise in Jiangxi Province. In 2020, we entered the field of heavy-duty mining trucks industry. In 2022, the second phase of the industrial park in Ganzhou Yipeng covering an area of 100 acres and 94,000 square meters of factory space was completed. We have been dedicated to the development of high-power batteries. Starting from 2014 with 1-2C fast charging batteries, we launched 3C fast charging batteries in 2016, 4C fast charging batteries in 2019, and 6C fast charging batteries in 2020, all of which are forefront of the industry.
Our business revenue and profits are derived from the operation of our main business, which involves generating sales revenue by providing customers with products such as high-power lithium-ion battery packs and battery cells. As for the Company’s energy storage systems business, as of June 30, 2024 there were orders in place and no sales have yet been generated.
In preparation for listing on the U.S. Exchange Market via merging with a special purpose acquisition company traded in NASDAQ, the Company completed a reorganization (the “Reorganization”) by November 2023, which involved the following steps:
On October 8, 2023, all shareholders of Huizhou Yipeng entered into Huizhou Yipeng’s Reorganization Framework Agreement to vote consensually concerning operation and development matters of the Elong and its subsidiaries. For additional information, see Note 1(b) – History of the Company and Reorganization, in the unaudited condensed consolidated financial statements as of June 30, 2024.
| ● | On August 18, 2023, Elong was established under the laws of the Cayman Islands. | |
| ● | On September 20, 2023, Elong Power International Co, Limited (“Elong Power International”) was incorporated in British Virgin Islands as a wholly owned subsidiary of Elong. | |
| ● | On October 8, 2023, all shareholders of Huizhou Yipeng entered into Reorganization Framework Agreement regarding the setting up a Wholly Foreign-Owned Enterprise, transferring their equity interests in RMB1 to such proposed Wholly Foreign-Owned Enterprise, and further holding the future shares of Elong at the Cayman level in order to participate in the future overseas De-SPAC listing, which include issuing ordinary shares and warrant shares to be converted into Class A ordinary shares. For more information, please see Note 18, Equity, in the unaudited condensed consolidated financial statements as of June 30, 2024 and for the six months ended June 30, 2024 and 2023. | |
| ● | On October 9, 2023, Elong Power (Hong Kong) International Limited (“Elong Power (Hong Kong)”) was incorporated in Hong Kong as a wholly owned subsidiary of Elong Power International. | |
| ● | On November 2, 2023, Elong Power (Ganzhou) Co., Ltd. (“Elong Power (Ganzhou)” or “WFOE”) was established in PRC as a wholly owned subsidiary of Elong Power (Hong Kong). Elong Power (Ganzhou) obtained 100% of the equity interests of Huizhou Yipeng through the unanimous agreement of all shareholders of Huizhou Yipeng under the terms of Huizhou Yipeng’s Reorganization Framework Agreement. |
By November 17, 2023, Elong owned 100% stake in Elong Power (Ganzhou) through the following transactions:
| ● | Elong issued 6,845,290 Elong Class A Ordinary Shares at par value to four entities who were original shareholders of Huizhou Yipeng before the reorganization. | |
| ● | Elong issued 16,538,142 Elong Class B Ordinary Shares at par value to the Supporting Shareholder, Gracedan Co., Limited, the holder of all the issued and outstanding Elong Class B Ordinary Shares, the holder of a majority of the total voting power of Elong and the anticipated holder of in excess of 85% of the voting power of New Elong following consummation of the Business Combination, as described herein, which is 100% owned by Xiaodan Liu, Elong’s Chief Executive Officer and Chairman of the Board. Ms. Liu was one of the controlling persons of Huizhou Yipeng before the reorganization. | |
| ● | Elong issued warrants to purchase 105,430,851 Elong Class A Ordinary Shares (the “Elong Warrants”) to nine institutional shareholders who were original shareholders of Huizhou Yipeng before the reorganization. The Elong Warrants had an exercise price of US$0.00001 per share. |
The exchanges described above reflected the ownership ratios in Huizhou Yipeng before the reorganization and also the terms of Huizhou Yipeng’s Reorganization Framework Agreement. On November [●], 2024, the Elong Warrants were exercised in full.
Immediately before and after the reorganization as described above, Elong together with its subsidiaries were effectively controlled by the same controlling shareholders, and given no change on control, the transaction is accounted for as business combination under common control.
For financial reporting purpose, the acquisition of Huizhou Yipeng represented a transaction between entities under common control, resulted in a change in reporting entity and required retrospective combination of entities for all periods presented, as if the combination has been in effect since the inception of common control. Accordingly, the unaudited condensed consolidated financial statements of Elong and subsidiaries reflect the accounting of the combined subsidiaries at historical carrying values, except that equity reflects the equity of Elong.
Recent Developments
On February 29, 2024, Elong entered into the Business Combination Agreement with TMT and Merger Sub, with the desire and intent to effect the Business Combination. The Business Combination Agreement amended and restated the Original Business Combination Agreement, which was entered into by and among TMT, TMT Merger Sub Inc. and Elong on December 1, 2023.
On May 18, 2024, a subsidiary of Elong entered into an energy storage equipment sales agreement, which became effective on May 30, 2024, with Nengjian Henan Urban Construction Engineering Co. The contract amount is RMB480,000,000 (USD 67,605,633) including tax. The delivery time for the equipment was initially set for not later than October 31, 2024, contingent upon the timing of the prepayment, which is currently under negotiation with the customer. The customer will pay 30% of the contract price within three months before the shipment of the equipment, 30% of the contract price within seven working days before the shipment of the equipment, and 30% of the contract price within seven working days after the equipment is installed and tested. An amount equal to 10% of the contract price will be reserved for 12 months as a quality guarantee deposit. The sales agreement includes other provisions customary for an agreement of its type.
On June 12, 2024, a subsidiary of Elong entered into a battery pack sales agreement with Beijing Xinyuanhengyuan Technology Development Co., Ltd. which took effect on the same day. The contract amount is approximately RMB 80.5 million (USD 11.3 million) including tax. Under the contract, the customer shall pay approximately RMB 0.8 million (USD 0.1 million) (including a prepayment of RMB 0.3 million or USD 0.05 million) for a small batch of validation batteries. As of June 30, 2024, the Company has received a prepayment of RMB 0.2 million or USD 0.03 million. After the customer approves the batteries, the customer will proceed with the procurement of the remaining batteries, which may be in multiple orders. The sales agreement includes other provisions customary for an agreement of its type.
Key Factors Affecting Our Results of Operations
We believe that our future success will be dependent on several factors, including those discussed and incorporated by reference in the Form 20-F under Item 3.D, “Risk Factors”, which are incorporated herein by reference. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to continue the growth of our business and improve our results of operations.
Technology and Product Innovation
Our financial performance is driven by development and sales of products with innovative technology. Our ability to develop innovative technology has been and will continue to be dependent on our dedicated research team. As part of our efforts to develop innovative technology, we plan to continue leveraging our knowledge base in China and to continue expanding our R&D efforts on a global basis. We expect our results of operations will continue to be impacted by our ability to develop new products with improved performance and reduced production cost, as well as the cost of our R&D efforts.
Market Demand
Our revenue and profitability depend substantially on the demand for high power battery and energy storage system, which is driven by the growth of the new energy passenger vehicles, commercial applications, and battery energy storage markets. Many factors contribute to the development of the electric vehicle and battery energy storage sector, including product innovation, general economic and political conditions, environmental concerns, energy demand, government support and economic incentives. According to data from the Ministry of Industry & Information Technology of the People’s Republic of China (https://wap.miit.gov.cn/jgsj/zbys/gzdt/art/2024/art_9b1d98cbfe8d49038cf120d828240422.html), new energy vehicle sales in China were 4.944 million units for the six months in 2024, an increase of 32% compared with the same period in 2023, and the penetration rate of new energy vehicles has reached 35.2%. The popularity of new energy vehicles has been expanded to the second to third tier cities in China, which continues to drive the market demand for the scale of the power battery industry.
Manufacturing Capacity
Our growth depends on being able to meet anticipated demand for our products. In order to do this, we will need to effectively utilize our manufacturing capacity. This will require a corresponding development of our sales and marketing team, an expansion of our customer base and strengthened quality control in a measured manner, based on our ongoing assessment of medium and long-term demand for our solutions.
Manufacturing Costs
Our profitability may also be affected by our ability to effectively manage our manufacturing costs. Our manufacturing costs are affected by fluctuations in the price of raw materials. If raw material prices increase, we will have to offset these higher costs either through price increases to our customers or through productivity improvements. Our ability to control our raw materials costs is also dependent on our ability to negotiate with our suppliers for a better price and our ability to source raw materials from reliable suppliers in a cost-efficient manner. In addition, we expect that an increase in our sales volume will enable us to lower our manufacturing costs through economies of scale.
Regulatory Landscape
Elong’s business complies principally with a series of regulations on electric vehicle batteries and new energy industry in PRC. Regulations on electric vehicles and energy storage such as economic incentives to purchasers of electric vehicles, tax credits for electric vehicle manufacturers or developers of renewable energy projects, and economic penalties that may apply to a car manufacturer may benefit our market demand and help to expand the market size for our products. Meanwhile, we operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time, particularly with respect to hazardous waste generation and disposal and pollution control such as air emission, wastewater discharge, solid waste and noise. These regulations affect the cost of our products and our gross margins. The requirements of PRC environmental laws and regulations may expose us to possible admonitions, penalties, investigations or inquiries imposed by the environmental regulators, or even result in any possible claims or legal proceedings that would have a material adverse effect on our business, financial condition or results of operations.
Basis of Presentation
Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
A subsidiary is an entity in which Elong directly controls 100% of the voting power and (a) has the power to appoint or remove the majority of the members of the board of directors (the “Subsidiary Board”) (b) to cast majority of votes at the meeting of the Subsidiary Board or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
The Company operates as one operating segment in accordance with ASC 280, Segment Reporting. The Company has a common basis of organization, and the products and services are offered mutually. Considering the streamlining of the growing organization, the Company’s Chief Operating Decision Maker (“CODM”) which is the Chief Executive Officer continues to make decisions with regards to business operations and resource allocation based on evaluation of Elong as a whole. Accordingly, the Company operates and makes decisions as one business segment. As the Company’s long-lived assets are substantially located in the PRC and all revenue are generated within the PRC, no geographical segments are presented.
Key Components of Results of Operations
(a) Revenues
Revenue is recognized when or as the control of the goods or services is transferred upon the customer’s acceptance of the products. We generated our revenues from 1) sales of battery packs; 2) sales of battery cells; 3) sales of battery spare parts and other such as sales of product waste and scraps.
The Company provides a manufacturer’s standard warranty on all battery packs and battery cells sold, ensuring that the products comply with agreed-upon specifications. The Company does not consider the warranty as a separate performance obligation under the ASC 606-10-55-31. The Company considers that standard warranty is not providing incremental service to customers rather than assurance to the quality of the battery packs and battery sales, and therefore should be accounted for in accordance with ASC 460, Guarantees.
(b) Cost of revenue
Cost of revenue includes direct parts, material, labor cost, manufacturing overhead (including depreciation of assets associated with the production) and shipping and handling costs charged by suppliers. Cost of revenue also includes charges to write-down the carrying value of the inventories when it exceeds its estimated net realizable value and to provide for on-hand inventories that are obsolete.
(c) Cost of revenue-idle capacity
Idle capacity consists of indirect production costs in excess of charges under normal capacity allocated to the Company’s produced semi-finished goods and finished goods. Production costs include direct and indirect labor, production supplies, repairs and maintenance, rent, utilities, insurance. The Company charges allocated production costs to its semi-finished and finished goods based on normal capacity on a monthly basis, which is lower than its actual costs incurred. Production costs in excess of production allocations are expensed and recorded in cost of revenue-idle capacity.
(d) Selling, general and administrative expenses
Selling expenses consist primarily of warranty expenses, employee compensation, and transportation cost as incurred.
General and administrative expenses consist primarily of employee compensation for employees involved in general corporate functions and those not specifically dedicated to R&D activities, depreciation and amortization expenses, legal, and other professional services fees, lease and other general corporate related expenses.
(e) Research and development expenses
All costs associated with research and development (“R&D”) is expensed as incurred. R&D expenses consist primarily of employee compensation for those employees engaged in R&D activities, design and development expenses with new technology, materials and supplies and other R&D related expenses.
(f) Other income (expenses)
Other income (expenses) mainly consists of non-operational activities such as loss on disposal of property, plant, and equipment and inventory, litigation charges, and debt forgiveness.
Results of Operations
The following table sets forth, for the periods indicated, statements of income (loss) data:
| (in US Dollar millions, | ||||||||||||
| except percentage) | Six Months Ended | |||||||||||
| June 30, | Change | |||||||||||
| 2024 | 2023 | % | ||||||||||
| Revenues | $ | 0.4 | $ | 2.1 | (81.0 | )% | ||||||
| Cost of revenues | (0.8 | ) | (1.4 | ) | (42.9 | )% | ||||||
| Cost of revenues - idle capacity | (1.3 | ) | (1.7 | ) | (23.5 | )% | ||||||
| Gross loss | (1.7 | ) | (1.0 | ) | 70.0 | % | ||||||
| Selling expenses | (0.1 | ) | (0.1 | ) | 0.0 | % | ||||||
| General and administrative expenses | (1.7 | ) | (1.3 | ) | 30.8 | % | ||||||
| Reversal from (provision for) credit losses | (0.1 | ) | 0.4 | (125.0 | )% | |||||||
| Research and development expenses | (0.1 | ) | (0.4 | ) | (75.0 | )% | ||||||
| Total operating expense | (2.0 | ) | (1.4 | ) | 42.9 | % | ||||||
| Operating loss | (3.7 | ) | (2.4 | ) | 54.2 | % | ||||||
| Interest income | 0.0 | 0.0 | N/A | |||||||||
| Interest expense | (0.1 | ) | (0.0 | ) | N/A | % | ||||||
| Other income (expenses) | (0.2 | ) | 0.0 | N/A | % | |||||||
| Government grant | 0.2 | 0.0 | N/A | % | ||||||||
| Loss before income taxes | (3.8 | ) | (2.4 | ) | 58.3 | % | ||||||
| Income tax expense | 0.0 | 0.0 | N/A | |||||||||
| Net loss | $ | (3.8 | ) | $ | (2.4 | ) | 58.3 | % | ||||
Non-GAAP Financial Measures
We use adjusted gross profit and adjusted gross margin evaluating our operating results and for financial and operational decision-making purposes. Adjusted gross profit represents gross loss excluding idle capacity. We define adjusted gross margin as adjusted gross profit excluding idle capacity as a percentage of revenue.
We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance and formulate business plans. We believe that adjusted gross profit and adjusted gross margin help identify underlying trends in our business that could otherwise be distorted by the effect of certain idle capacity that are included in gross loss. We also believe that the use of the non-GAAP measures facilitates investors’ assessment of our operating performance. We believe that adjusted gross profit and adjusted gross margin provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision making.
Adjusted gross profit and adjusted gross margin should not be considered in isolation. Investors are encouraged to compare our historical adjusted gross profit and adjusted gross margin to the most directly comparable GAAP measure. Adjusted gross profit and adjusted gross margin presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.
The table below sets forth a reconciliation of our gross loss to adjusted gross (loss) profit and adjusted gross margin for the periods/years indicated:
| (in US Dollar millions, | ||||||||||||
| except percentage) | Six Months Ended | |||||||||||
| June 30, | Change | |||||||||||
| 2024 | 2023 | % | ||||||||||
| Gross Loss | $ | (1.7 | ) | $ | (1.0 | ) | 70.0 | % | ||||
| Idle Capacity | (1.3 | ) | (1.7 | ) | (23.5 | )% | ||||||
| Adjusted Gross (Loss) Profit (Excluding Idle Capacity) | (0.4 | ) | 0.7 | (157.1 | )% | |||||||
| Adjusted Gross (Loss) Margin (Excluding Idle Capacity) | (100 | )% | 33.3 | % | (133.3 | )% | ||||||
Results of Operations – Six months Ended June 30, 2024 Compared to Six months Ended June 30, 2023
Revenues
We generated revenue of $0.4 million for the six months ended June 30, 2024, a decrease of $1.7 million, or 81.0%, compared to $2.1 million in 2023. This was mainly due a decrease of 95.0% in sales volume of battery packs and battery cells, as a result of 1) the product upgrades and production line changes, and the customer base being laregely redefined; 2) new energy storage systems orders for 2024 being scheduled for production and delivery in the second half of the year; 3) the business reorganization in 2023 with the whole management team focusing more on new energy storage business instead of battery cells; 4) management’s focusing on the reverse merger transactions.
The following table summarizes the breakdown of revenues by categories in US dollars:
| Six months ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| (in US Dollar millions except percentage) | ||||||||||||||||||||||||
| Battery packs/battery cells | $ | 0.1 | 24.3 | % | $ | 2.0 | 95.2 | % | $ | (1.9 | ) | (95.0 | )% | |||||||||||
| Battery spare parts and others | 0.3 | 75.7 | % | 0.1 | 4.8 | % | 0.2 | 200.0 | % | |||||||||||||||
| Total consolidated revenue | $ | 0.4 | 100 | % | $ | 2.1 | 100 | % | $ | (1.7 | ) | (81.0 | )% | |||||||||||
Cost of Revenues
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Cost of revenues | $ | 0.8 | $ | 1.4 | $ | (0.6 | ) | (42.9 | )% | |||||||
| as a percentage of revenues | 200.0 | % | 66.7 | % | 133.3 | % | ||||||||||
Cost of revenues was $0.8 million for the six months ended June 30, 2024 compared to $1.4 million in the same period of last year, a decrease of $0.6 million or 42.9%, primarily aligned with the revenue decline.
The costs of revenues not dropping in proportion to revenues was caused by 1) additional inventory impairment loss of 0.3 million resulting from slow-moving inventories as of June 30, 2024, as compared with June 30, 2023; 2) 0.2 million extra losses related to the produced defective battery cells during normal production.
Cost of Revenues – Idle Capacity
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Cost of Revenues – Idle Capacity | $ | 1.3 | $ | 1.7 | $ | (0.4 | ) | (23.5 | )% | |||||||
| as a percentage of revenues | 325.0 | % | 80.9 | % | 244.1 | % | ||||||||||
The cost of revenues-idle capacity for the six months ended June 30, 2024 was $1.3 million, a decrease of $0.4 million or 23.5%, compared to $1.7 million in the same period of last year, as result of the decrease in payroll expenses for the department of manufacturing, quality and equipment and utility expenses.
Gross Loss and Gross Margin
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Gross Loss | $ | (1.7 | ) | $ | (1.0 | ) | $ | (0.7 | ) | 70.0 | % | |||||
| Gross Margin | (425.0 | )% | (47.6 | )% | (377.4 | )% | ||||||||||
| Adjusted Gross Margin (Excluding Idle Capacity) | (100.0 | )% | 33.3 | % | (133.3 | )% | ||||||||||
Our gross profit margin, which excluded the idle capacity was negative 100% for the six months ended June 30, 2024, as compared to 33.3% for the same period of 2023. The significant decrease of gross profit margin was primarily due to 1）total revenue in the six months ended June 30, 2024 decreased by approximately 81.0% comparing with the same period of 2023; 2) during the year ended June 30, 2024, the Company also undertook additional inventory impairment loss due to the longer aging inventories; and 3) sales consisted primarily of defective and scrap batteries, spare parts and auxiliary materials which has the extra losses.
Selling Expenses
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Selling Expenses | $ | 0.1 | $ | 0.1 | $ | (0.0) | (0.0 | )% | ||||||||
| as a percentage of revenues | 25.0 | % | 4.7 | % | 20.2 | % | ||||||||||
Selling expenses remained at $0.1 million for the six months ended June 30, 2024 and 2023.
General and Administrative Expenses
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| General and Administrative Expenses | $ | 1.7 | $ | 1.3 | $ | 0.4 | 30.8 | % | ||||||||
| as a percentage of revenues | 425.0 | % | 61.9 | % | 363.1 | % | ||||||||||
General and administrative (G&A) expenses were $1.7 million for six months ended June 30, 2024, compared to $1.3 million in same period of 2023, primarily due to the increase of $0.4 million professional fees related to the pursuit of Business Combination.
(Reversal from) provision for credit losses
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| (Reversal from) provision for credit losses | $ | 0.1 | $ | (0.4 | ) | $ | 0.5 | (125.0 | )% | |||||||
| as a percentage of revenues | 25.0 | % | (19.0 | )% | 44.0 | % | ||||||||||
Provision for credit losses for the six months ended June 30, 2024 was $0.1 million, compared to reversal for credit loss of $0.4 million in the same period of last year.
During the six months ended June 30, 2024, the Company provision for credit loss of $0.1 million for account receivable due to aging analysis.
Research and Development Expenses
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Research and Development Expenses | $ | 0.1 | $ | 0.4 | $ | (0.3 | ) | (75.0 | )% | |||||||
| as a percentage of revenues | 25.0 | % | 19.0 | % | 6.0 | % | ||||||||||
Research and development (R&D) expenses for the six months ended June 30, 2024 was $0.1 million, compared to $0.4 million in the same period of last year.
We will continue to invest in the research and development of high-performance battery technology and seek new innovations to further reduce costs. The improvement of battery system solutions involves ongoing development of new battery units and modules, and increasing the energy density of existing batteries. The R&D team is committed to integrating new designs, technologies, and materials into batteries to further improve performance and reduce costs. Meanwhile, we focus our R&D activities on technology research integration, technology implementation, and technology output that is crucial to help the Company maintain the advancement and forward-looking nature of technologies.
Operating Loss
Total operating loss was $3.7 million for the six months ended June 30, 2024, compared to $2.4 million in the same period of last year.
Other (Income) Expenses
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Other (Income) Expenses | $ | 0.2 | $ | 0.0 | $ | 0.2 | N/A | |||||||||
| as a percentage of revenues | 50.0 | % | 0.0 | % | 50.0 | % | ||||||||||
We incurred $0.2 million of loss on disposals of property, plant and equipment during the six months ended June 30, 2024.
Government Grant
| Six Months Ended June 30, | Change | |||||||||||||||
| (in US Dollar millions, except percentage) | 2024 | 2023 | Amount | % | ||||||||||||
| Government Grant | $ | 0.2 | $ | 0.0 | $ | 0.2 | N/A | |||||||||
| as a percentage of revenues | 50.0 | % | 0.0 | % | 50.0 | % | ||||||||||
Government grant was $0.2 million and $0.0 million for the six months ended June 30, 2024 and 2023, respectively, primarily due to increase in $0.2 million investment promotion subsidy during the six months ended June 30, 2024.
The Company entered into a lease agreement with the Zibo government for a term from October 1, 2023 to September 30, 2043. Rent and property fees are waived throughout the lease term. Therefore, it was determined that the government subsidy of $0.2 million based on the estimated.
Net Loss
As a result of the above factors, our net loss was $3.8 million for the six-month period ended June 30, 2024, as compared to $2.4 million in the same period of last year.
Liquidity and Capital Resources
In accordance with the ASC 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, (“ASC 205-40”), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.
For the six months ended June 30, 2024, the Company incurred net loss of $3.8 million, with operating outflows of $1.3 million and negative working capital of $13.8 million.
The Company has funded its operations and capital needs primarily through the net proceeds received from capital contributions and borrowings from banks, related parties and other unrelated sources. For more information, please see Note 9, Short Term Loans-Unrelated Parties, Note 17, Related Party Balances and Transactions and Note 11, Notes Payable in the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2024 and 2023.
As of the date of this report, these factors raised substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date that these unaudited condensed consolidated financial statements were issued.
To meet the cash requirements for the next 12 months from the issuance date of this report, the Company is undertaking a combination of the remediation plans:
| ● | The Company is actively looking for orders with potential new customers. | |
| ● | The Company’s shareholders have committed to support the Company’s operation in cash and started to fund the Company since November 2023 in terms of improving cash position. | |
| ● | The Company is going to seek more equity investment in the year of 2024 for business expansion. |
Currently, the Company is focusing on the improvement of operation efficiency, implementation of strict cost control and budget and enhancement of internal controls to create synergy of the Company’s resources.
The management plan cannot alleviate the substantial doubt of the Company’s ability to continue as a going concern. There can be no assurance that the Company will be successful in achieving its strategic plans, that the Company’s future capital raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or with acceptable terms, if at all. If the Company is unable to raise sufficient financing or events or circumstances occur such that the Company does not meet its strategic plans, it would have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives.
Cash Flows Summary
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities for the periods stated below:
| Six Months Ended June 30, | ||||||||
| (in US Dollar millions, unless otherwise stated) | 2024 | 2023 | ||||||
| Net cash used in operating activities | $ | (1.4 | ) | $ | (2.5 | ) | ||
| Net cash used in investing activities | (0.4 | ) | (0.0 | ) | ||||
| Net cash provided by financing activities | 2.9 | 4.2 | ||||||
Cash Flows from Operating Activities
Net cash used in operating activities was $1.3 million for the six months ended June 30, 2024, compared to $2.5 million net cash used in for the six months ended June 30, 2023. The Negative cash flow for the six months ended June 30, 2024 was primarily due to i) net loss of $3.8 million, increase in inventory of $0.4 million, decrease in accrued expenses and other current liabilities of $0.3 million, increase in long term accounts receivable of $0.1 million, partially offset by i) provision of credit losses of $0.1 million, ii) provision of obsolete inventory of $1.2 million, iii) Depreciation and amortization expense of $0.8 million, iv) amortization of operating and finance right-of-use assets of $0.8 million, v) loss on disposals of property, plant and equipment of $0.2 million, vi) decrease in accounts receivable of $0.3 million.
Net cash used in operating activities was $2.5 million for the six months ended June 30, 2023, compared to $1.0 million net cash used in for the six months ended June 30, 2022. The Negative cash flow for the six months ended June 30, 2023 was primarily due to i) net loss of 2.4 million, reversal of credit losses of $0.4 million, and deletion of provision of obsolete inventory of $0.4 million, decrease in accounts and note payable of $0.5 million and contract liabilities of $0.6 million, and product warranty liability of $3.6 million, partially offset by ii) depreciation and amortization expense of $0.8 million, amortization of operating and finance right-of-use assets of $0.8 million, and provision for warranty liability of $1.4 million, and iii) decrease in notes receivable $0.3 million, accounts receivable - current of $0.1 million, and inventory of $1.6 million, and long term accounts receivable of $0.8 million.
Cash Flows from Investing Activities
Net cash used in investing activities was $0.4 million for the six months ended June 30, 2024, compared to $33 thousands for the six months ended June 30, 2023. The negative cash flow from investing activities for the six months ended June 30, 2024 was mainly due to the $0.5 million cash used in issuance of promissory note receivable and offset by $0.1 million of proceeds from sales of property, plant and equipment.
Net cash used in investing activities was $32,634 for the six months ended June 30, 2023, compared to $0.2 million for the six months ended June 30, 2022. The negative cash flow from investing activities for the six months ended June 30, 2023 and 2022 was mainly due to $32,634 and $0.2 million, respectively, cash used in purchasing of fixed assets.
Cash Flows from Financing Activities
Net cash provided by financing activities was $2.8 million for six months ended June 30, 2024, compared to $4.2 million net cash provided by financing activities for six months ended June 30, 2023. The positive cash flow from financing activities for six months ended June 30, 2024 was mainly the result of $2.5 million of proceeds from issuance of note payable, and $0.9 million of proceeds from borrowings from third parties, offset by repayment of $0.3 million to third party borrowings and $0.2 million to loan payable with pledged assets, and increase in deferred offering costs of $0.1million,.
The positive cash flow from financing activities for the six months ended June 30, 2023 was mainly due to the i) proceeds of $0.3 million from factoring loan related to notes receivable, $2.7 million from mezzanine equity, $0.3 million from third party borrowings, and $1.0 million from loan payable with pledged assets, partially offset by ii) repayment of $0.1 million of borrowings from third parties.
The majority of the Company’s revenues and expenses were denominated primarily in Renminbi (“RMB”), the currency of the People’s Republic of China. There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable.
Commitments And Contingencies
Our future capital requirements will depend on many factors, including, but not limited to funding planned production capacity expansions and for general working capital. In addition, we may in the future enter into arrangements to acquire or invest in complementary businesses or technologies. Accordingly, we may need to seek additional equity or debt financing in order to meet these future capital requirements. Debt or preferred stock financing, if available, may involve covenants restricting our operations or our ability to incur additional debt or issue additional preferred stock, and may contain other terms that are not favorable to us or our stockholders. Additional equity financing may result in substantial dilution to our existing stockholders. If we are unable to raise additional capital when desired, or on terms that are acceptable to us, we may have to delay product development and other initiatives and our business, financial condition and results of operations could be adversely affected.
TMT Promissory Notes
TMT issued three convertible promissory notes of $200,000, dated February 27, 2024, $300,000, dated April 1, 2024, and $300,000, dated May 9, 2024, respectively, to the Company with a principal amount of $200,000, $300,000 and $300,000 in order to pay for TMT’s extension fee in relation to its initial business combination. The promissory notes bear no interest and are repayable in full upon consummation of TMT’s initial business combination. The Company may, at its election, convert the promissory notes, in whole or in part, into TMT Units, provided that written notice of such intention is given to TMT at least two (2) business days prior to the consummation of TMT’s initial business combination. The number of TMT Units to be received by the Company in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the Company by (y) $10.00. Each TMT Unit consists of one (1) TMT Ordinary Share and one (1) right to receive two-tenths (2/10) of one (1) TMT Ordinary Share.
As of June 30, 2024, the balance of promissory note receivable was US$ 500,000. There is no drawdown from the $300,000 promissory note issued in April 1, 2024. As a result of the Business Combination, the promissory notes will be eliminated upon consolidation.
In addition, on February 27, 2024, April 1, 2024 and May 9, 2024, the Company advanced $200,000, $300,000 and $300,000, respectively, to TMT in order to pay for TMT’s extension fee in relation to its initial business combination. TMT issued three convertible promissory notes of $200,000, dated February 27, 2024, $300,000, dated April 1, 2024, and $300,000, dated May 9, 2024, respectively, to the Company with a principal amount of $200,000, $300,000 and $300,000 to evidence the advance. The promissory notes bear no interest and are repayable in full upon consummation of TMT’s initial business combination. As of June 30, 2024, the balance of promissory note receivable was US$500,000. There is no drawdown from the $300,000 promissory note issued in April 1, 2024 yet. The Company may, at its election, convert the promissory notes, in whole or in part, into TMT Units, provided that written notice of such intention is given to TMT at least two (2) business days prior to the consummation of TMT’s initial business combination. The number of TMT Units to be received by the Company in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the Company by (y) $10.00. Each TMT Unit consists of one (1) TMT Ordinary Share and one (1) right to receive two-tenths (2/10) of one (1) TMT Ordinary Share.
On July 2, 2024 and August 2, 2024, the Company advanced $200,000 and $75,000 to TMT in order to pay for TMT’s extension fee in relation to its initial business combination. TMT issued a convertible promissory note of $200,000, dated as of July 1, 2024, and $75,000, dated as of August 14, 2024, to the Company with a principal amount of $200,000 and $75,000 to evidence the advance. The promissory note bears no interest and is repayable in full upon consummation of TMT’s initial business combination. The Company may, at its election, convert this promissory note, in whole or in part, into TMT Units, provided that written notice of such intention is given to TMT at least two (2) business days prior to the consummation of TMT’s initial business combination. The number of TMT Units to be received by the Company in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the Company by (y) $10.00. Each TMT Unit consists of one (1) TMT Ordinary Share and one (1) right to receive two-tenths (2/10) of one (1) TMT Ordinary Share. As of November 1, 2024, total $275,000 promissory note were drawn down. As a result of the Business Combination, the promissory notes will be eliminated upon consolidation.
Capital Commitments
As of June 30, 2024 and 2023, the Company had no capital commitments.
Lease Commitments
We lease certain facilities and equipment under non-cancellable lease agreements that expire at various dates through 2041. For additional information, see Note 8, Lease, in the unaudited condensed consolidated financial statements as of June 30, 2024.
Contingencies
(a) Legal proceedings
From time to time, the Company may become involved in litigation, claims, and proceedings. The Company evaluates the status of each legal matter and assesses the potential financial exposure. If the potential loss from any legal proceedings or litigation is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimated.
For detailed information, see Note 22, Commitments and Contingencies – (ii) Litigation, in the notes to the unaudited condensed consolidated financial statements as of June 30, 2024.
(b) Registration Rights
The Sponsor of TMT, certain transferees of the Sponsor of TMT, and the PIPE Investors have entered into a registration rights agreement with the Company, which contains customary terms and conditions including three (3) sets of demand registration rights and piggyback rights.
(c) Finder Fees
On April 21, 2023, TMT Acquisition Corp (“TMT”) signed a Finder’s Engagement Agreement with a third-party named Ever Talent Consultants Limited (“Ever Talent”), and per the agreement, Ever Talent is responsible for identifying and introducing the acquisition target to TMT with the exchange consideration of 900,000 ordinary shares(“Finder Fees”) which has been issued on November 21, 2024 of combined listing entity upon the closing of the business combination. Guided by ASC 718 and ASU 2018-07. this transaction is accounted for as nonemployee performance-based payment awards, with the grant date as April 21, 2023 the agreement signing date, and the estimated fair value of the Finder Fees in the amount of $9,000,000 at $10 per share.
Related Party Transactions
For detailed related party transactions incurred during the six months ended June 30, 2024 and 2023, please see Note 17, Related party balances and transactions, in the notes to the unaudited condensed consolidated financial statements as of June 30, 2024.
Off Balance Sheet Arrangements
During the six months ended June 30, 2024 and 2023, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Holding Company Structure
Elong is a holding company with no material operations of its own. We conduct our operations through our PRC subsidiaries. As a result, our ability to pay dividends depends significantly upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our subsidiaries in China may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds and PRC safety production reserve at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration for Foreign Exchange (“SAFE”). Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
Inflation
According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for the six months ended June 30, 2024 and 2023 were increases by 0.1% and 0.7%, respectively. We have been materially affected by inflation in the raw materials in the past, and we may be affected in the future by higher rates of inflation in the PRC. For example, certain operating costs and expenses, such as employee compensation and raw material purchase price may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents and inventories, high inflation could significantly reduce the value of these assets. We are not able to hedge our exposure to higher inflation in China.
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue, costs and expenses in the consolidated financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the unaudited consolidated financial statements.
Significant accounting estimates reflected in the Company’s financial statements primarily include but not limited to allowance for credit losses, lower of cost and net realizable value of inventory, provision for obsolete inventories, impairment of long-lived assets, provision for warranty liabilities, and valuation allowance for deferred tax assets. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.
Please see Note 2 in the notes to the unaudited condensed consolidated financial statements as of June 30, 2024.
Impairment assessments
Impairment assessments consist primarily of property and equipment, purchased software and inventory purchased for operation.
Impairment of the Company’s long-lived assets were assessed using both qualitative and quantitative analysis, or whenever events or circumstances change that indicate the carrying value of such long-lived assets may not be recoverable.
Management has to estimate the useful lives of the Company’s long-lived assets. In regard to the Company’s impairment analysis of long-lived asset, the most significant assumptions include management’s estimate of the annual growth rate used to project future sales and expenses.
Impairment of inventories were assessed using quantitative analysis whenever events or circumstances change that indicate excess or obsolete inventories, or when the carrying value of inventory exceeds the net realizable value.
Management has to estimate the demand for current and future, and the selling cost of the Company’s inventory. The Company analyzes the inventory impairment based on the lower of cost or net realizable value.
Revenues
The Company follows the guidance of ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applies the following steps to recognize revenues: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation.
The Company’s revenues are mainly generated from 1) sales of battery packs; 2) sales of battery cells; 3) sales of battery spare parts and other, such as sales of product waste and scraps.
Sales of Battery packs and battery cells
The Company generates revenue from sales of battery packs and battery cells through sales contract including master agreements and sales orders from the customers, which contain fixed sales price, payment terms, specifications, delivery and acceptance terms, transportation terms, etc., and are all signed-off and stamped.
The Company also identifies only one performance obligation in the contract which is to deliver battery packs and battery cells.
In order for the Company to provide specific battery packs and battery cells explicitly stated in a sales contract or sales orders, the Company requires certain deposits or full amount payment made in advance. Revenue is recognized at the point in time upon the customer’s acceptance of products, which is when control of the promised goods is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to for the products sold.
The Company presents the contract in the consolidated balance sheets as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment.
A receivable is recorded when the Company has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.
Sales of battery spare parts and others
The Company typically enters into formal written contracts for the sale of spare parts, scrap, product waste, etc. which includes the general payment and delivery terms, and specific orders shall be placed to the Company. Under the specific order, full amount prepayment is required, and the Company’s performance obligation is to transfer agreed-upon battery spare parts, scrap and product waste. The revenue is recognized at a point in time upon the customer’s acceptance of battery spare parts or scrap and product waste.
Product warranty
The Company provides a manufacturer’s standard warranty on battery packs and battery cells products sold, which entails repair or replacement of non-conforming items, in conjunction with the sales of products. The Company considers the standard warranty is not providing incremental service to customers rather an assurance to the quality of the vehicle, and therefore is not a separate performance obligation.
The Company’s product warranty generally ranges from one to eight years (or 120,000 or 500,000 kilometer if reached sooner). The Company establishes a reserve for the estimated cost of the product warranty at the time revenue is recognized. The management’s best estimates of its product warranty is based on historical information and other currently available evidence, including actual claims incurred to date and an estimate of the nature, frequency and costs of future claims for each customer.
The Company review and adjust the estimates to ensure that accruals are adequate to meet expected future warranty obligations. Initial warranty data is limited in the early launch of a new product and accordingly, future adjustments to the warranty accrual may be material.
Lease
The Company follows ASU 2016-02 “Leases” (Topic 842). Please refer to Note 2, Summary of Significant Accounting Policies – (aa) Lease, in the notes to the unaudited condensed consolidated financial statements as of June 30, 2024.
The Company’s lease terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option. The Company determines if a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of an identified asset which the Company does not own and whether it has the right to direct the use of an identified asset in exchange for consideration. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are recognized as the amount of the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate (“IBR”), because the interest rate implicit in most of the Company’s leases is not readily determinable. The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and resulting interest the Company would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments is incurred.
The lease right-of-use assets are initially measured at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset. Lease expense for minimum lease payments exclusive of the value-added tax are recognized on straight-line basis over the lease term. The new standard provides a number of optional practical expedients at transition. The Company elected certain practical expedients that must be elected as a package, which permit the Company to not reassess, under the new standard, prior conclusions about (1) lease identification, (2) lease classification and (3) initial direct costs. Additionally, the Company elected a short-term lease exception policy, which allows entities to not apply the new standard to short-term leases (i.e. leases with terms of 12 months or less) and a hindsight policy, which allows an entity to include current considerations for existing leases when determining initial lease terms. The Company has also elected to account for lease and non-lease components as a single component for all leases, and elected to utilize an IBR (incremental borrowing rate) that is risk free rate plus premium for all leases when calculating the lease liability.
Deferred Offering Costs Associated with the Business Combination
The Business Combination will be accounted for as a reverse recapitalization in accordance with U.S. GAAP ASC 805. Under this method of accounting, Elong is accounting acquirer, and as a result, qualifying transaction costs incurred by Elong are treated as deferred offering cost and any balance below the net proceeds from this reverse recapitalization will be charged directly to equity. This recording complies with the requirements of FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Deferred offering costs consist of legal and other professional expenses incurred through the balance sheet date that are directly related to the Proposed Business Combination and that will be charged to shareholders’ equity upon the completion of the Proposed Business Combination with any balance below the net proceeds from this Business Combination. Should the Proposed Business Combination prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be charged to operation expenses. As of June 30, 2024, transaction costs in the aggregate of $374,672 have been recorded as deferred offering cost.
Recent Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2- Significant Accounting Policy-(dd) Recent accounting pronouncements not yet adopted to our unaudited condensed consolidated financial statements for the six months ended June 30, 2024 and 2023.
Internal Control Over Financial Reporting
In connection with the audits of our consolidated financial statements as of and for the year ended December 31, 2023, we and our independent registered public accounting firm identified three material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The three material weaknesses that have been identified relate to (1) lack of experienced accounting team and qualified SEC reporting specialist to deal with complex accounting treatments and draft SEC filing document; (2) lack of controls for the IT environment; (3) lack of controls for the inventories in third-party after-sales warehouses.
To remedy identified material weaknesses, starting from August 2023, we have implemented, and plan to continue to implement below measures:
| ● | hiring additional competent and qualified accounting and reporting personnel with appropriate knowledge and experience of U.S. GAAP and SEC financial reporting requirements; |
| ● | planning to implement an IT security control and database disaster recovery system to serve different accounting functions; | |
| ● | establishing accounting record system with access control; | |
| ● | managing inventories in third-party after-sales warehouses and maintaining a proper accounting record on a timely basis; and | |
| ● | formulating internal accounting and internal control guidance on U.S. GAAP and SEC financial reporting requirements. |
However, we cannot assure you that all these measures will be sufficient to remediate our material weaknesses in a timely manner, or at all. Please see discussion in the risk factor titled “Risk Factors —Risks Related to Elong’s Business and Industry — If fails to implement and maintain an effective system of internal controls over financial reporting, it may be unable to accurately report its results of operations, meet reporting obligations or prevent fraud. As a result, Elong’s security holders could lose confidence in its financial and other public reporting, which would harm its business and trading price of its securities,” which is incorporated by reference in the Form 20-F under Item 3.D, “Risk Factors,” and is further incorporated herein by reference.
Quantitative and Qualitative Disclosures about Market Risks
Foreign currency exchange rate risk
The revenues and expenses of the Company’s entities in the PRC are generally denominated in RMB and their assets and liabilities are denominated in RMB. The Company’s oversea financing activities in future are denominated in U.S. dollars. The RMB is not freely convertible into foreign currencies. Remittances of foreign currencies into the PRC or remittances of RMB out of the PRC as well as exchange between RMB and foreign currencies require approval by foreign exchange administrative authorities and certain supporting documentation. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies.
Interest Rates Risk
We incur risk arising from the fluctuation of interest rates relating to interest income from interest-bearing assets such as cash and cash-equivalent assets that bear variable interest rates.
Credit Risk
Credit risk refers to the risk of financial loss to us arising from default by the customers or counterparties of contract obligations. Our main credit risk was that counterparties could not repay in full the accounts receivable based on the agreed terms. We actively monitor and manage our credit risk by performing credit checks and monitoring credit limits. With respect to our customers, our local entities are responsible for managing and analyzing the credit risk for each of their new customers before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by our Board.
Liquidity Risk
We manage liquidity risk by monitoring and maintaining a level of cash deemed adequate to finance our operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.
Exhibit 99.2
ELONG POWER HOLDING LIMITED AND SUBSIDIARIES
UNAUDTIED CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash & Cash Equivalents | $ | 1,014,106 | $ | 756 | ||||
| Restricted Cash | 303,744 | 307,826 | ||||||
| Notes receivable | - | 15,493 | ||||||
| Accounts receivable (net of allowance of $1,681,099 and $1,263,808 as of June 30, 2024 and December 31, 2023, respectively) | 768,509 | 1,203,375 | ||||||
| Promissory note receivable | 500,000 | - | ||||||
| Inventories, net | 2,001,882 | 2,813,699 | ||||||
| Amounts due from related parties | - | 249 | ||||||
| Prepaid expenses and other current assets | 1,163,293 | 1,114,474 | ||||||
| Deferred offering costs | 374,672 | 231,316 | ||||||
| TOTAL CURRENT ASSETS | 6,126,206 | 5,687,188 | ||||||
| Long term accounts receivable (net of allowance of $446,595 and $770,088 as of June 30,2024 and December 31, 2023, respectively) | 1,917,692 | 1,823,187 | ||||||
| Property, plant and equipment, net | 11,831,478 | 13,160,396 | ||||||
| Operating lease right-of-use assets | 16,073,724 | 16,607,520 | ||||||
| Finance lease right-of-use assets | 106,092 | 126,201 | ||||||
| Other non-current assets | - | 98,593 | ||||||
| TOTAL ASSETS | $ | 36,055,192 | $ | 37,503,085 | ||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short term loans- unrelated parties | $ | 1,772,237 | $ | 1,143,565 | ||||
| Short term loans-related parties | 550,418 | 563,388 | ||||||
| Short term loans | 550,418 | 563,388 | ||||||
| Current portion of long-term loan payable | 481,616 | 492,965 | ||||||
| Accounts payable | 1,138,068 | 1,176,850 | ||||||
| Notes payable | 2,511,779 | - | ||||||
| Amounts due to related parties | 81,033 | 160,438 | ||||||
| Contract liabilities | 3,817,000 | 3,893,986 | ||||||
| Accrued expenses and other current liabilities | 3,430,425 | 3,799,292 | ||||||
| Product warranty provision-current | 2,061,718 | 2,008,484 | ||||||
| Operating lease liabilities-current | 3,928,409 | 1,578,006 | ||||||
| Finance lease liability-current | 154,253 | 155,842 | ||||||
| TOTAL CURRENT LIABILITIES | 19,926,956 | 14,972,816 | ||||||
| Long-term loan payable | - | 246,482 | ||||||
| Product warranty provision-non current | 761,246 | 916,586 | ||||||
| Operating lease liabilities-non current | 18,147,527 | 20,388,865 | ||||||
| TOTAL LIABILITIES | 38,835,729 | 36,524,749 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 22) | - | - | ||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Class A ordinary shares, $0.00001 par value, 4,000,000,000 shares authorized, 6,845,290 share issued and outstanding as of June 30, 2024 and December 31, 2023, respectively* | 68 | 68 | ||||||
| Class B ordinary shares, $0.00001 par value, 1,000,000,000 shares authorized,16,538,142 share issued and outstanding as of June 30, 2024 and December 31, 2023, respectively* | 165 | 165 | ||||||
| Common stock value | 165 | 165 | ||||||
| Additional paid in capital* | 38,502,737 | 38,502,737 | ||||||
| Statutory reserve | 708,470 | 708,470 | ||||||
| Accumulated deficit | (42,553,599 | ) | (38,790,191 | ) | ||||
| Accumulated other comprehensive income | 561,622 | 557,087 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | (2,780,537 | ) | 978,336 | |||||
| TOTAL LIABILITIES, AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 36,055,192 | $ | 37,503,085 | ||||
| * | Par value of ordinary shares, additional paid-in capital and share data have been retrospectively restated to give effect to the reorganization that is discussed in Note 1. |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| FS-1 |
ELONG POWER HOLDING LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues | $ | 365,975 | $ | 2,132,022 | ||||
| Cost of revenue | (821,023 | ) | (1,361,877 | ) | ||||
| Cost of revenue – idle capacity | (1,251,322 | ) | (1,751,405 | ) | ||||
| GROSS LOSS | (1,706,370 | ) | (981,260 | ) | ||||
| OPERATING EXPENSES | ||||||||
| Selling expenses | (63,541 | ) | (148,885 | ) | ||||
| General and administrative expenses | (1,720,377 | ) | (1,293,738 | ) | ||||
| (Provision for) reversal from credit losses | (141,639 | ) | 414,793 | |||||
| Research and development expenses | (56,904 | ) | (457,031 | ) | ||||
| Total operating expenses | (1,982,461 | ) | (1,484,861 | ) | ||||
| LOSS FROM OPERATIONS | (3,688,831 | ) | (2,466,121 | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest income | 2,245 | 3,064 | ||||||
| Interest expense | (156,362 | ) | (27,287 | ) | ||||
| Foreign currency exchange gains | 9,731 | - | ||||||
| Government grant | 224,534 | 3,900 | ||||||
| Other (expenses) income | (154,725 | ) | 39,753 | |||||
| TOTAL OTHER INCOME (EXPENSES), NET | (74,577 | ) | 19,430 | |||||
| LOSS BEFORE INCOME TAX EXPENSE | (3,763,408 | ) | (2,446,691 | ) | ||||
| INCOME TAX EXPENSE | - | - | ||||||
| NET LOSS | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| LOSS PER SHARE FOR BOTH CLASS A AND B ORDINARY SHARES* | ||||||||
| Basic | $ | (0.16 | ) | $ | (0.10 | ) | ||
| Diluted | $ | (0.16 | ) | $ | (0.10 | ) | ||
| WEIGHTED AVERAGE SHARES OUTSTANDING USED IN CALCULATING BASIC AND DILUTED LOSS PER SHARE* | ||||||||
| Class A Ordinary Shares | 6,845,290 | 6,845,290 | ||||||
| Class B Ordinary Shares | 16,538,142 | 16,538,142 | ||||||
| * | Par value of ordinary shares, and share data have been retrospectively restated to give effect to the reorganization that is discussed in Note 1. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| FS-2 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR SIX MONTHES ENDED JUNE 30, 2024 AND 2023
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| NET LOSS | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation adjustment | 4,535 | (179,447 | ) | |||||
| COMPREHENSIVE LOSS | $ | (3,758,873 | ) | $ | (2,626,138 | ) | ||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| FS-3 |
ELONG POWER HOLDING LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
| Shares* | Amount | Shares* | Amount | capital* | reserve | deficit | Income (loss) | equity | ||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional paid-in | Statutory | Accumulated | Accumulated other comprehensive | Total | ||||||||||||||||||||||||||||||
| Shares* | Amount | Shares* | Amount | capital* | reserve | deficit | Income (loss) | equity | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | 6,845,290 | $ | 68 | $ | 16,538,142 | $ | 165 | $ | 24,550,821 | $ | 708,470 | $ | (30,814,044 | ) | $ | 634,446 | $ | (4,920,074 | ) | |||||||||||||||||
| Impact from adoption of ASU 2016-13 | - | - | - | - | - | - | (545,554 | ) | - | (545,554 | ) | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (2,446,691 | ) | - | (2,446,691 | ) | |||||||||||||||||||||||||
| Capital contribution | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | (179,447 | ) | (179,447 | ) | |||||||||||||||||||||||||
| Balance at June 30, 2023 | 6,845,290 | $ | 68 | $ | 16,538,142 | $ | 165 | $ | 24,550,821 | $ | 708,470 | $ | (33,806,289 | ) | $ | 454,999 | $ | (8,091,766 | ) | |||||||||||||||||
| Class A Common Stock | Class B Common Stock | Additional paid-in | Statutory | Accumulated | Accumulated other comprehensive | Total | ||||||||||||||||||||||||||||||
| Shares* | Amount | Shares* | Amount | capital* | reserve | deficit | Income (loss) | equity | ||||||||||||||||||||||||||||
| Balance at January 1, 2024 | 6,845,290 | $ | 68 | $ | 16,538,142 | $ | 165 | $ | 38,502,737 | $ | 708,470 | $ | (38,790,191 | ) | $ | 557,087 | $ | 978,336 | ||||||||||||||||||
| Balance | 6,845,290 | $ | 68 | $ | 16,538,142 | $ | 165 | $ | 38,502,737 | $ | 708,470 | $ | (38,790,191 | ) | $ | 557,087 | $ | 978,336 | ||||||||||||||||||
| Net loss | - | - | - | - | - | - | (3,763,408 | ) | - | (3,763,408 | ) | |||||||||||||||||||||||||
| Capital contribution | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | - | 4,535 | 4,535 | |||||||||||||||||||||||||||
| Balance at June 30, 2024 | 6,845,290 | $ | 68 | $ | 16,538,142 | $ | 165 | $ | 38,502,737 | $ | 708,470 | $ | (42,553,599 | ) | $ | 561,622 | $ | (2,780,537 | ) | |||||||||||||||||
| Balance | 6,845,290 | $ | 68 | $ | 16,538,142 | $ | 165 | $ | 38,502,737 | $ | 708,470 | $ | (42,553,599 | ) | $ | 561,622 | $ | (2,780,537 | ) | |||||||||||||||||
| * | Par value of ordinary shares, additional paid-in capital and share data have been retrospectively restated to give effect to the reorganization that is discussed in Note 1. |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| FS-4 |
ELONG POWER HOLDING LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| 2024 | 2023 | |||||||
| Six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities | ||||||||
| Provision (reversal) from credit losses | 141,639 | (414,793 | ) | |||||
| Provision (deletion) of obsolete inventory | 1,203,131 | (444,722) | ||||||
| Depreciation and amortization expense | 752,100 | 842,830 | ||||||
| Amortization of operating and finance right-of-use assets | 791,076 | 826,503 | ||||||
| Loss on disposals of property, plant and equipment | 175,292 | - | ||||||
| Provision for warranty liability | - | 1,399,609 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable | 15,246 | 255,241 | ||||||
| Accounts receivable | 268,473 | 145,308 | ||||||
| Inventories | (374,831 | ) | 1,640,829 | |||||
| Amounts due from related parties | - | (111 | ) | |||||
| Prepaid expenses and other current assets | 22,705 | (65,089 | ) | |||||
| Long term accounts receivable | (137,465 | ) | 888,316 | |||||
| Accounts and notes payable | (38,651 | ) | (500,767 | ) | ||||
| Amounts due to related parties | (77,095 | ) | 34,326 | |||||
| Contract liabilities | 12,750 | (601,288 | ) | |||||
| Accrued expenses and other current liabilities | (283,440 | ) | (334,784 | ) | ||||
| Product warranty liability | (35,019 | ) | (3,615,815 | ) | ||||
| Other non-current assets | - | (101,035 | ) | |||||
| Net cash used in operating activities | (1,327,498 | ) | (2,492,133 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property, plant and equipment | - | (32,634 | ) | |||||
| Proceeds from sales of property, plant and equipment | 118,904 | - | ||||||
| Issuance of promissory note receivable | (500,000 | ) | - | |||||
| Net cash used in investing activities | (381,096 | ) | (32,634 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of note payable | 2,520,467 | - | ||||||
| Proceeds from factoring loan related to notes receivable | - | 339,797 | ||||||
| Proceeds from issuance of mezzanine equity | - | 2,684,633 | ||||||
| Repayments of loan payable with pledged assets | (242,552 | ) | - | |||||
| Proceeds from borrowings from third parties | 935,551 | 297,469 | ||||||
| Repayments of borrowings to third parties | (275,814 | ) | (64,951 | ) | ||||
| Proceed from loan payable with pledged assets | - | 965,344 | ||||||
| Deferred closing costs | (149,758 | ) | - | |||||
| Net cash provided by financing activities | 2,787,894 | 4,222,292 | ||||||
| Effect of changes of foreign exchange rates on cash | (70,032 | ) | (860,135 | ) | ||||
| Net increase in cash | 1,009,268 | 837,390 | ||||||
| Cash and cash equivalents and restricted cash, beginning of year | 308,582 | 1,165,554 | ||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 1,317,850 | $ | 2,002,944 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | 30,759 | $ | 21,189 | ||||
| Non-cash investing and financing activities | ||||||||
| Payable for purchase of property, plant and equipment | $ | - | $ | 129,914 | ||||
| Lease liabilities arising from obtaining right-of-use assets | $ | - | $ | 590,947 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| FS-5 |
ELONG POWER HOLDING LIMITED AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
(a) Principal activities
Elong Power Holding Limited (“Elong Power”) was incorporated under the laws of the Cayman Islands on August 18, 2023. Elong Power, through its subsidiaries (collectively “the Company”) noted below, specializes in the R&D, production and market application of high-power lithium-ion battery packs, cells and parts for electric vehicles and construction machinery. The Company’s lower-cost, high power and fast-charging batteries are designed specifically for commercial vehicles and specialty vehicles.
(b) History of the Company and Reorganization
Prior to the incorporation of the Company, Huizhou City Yipeng Energy Technology Co., Ltd. (“Yipeng”) was incorporated under the laws of People’s Republic of China (“PRC”) on January 26, 2014. On May 28, 2018, and September 29, 2022, Huizhou Yipeng established Ganzhou Yipeng Energy & Technology Co., Ltd. (“Ganzhou Yipeng”) and Zibo Yipeng Energy & Technology Co., Ltd. (“Zibo Yipeng”) under the laws of PRC, respectively. These two subsidiaries were 100% controlled by Huizhou Yipeng who shareholders are a group of individual and institutional shareholders, with voting agreements to vote consensually concerning operation and development matters before the reorganization.
In preparation for listing on the U.S. Exchange Market via merging with a Special Purpose Acquisition Company (“SPAC”) traded on NASDAQ, the Company completed reorganization (the “Reorganization”) in November 2023, which involved the following steps:
On October 8, 2023, all shareholders of Huizhou Yipeng entered into Huizhou Yipeng’s Reorganization Framework Agreement to vote consensually concerning operation and development matters of the Elong Power and its subsidiaries.
| ● | On August 18, 2023, Elong Power was established under the laws of the Cayman Islands. | |
| ● | On September 20, 2023, Elong Power International Co, Limited (“Elong Power International”) was incorporated in British Virgin Islands as a wholly owned subsidiary of Elong Power. | |
| ● | On October 8, 2023, all shareholders of Huizhou Yipeng entered into Reorganization Framework Agreement regarding the setting up a Wholly Foreign-Owned Enterprise (“ WFOE”), transferring their equity interests in RMB one dollar to the proposed WFOE, and further holding the future shares of Elong Power in order to participate in the future overseas De-SPAC listing, which include issuing ordinary shares and warrant shares to be converted into Class A ordinary shares (Note 18- Equity). | |
| ● | On October 9, 2023, Elong Power (Hong Kong) International Limited (“Elong Power (Hong Kong)”) was incorporated in Hong Kong as a wholly owned subsidiary of Elong Power International. | |
| ● | On November 2, 2023, Elong Power (Ganzhou) Co., Ltd. (“Elong Power (Ganzhou)”, “WFOE”) was established in PRC as a wholly owned subsidiary of Elong Power (Hong Kong). Elong Power (Ganzhou) obtained 100% of the equity interests of Huizhou Yipeng through the unanimous agreement of all shareholders of Huizhou Yipeng under the terms of Huizhou Yipeng’s Reorganization Framework Agreement. |
By November 17, 2023, Elong Power owned 100% stake in Elong Power (Ganzhou) or WFOE through the following transactions:
| ● | issued Class A Ordinary Shares 6,845,290 at the par value of the Class A Ordinary Share (i.e. US$ 0.00001) of the Company to four individual shareholders who are the original shareholders of Huizhou Yipeng before the reorganization (see Note 18- Equity). |
| FS-6 |
| ● | issued Class B Ordinary Shares 16,538,142 at the par value of the Class B Ordinary Share (i.e. US$ 0.00001) of the Company to GRACEDAN CO., LTD. which is 100% owned by the Company’s CEO and Chairwoman, and who is also one of the controlling persons before the reorganization (see Note 18- Equity). | |
| ● | issued 105,430,851 warrants (“Warrant Shares”) to nine institutional shareholders who are the original shareholders of Huizhou Yipeng before the reorganization. |
The above Class A and B ordinary shareholders exchange their shareholdings by their respective ratios in Huizhou Yipeng before the Reorganization and also under the terms of Huizhou Yipeng’s Reorganization Framework Agreement.
Immediately before and after the Reorganization as described above, Elong Power together with its subsidiaries were effectively controlled by the same controlling shareholders, and given no change on control, the transaction is accounted for as business combination under common control.
For financial reporting purpose, the acquisition of Huizhou Yipeng represented a transaction between entities under common control, resulted in a change in reporting entity and required retrospective combination of entities for all periods presented, as if the combination has been in effect since the inception of common control. Accordingly, the unaudited condensed consolidated financial statements of Elong Power and subsidiaries reflect the accounting of the combined subsidiaries at historical carrying values, except that equity reflects the equity of Elong Power.
As of June 30, 2024, subsidiaries of the Company include the following:
SCHEDULE OF SUBSIDIARIES OF THE COMPANY
| Subsidiaries | Place of incorporation |
Date of incorporation |
Percentage of ownership |
Principal activities | ||||||
| Elong Power International Co, Limited (“Elong Power International”) | BVI | September 20, 2023 | 100 | % | Investment holding | |||||
| Elong Power (Hong Kong) International Limited (Elong Power (Hong Kong)) | Hong Kong | October 9, 2023 | 100 | % | Investment holding | |||||
| Elong Power (Ganzhou) Co., Ltd. | Ganzhou | November 2, 2023 | 100 | % | Investment holding | |||||
| Huizhou City Yipeng Energy Technology Co., Ltd. (“Huizhou Yipeng”) | Huizhou, PRC | January 26, 2014 | 100 | % | R&D and manufacturing of lithium-ion power batteries, lithium-ion power battery systems and their accessories | |||||
| Ganzhou Yipeng Energy & Technology Co., Ltd. (“Ganzhou Yipeng”) | Ganzhou, PRC | May 28, 2018 | 100 | % | R&D and manufacturing of lithium-ion batteries, backup power supplies, energy storage systems and accessories. | |||||
| Zibo Yipeng Energy & Technology Co., Ltd. (“Zibo Yipeng”) | Zibo, PRC | September 29, 2022 | 100 | % | R&D and manufacturing of battery spare parts and energy storage technology services | |||||
| Elong Power (Beijing) Co., Ltd. (“Beijing Yipeng”) | Beijing, PRC | April 26, 2024 | 100 | % | Operations, sales and R&D | |||||
(c) Liquidity and going Concern
The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued.
For the six months ended June 30, 2024, the Company incurred net loss of $3.8 million, with negative operating cash flows of $1.3 million. As of June 30, 2024, the Company had an accumulated deficit of $42.6 million, negative working capital of $13.8 million, long-term liability of $18.9 million. The Company has funded its operations and capital needs primarily through the net proceeds received from capital contributions and borrowings from banks, related parties and other unrelated sources. As of the date the unaudited condensed consolidated financial statements for the six months ended June 30, 2024 are issued, these factors raised substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date that these unaudited condensed consolidated financial statements are issued.
The business combination was completed on November 21, 2024 and as a result of this deal, TMT Acquisition Corp (“TMT”) became a wholly owned subsidiary of the Company, the security holders of TMT immediately prior to the effective time became security holders of the Company, and the Company became a public company following the consummation of the business combination.
| FS-7 |
The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive working capital in the near future.
To meet the cash requirements for the next 12 months from the issuance date of this report, the Company is undertaking a combination of the remediation plans:
| ● | The Company is actively looking for orders with potential new customers. | |
| ● | The Company’s shareholders have committed to support the Company’s operation in cash and started to fund the Company since November 2024 in terms of improving cash position. | |
| ● | The Company is going to seek more equity investment in the year of 2024. |
Currently, the Company is focusing on the improvement of operation efficiency, implementation of strict cost control and budget and enhancement of internal controls to create synergy of the Company’s resources.
The management plan cannot alleviate the substantial doubt of the Company’s ability to continue as a going concern. There can be no assurance that the Company will be successful in achieving its strategic plans, that the Company’s future capital raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or with acceptable terms, if at all. If the Company is unable to raise sufficient financing or events or circumstances occur such that the Company does not meet its strategic plans, it would have a material adverse effect on the Company’s financial position, results of operations, cash flows, and ability to achieve its intended business objectives.
The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the unaudited condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business during the six months ended June 30, 2024 and 2023.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments as necessary for the fair statement of the Company’s financial position as of June 30, 2024, results of operations and cash flows for the six months ended June 30, 2024 and 2023. The consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed consolidated financial statements have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes for the year ended December 31, 2023. The accounting policies applied are consistent with those of the audited consolidated financial statements for the preceding fiscal year. Results for the six months ended June 30, 2024 are not necessarily indicative of the results expected for the full fiscal year or for any future period. The Company’s fiscal year end date is December 31.
(b) Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of Elong Power and its subsidiaries. A subsidiary is an entity in which Elong Power, directly or indirectly, controls more than one half of the voting power (a) has the power to appoint or remove the majority of the members of the board of directors (the “Board”) (b) to cast majority of votes at the meeting of the Board or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
| FS-8 |
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. All inter-company transactions and balances between Elong Power and its subsidiaries are eliminated upon consolidation.
(c) Use of estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue, costs and expenses in the consolidated financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements.
Significant accounting estimates reflected in the Company’s financial statements primarily include but not limited to allowance for credit losses, lower of cost and net realizable value of inventory, provision for obsolete inventories, impairment of long-lived assets, provision for warranty liabilities, and valuation allowance for deferred tax assets. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from these estimates.
(d) Functional currency and foreign currency translation
The Company’s reporting currency is the United States dollars (“US$”). The functional currency of the Company and its subsidiary which is incorporated in Hong Kong is United States dollars (“US$”). The functional currencies of the other subsidiaries are their respective local currencies (“RMB”). The determination of the respective functional currency is based on the criteria set out by Accounting Standards Codification (“ASC”) 830, Foreign Currency Matters.
Revenues and expenses of its subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods.
RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into US dollars has been made at the following exchange rates for the respective periods:
SCHEDULE OF FOREIGN CURRENCY TRANSLATION EXCHANGE RATES
| Six months ended June 30, 2024 | ||||
| Balance sheet, except for equity accounts | RMB | 7.2672 to US$1.00 | ||
| Income statement and cash flows | RMB | 7.2150 to US$1.00 | ||
| Year ended December 31, 2023 | ||||
| Balance sheet, except for equity accounts | RMB | 7.0999 to US$1.00 | ||
| Income statement and cash flows | RMB | 7.0811 to US$1.00 | ||
| Six months ended June 30, 2023 | ||||
| Balance sheet, except for equity accounts | RMB | 7.2513 to US$1.00 | ||
| Income statement and cash flows | RMB | 6.9283 to US$1.00 |
| FS-9 |
(e) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and in banks and highly liquid investments, which are unrestricted from withdrawal or use, or which have original maturities of three months or less.
SCHEDULE OF CASH AND CASH EQUIVALENTS
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Cash and cash equivalents | $ | 1,014,106 | $ | 756 | ||||
| Restricted cash | 303,744 | 307,826 | ||||||
| Total cash, cash equivalents and restricted cash shown in the statements of cash flows | $ | 1,317,850 | $ | 308,582 | ||||
(f) Restricted cash
Restricted cash represents for frozen cash relating to the court order.
As of June 30, 2024 and December 31, 2023, the restricted cash presented separately on the unaudited condensed consolidated balance sheets as follows:
SCHEDULE OF RESTRICTED CASH
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Frozen amount | $ | 303,744 | $ | 307,826 | ||||
| Total restricted cash shown in the statements of cash flows | $ | 303,744 | $ | 307,826 | ||||
This frozen amount is due to the court order primarily resulted from the legal proceedings related to the contract disputes with customers (See Note 22-ii) Legal Proceedings).
(g) Notes payable
The note payable represents private notes issued to a third party for working capital. The rate of interest on the notes is 10% per annum with maturities of 364 calendar days after the issue date. (see Note 11 - Notes payable).
| FS-10 |
(h) Accounts receivable, net
The Company follows ASU 2016-13 Financial Instruments- Credit Losses (Topic 326) from January 1, 2023 and determined that accounts receivable and retention receivable are within the scope of the current expected credit losses (“CECL”) analysis and carries accounts receivable and retention receivable at the face amounts less a reserve for estimated credit losses.
The Company is in the battery technology industry and generates its revenue streams from the sale of battery packs, cells and battery spare parts. Historical credit losses from accounts receivable and retention receivable provides the starting point for management’s assessment of the reserve for credit losses. The Company determined the CECL by estimating historical credit loss experience based on the Company’ industry demand, risk profile, or past due status and adjusted as appropriate to reflect current conditions and estimates of future economic conditions (such as GDP factor or unemployment factor).
The Company estimated the credit losses for accounts receivable based on historical credit loss experience using the roll-rate method. By utilizing the historical aging data from January 2018 to the end of current period, the Company estimated the credit losses on accounts receivable up to three years on a semi-annual basis. In assessing relevant information, management scored its assessment of current economic conditions and future expectations, credit ratings, security deposit, and default cover age proportionally, and determined that a 100% credit loss shall be reserved for accounts receivable overdue three years.
The Company estimated credit losses for retention receivable based on historical credit loss experience using the historical annual loss rate methodology and taking forward-looking factors from 2020 to 2029 to score future factors proportionality of significant economic growth rates, inflation rates, unemployment rates and demand from the battery industry. The management judgmentally elects to use additional 5% credit loss to adjust for future factors of retention receivable.
The Company also recorded provision for credit losses of US$141,639 for the six months ended June 30, 2024, and reversal from credit losses of US$414,795 for the six months ended June 30, 2023, respectively (see Note 3).
(i) Inventory
Inventories consist of raw materials, work in process, semi-finished goods and finished goods and are stated at the lower of cost or net realizable value. Cost is calculated on the first in first out (“FIFO”) and includes all costs to acquire and other costs to bring the inventories to their present location and condition. The Company records inventory write-downs for excess or obsolete inventories based upon assumptions on current and future demand forecasts. If the inventory on hand is in excess of future demand forecast, the excess amounts are written off. The Company also reviews inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires the determination of the estimated selling price of the products less the estimated cost to convert inventory on hand into a finished product. Once inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
| FS-11 |
(j) Deferred Offering Costs Associated with the Business Combination
The Business Combination will be accounted for as a reverse recapitalization in accordance with U.S. GAAP ASC 805. Under this method of accounting, Elong is accounting acquirer, and as a result, qualifying transaction costs incurred by Elong are treated as deferred offering cost and any balance below the net proceeds from this reverse recapitalization will be charged directly to equity. This recording complies with the requirements of FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Deferred offering costs consist of legal and other professional expenses incurred through the balance sheet date that are directly related to the Proposed Business Combination and that will be charged to shareholders’ equity upon the completion of the Proposed Business Combination with any balance below the net proceeds from this Business Combination. Should the Proposed Business Combination prove to be unsuccessful, these deferred costs, as well as additional expenses to be incurred, will be charged to operation expenses. As of June 30,2024 and December 31, 2023, respectively, transaction costs in the aggregate of $374,672 and $231,316 have been recorded as deferred offering cost.
(k) Property, plant and equipment, net
Property, plant and equipment (including construction in progress) are stated at cost less accumulated depreciation and impairment charges. Depreciation is calculated primarily based on the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets except the depreciation method for mold and tooling:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT ESTIMATED USEFUL LIVES
| Machinery and equipment | 3-10 years | |
| Office equipment | 4 – 5 years | |
| Motor vehicles | 5 years | |
| Leasehold improvements | Shorter of lease term or estimated useful life of the assets | |
| Purchased software | 2 to 10 years |
Mold and tooling are depreciated based on the units-of-production.
The cost and accumulated depreciation of property, plant and equipment sold are removed from the consolidated balance sheets and resulting gains or losses are recognized in the consolidated statements of operations and comprehensive loss.
Construction in progress represents manufacturing facilities and equipment under construction, and is stated at cost. The capitalization of these costs ceases when construction in progress is transferred to property, plant and equipment and substantially ready for its intended use. No depreciation is recorded for construction in progress.
Purchased software with definite lives is amortized on a straight-line basis over their expected useful economic lives.
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized.
(l) Impairment of long-lived assets
Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will affect the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life. For the periods presented, we have not recorded any material impairment.
| FS-12 |
(m) Fair value measurement
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Authoritative literature provides a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement as follows:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
(n) Warrant Shares
The Company issued warrant shares to a group of original institutional shareholders of Huizhou Yipeng and eligible to exchange the Company’s Class A ordinary shares at the par value of $0.00001 per share upon the completion of the approvals from and filings and registrations with competent branches of Chinese State Administration of Foreign Exchange (“SAFE”) office, National Development and Reform Commission (“NDRC”) and Ministry of Commerce (“ MOFCOM”) as well as other competent PRC governmental authorities with jurisdiction of the outbound direct investment by PRC entities (the “ODI Approvals”) (“Warrant Shares “).
| FS-13 |
The accounting treatment of warrant shares is determined pursuant to the guidance provided by ASC 815, Derivatives and Hedging (“ASC 815”), as applicable. The freestanding equity-linked instrument that becomes issuable, exercisable, or settleable only upon the occurrence or nonoccurrence of a specified event is considered issued for accounting purpose and evaluated under ASC 815-40. After evaluation that the Warrant Shares are indexed to and settled in the Company’s own stock, management classified the issued Warrant Shares as equity.
(o) Revenue recognition
From January 1, 2019, the Company adopted the new guidance of ASC Topic 606, Revenue from Contracts with Customers (Topic 606), which requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applies the following steps to recognize revenues: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation.
The Company’s revenues are mainly generated from 1) sales of battery packs; 2) sales of battery cells; 3) sales of battery spare parts and other such as sales of product waste and scraps.
Sales of Battery packs and battery cells
The Company generates revenue from sales of battery packs and battery cells through sales contract including master agreements and sales orders from the customers, which contain fixed sales price, payment terms, specifications, delivery and acceptance terms, transportation terms, etc., and are all signed-off and stamped.
The Company also identifies only one performance obligation in the contract which is to deliver battery packs and battery cells.
In order for the Company to provide specific battery packs and battery cells explicitly stated in a sales contract or sales orders, the Company requires certain deposits or full amount payment made in advance. Revenue is recognized at the point in time upon the customer’s acceptance of products, which is when control of the promised goods is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to for the products sold.
The Company presents the contract in the consolidated balance sheets as a contract asset or a contract liability, depending on the relationship between the entity’s performance and the customer’s payment.
A receivable is recorded when the Company has an unconditional right to consideration. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due.
| FS-14 |
Sales of battery spare parts and others
The Company typically enters into formal written contracts for the sale of spare parts, scrap, product waste, etc. which includes the general payment and delivery terms, and specific orders shall be placed to the Company. Under the specific order, full amount prepayment is required, and the Company’s performance obligation is to transfer agreed-upon battery spare parts, scrap and product waste. The revenue is recognized at a point in time upon the customer’s acceptance of battery spare parts or scrap and product waste.
Net revenues by product:
SCHEDULE OF NET REVENUES BY PRODUCT
| 2024 | 2023 | |||||||
For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Battery packs/battery cells | $ | 89,058 | $ | 2,003,930 | ||||
| Battery spare parts and others | 276,917 | 128,092 | ||||||
| Total consolidated revenue | $ | 365,975 | $ | 2,132,022 | ||||
(p) Contract Balances
Contract balances include accounts receivable and contract liabilities. Accounts receivable represent cash not received from customers and are recorded when the rights to consideration are unconditional. The provision from credit loss reflects the best estimate of probable losses inherent to the accounts receivable balance.
According to ASC 606-10-45-2, if a customer pays consideration or the Company has a right to an amount of consideration that is unconditional (that is, a receivable), before the Company transfers a good or service to the customer, the Company shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). A contract liability is the Company’s obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer. The Company records US$3,817,000 and US$3,893,986 as contract liabilities as of June 30, 2024 and December 31, 2023, respectively.
The table below presents the activity of contract liabilities during the six months ended June 30, 2024 and 2023, respectively:
SCHEDULE OF ACTIVITY OF CONTRACT LIABILITIES
| June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance at beginning of year | $ | 3,893,986 | $ | 5,632,870 | ||||
| Deposits received | 65,973 | 453,324 | ||||||
| Revenue recognized | (53,222 | ) | (1,054,613 | ) | ||||
| Exchange difference | (89,737 | ) | (248,285 | ) | ||||
| Balance at end of year | $ | 3,817,000 | $ | 4,783,296 | ||||
(q) Product warranty
The Company provides a manufacturer’s standard warranty on battery packs and battery cells products sold, which entails repair or replacement of non-conforming items, in conjunction with the sales of products.
The Company’s product warranty generally ranges from one to eight years (or 120,000 or 500,000 kilometer if reached sooner). The Company establishes a reserve for the estimated cost of the product warranty at the time revenue is recognized. The warranty liability recorded at each balance sheet date reflects management’s best estimates of its product warranty based on historical information and other currently available evidence, including actual claims incurred to date and an estimate of the nature, frequency and costs of future claims for each customer.
| FS-15 |
The Company review and adjust the estimates to ensure that accruals are adequate to meet expected future warranty obligations. Initial warranty data is limited early in the launch of a new product and accordingly, future adjustments to the warranty accrual may be material.
The portion of the warranty that is expected to incur within the next 12 months is recorded in current liabilities, while the remaining balance is recorded in non-current liabilities on the consolidated balance sheets. Warranty expense is recorded as a component of selling expenses.
The Company considers the standard warranty is not providing incremental service to customers rather than assurance to the quality of the battery packs and battery cells, and therefore is not a separate performance obligation and should be accounted for in accordance with ASC 460, Guarantees.
(r) Cost of revenue
Cost of revenue includes direct parts, material, labor cost, manufacturing overhead (including depreciation of assets associated with the production) and shipping and handling costs charged by suppliers. Cost of revenue also includes charges to write-down the carrying value of the inventories when it exceeds its estimated net realizable value and to provide for on-hand inventories that are either obsolete or in excess of forecasted demand.
Idle capacity
Idle capacity consists of indirect production costs in excess of charges under normal capacity allocated to the Company’s produced semi-finished goods and finished goods. Production costs include direct and indirect labor, production supplies, repairs and maintenance, rent, utilities, insurance. The Company charges allocated production costs to its semi-finished and finished goods based on normal capacity on a monthly basis which is lower than its actual costs incurred. Production costs in excess of production allocations are expensed and recorded in cost of revenue-idle capacity. Idle capacity expenses amounted to US$1,251,322 and US$1,751,405 for the six months ended June 30, 2024 and 2023, respectively.
(s) Research and development expenses
All costs associated with research and development (“R&D”) is expensed as incurred. R&D expenses consist primarily of employee compensation for those employees engaged in R&D activities, design and development expenses with new technology, materials and supplies and other R&D related expenses. For the six months ended June 30, 2024 and 2023, R&D expenses were US$ 56,904 and US$457,031, respectively.
(t) Selling, general and administrative expenses
Selling expenses consist primarily of warranty expenses, employee compensation, and transportation cost as incurred. For the six months ended June 30, 2024 and 2023, selling expenses were US$63,541 and US$148,885, respectively, including provision of warranty expenses of US$0 and US$33,576 respectively.
General and administrative expenses consist primarily of employee compensation for employees involved in general corporate functions and those not specifically dedicated to R&D activities, depreciation and amortization expenses, legal, and other professional services fees, lease and other general corporate related expenses. For the six months ended June 30, 2024 and 2023, general and administrative expenses were US$1,720,377 and US$ 1,293,738 respectively.
(u) Employee benefits
Full-time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, work-related injury benefits, maternity insurance, medical care, employee housing fund and other welfare benefits are provided to the employees. Chinese labor regulations require that the PRC subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries, up to a maximum amount specified by the local government. The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Company’s obligations are limited to the amounts contributed and no legal obligation beyond the contributions made. For the six months ended June 30, 2024 and 2023, employee benefits expenses were US$60,377 and US$156,273, respectively.
| FS-16 |
(v) Other income (expense)
Other income (expense) mainly consists of non operational activities such as loss of disposal of property, plant, and equipment and inventory, litigation charges, and debt forgiveness.
For the six months ended June 30, 2024 and 2023, the Company recognized other income (expenses) as below:
SCHEDULE OF OTHER INCOME (EXPENSES)
| June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Loss on disposals of property, plant, and equipment and inventory | $ | (175,292 | ) | $ | - | |||
| Gain from waste disposal | 3,367 | 24,844 | ||||||
| Others | 17,200 | 14,909 | ||||||
| Total other income (expense) | $ | (154,725 | ) | $ | 39,753 | |||
(w) Government grants
The Company’s PRC based subsidiaries received government subsidies from certain local governments in accordance with relevant policies. The Company’s government subsidies consist of specific subsidies for specific purpose, such as investment promotion, R&D award, labor hiring subsidies and enterprise development grant.
The Company recognizes government subsidies until there is reasonable assurance that the Company will comply with conditions attaching to them and the grants will be received. The Company currently recognizes government subsidies i) using a systematic basis over the periods in which the entity recognizes the related expenses that the grants are intended to compensate and ii) when the grant becomes receivable if it compensates for expenses already incurred. As of June 30, 2024 and December 31, 2023, there was no such unearned and deferred income. For the six months ended June 30, 2024 and 2023, the Company has recognized subsidies of approximately US$224,534 (RMB 1,620,000) and US$3,900 (RMB27,022), respectively. There is no guarantee that the Company will continue to receive such grants in the future.
| FS-17 |
See below for the nature of each government subsidy received and the related accounting treatment:
SCHEDULE OF GOVERNMENT SUBSIDY RECEIVED AND RELATED ACCOUNTING TREATMENT
| For the six months Ended June 30, 2024 | ||||||||
| No. | US$ | Type of Subsidies | Accounting Treatment | |||||
| 1 | 224,534 | Investment promotion subsidy | The government subsidy is recognized as government grant income when the amounts are received and conditions are met. | |||||
| TOTAL | 224,534 | |||||||
| For the six months ended June 30, 2023 | ||||||||
| No. | US$ | Type of Subsidies | Accounting Treatment | |||||
| 1 | 2,766 | Small loan interest subsidy | The government subsidy received is recognized as government grant income for the expenses incurred for the specific purposes. | |||||
| 2 | 1,134 | Others (e.g. labor hiring subsidies) | The government subsidy received is recognized as government grant income for the expenses incurred for the specific purposes. | |||||
| TOTAL | 3,900 | |||||||
(x) Income taxes
Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, Income Tax. Under this method, deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between carrying amounts of existing assets and liabilities in the consolidated financial statements and their respective tax basis, and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statements of operations in the period of change. Valuation allowances are established when necessary to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.
Uncertain tax positions
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. Interest and penalties related to uncertain tax positions, if any, are recorded under accrued expenses and other current liabilities on its consolidated balance sheets and under other expenses in its consolidated statements of comprehensive loss. The Company did not recognize any significant interest and penalties associated with uncertain tax positions for the six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, the Company did not have any significant unrecognized uncertain tax positions.
(y) Value-added tax (“VAT”)
The Company is subject to statutory VAT of 13% for revenue from sales of battery cells and battery packs in PRC. The Company charges customers Output VAT on revenue generated from sales of products and pays vendors Input VAT on qualified supply purchases. Net VAT balance between input VAT and Output VAT is recorded in the line item of prepaid expenses and other current assets on the consolidated balance sheet as of June 30, 2024 and December 31, 2023, respectively.
| FS-18 |
(z) Comprehensive loss
The Company applies ASC 220, Comprehensive Income, with respect to reporting and presentation of comprehensive loss and its components in a full set of financial statements. Comprehensive loss is defined to include all changes in equity of the Company during a period arising from transactions and other events and circumstances except those resulting from investments by shareholders and distributions to shareholders. For the periods presented, the Company’s comprehensive loss includes net loss and other comprehensive loss, which primarily consists of the foreign currency translation adjustments.
(aa) Lease
The Company follows ASC Topic 842, Leases (“ASC 842”) since January 1, 2023.
The lease terms include options to renew or terminate the lease when it is reasonably certain that it will exercise the option. The Company determines if a contract contains a lease based on whether it has the right to obtain substantially all of the economic benefits from the use of an identified asset which the Company does not own and whether it has the right to direct the use of an identified asset in exchange for consideration. Right of use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are recognized as the amount of the lease liability, adjusted for lease incentives received. Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate (“IBR”), because the interest rate implicit in most of the Company’s leases is not readily determinable. The IBR is a hypothetical rate based on the Company’s understanding of what its credit rating would be to borrow and resulting interest the Company would pay to borrow an amount equal to the lease payments in a similar economic environment over the lease term on a collateralized basis. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in the Company’s lease liability calculation. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments is incurred.
The lease right-of-use assets are initially measured at the carrying amount of the lease liability and adjusted for any prepaid or accrued lease payments, remaining balance of lease incentives received, unamortized initial direct costs, or impairment charges relating to the right-of-use-asset. Lease expense for minimum lease payments exclusive of the value-added tax are recognized on straight-line basis over the lease term The new standard provides a number of optional practical expedients at transition. The Company elected certain practical expedients that must be elected as a package, which permit the Company to not reassess, under the new standard, prior conclusions about (1) lease identification, (2) lease classification and (3) initial direct costs. Additionally, the Company elected a short-term lease exception policy, which allows entities to not apply the new standard to short-term leases (i.e. leases with terms of 12 months or less) and a hindsight policy, which allows an entity to include current considerations for existing leases when determining initial lease terms. The Company has also elected to account for lease and non-lease components as a single component for all leases, and elected to utilize an IBR (incremental borrowing rate) that is risk free rate plus premium for all leases when calculating the lease liability.
| FS-19 |
(bb) Net loss per share
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings per Share” (“EPS”) to calculate net loss per share. The issued common stock or any participating securities are considered in calculating and presenting EPS.
As noted in ASU 260-10-45-10, basic loss per ordinary share is computed by dividing net loss available to Common Stock shareholders by the weighted average number of ordinary shares issued and outstanding for the periods. The general guidance on calculating the numerator for basic EPS is the loss available for common stockholders, while considering the items such as dividends on preferred stocks or any other participating securities that impact the loss available to common stock shareholders, in which case an entity is required to apply the two class method to adjust the numerator for impact of dilutive potential common shares.
The definition of participating security is a security that may participate in undistributed earnings with common stock whether the participation is conditioned upon the occurrence of a specific event or not. The form of such participating is any form of undistributed earnings that constitute participating of that security.
Regarding the participating rights of the Warrant Shares, due to the fact that the ODI Approvals is legitimate that both the holders of mezzanine equity and warrant shares do not have any participating rights before the completion of ODI Approvals. As part of the Reorganization, these holders agreed that they do not have any legal rights and obligations to share the operation results of the Company. Accordingly, the holders of Warrant Shares do not have any rights to participate in the allocation of Company’s undistributed earnings. As a result, warrant shares were not participating securities, for the six months ended June 30, 2024 and 2023, the Company had no need to apply two- class method to adjust basic EPS.
As the Reorganization (see Note 1) is being reflected as if it had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the reorganization have been outstanding for the entire period presented. The Class A and Class B shares are identical except the voting rights, thus the undistributed earnings or net loss per share would be the same and presented as one class. As of June 30, 2024 and December 31, 2023, the Company had class A ordinary shares of 6,845,290 and class B ordinary shares of 16,538,142 issued and outstanding, respectively, together the weighted average number of ordinary shares was 23,383,432 for the six months ended June 30, 2024 and 2023.
As of June 30, 2024 and December 31, 2023, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the loss of the Company. As a result, the Company had the same basic and diluted net loss per share for the years ended June 30, 2024 and December 31, 2023.
| FS-20 |
(cc) Segment reporting
The Company operates as one operating segment in accordance with ASC 280, Segment Reporting. The Company has a common basis of organization, and the products are offered mutually. Considering the streamlining of the growing organization, the Company’s Chief Operating Decision Maker (“CODM”) which is the Chief Executive Officer continues to make decisions with regards to business operations and resource allocation based on evaluation of Elong Power as a whole. The CODM allocates resources and assess financial performance on a consolidated basis. The measure of segment assets is reported on the balance sheet as total consolidated assets accordingly, the Company operates and makes decisions as one business segment. As the Company’s long-lived assets are substantially located in the PRC and all revenue are generated within the PRC, no geographical segments are presented.
(dd) Recent accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU Accounting Standards Update No. 2023-07, which applies to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain circumstances. The amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company will adopt this ASU within annual reporting period of December 31, 2024 and is evaluating the impact of the adoption on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating this ASU and expects to add additional disclosures to our consolidated financial statements, once adopted.
3. ACCOUNTS RECEIVABLE
Accounts receivable and allowance for credit losses consisted of the following:
SCHEDULE OF ACCOUNTS RECEIVABLE
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Accounts receivable-non retention | $ | 2,008,434 | $ | 2,085,782 | ||||
| Retention receivable | 2,805,461 | 2,974,676 | ||||||
| Total | 4,813,895 | 5,060,458 | ||||||
| Less: Allowance for credit loss | (2,127,694 | ) | (2,033,896 | ) | ||||
| Account receivable, net | 2,686,201 | 3,026,562 | ||||||
| Less: Current portion | 768,509 | 1,203,375 | ||||||
| Non-current portion | $ | 1,917,692 | $ | 1,823,187 | ||||
| FS-21 |
As the sales contracts of the Company include standard warranty which covers basic functionality of the products between one to eight years (or 120,000 or 500,000 kilometer if reached sooner) after the sales of the battery cells or battery pack. Retention receivable is reserved for product warranty at 5% to 10% of the sales amount, and is interest-free and recoverable at the end of the retention period.
On January 1, 2023, the Company assessed the credit loss for accounts receivable and retention receivable in accordance with ASU 2016-13 (Topic 326) and the impact of adoption on the Company’s account receivable and retention receivable was described in Note 2- (h) Accounts receivable, net.
An analysis of movement of the allowance for credit losses (with ASC 326) is as follows:
SCHEDULE OF MOVEMENT OF THE ALLOWANCE FOR THE CREDIT LOSSES
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance at beginning of period | $ | 2,033,896 | $ | 1,872,550 | ||||
| Cumulative effect of the implementation of ASC 326 at January 1, 2023 | - | 545,554 | ||||||
| Beginning balance at January 1, 2023 and 2024 | 2,033,896 | 2,418,104 | ||||||
| Provision for the period | ||||||||
| Account receivable | 141,639 | - | ||||||
| Retention receivable, current | - | 57 | ||||||
| Retention receivable, non current | - | 129 | ||||||
| Total provision for the period | $ | 141,639 | $ | 186 | ||||
| Reversal - recoveries by cash | ||||||||
| Account receivable | - | (414,981 | ) | |||||
| Retention receivable, current | - | - | ||||||
| Retention receivable, non current | - | - | ||||||
| Total Reversal - recoveries by cash | - | (414,981 | ) | |||||
| Charged to consolidated statements of operations and comprehensive loss | 141,639 | (414,795 | ) | |||||
| Foreign exchange adjustment | (47,841 | ) | (99,606 | ) | ||||
| Balance at end of period | $ | 2,127,694 | $ | 1,903,703 | ||||
| FS-22 |
4. PROMISSORY NOTE RECEIVABLE
Promissory note as of June 30, 2024 and December 31, 2023 consisted of the following:
SCHEDULE OF PROMISSORY NOTE
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Promissory note receivable | $ | 500,000 | $ | - | ||||
On February 27, 2024, April 1, 2024 and May 9, 2024, the Company advanced $200,000, $300,000 and $300,000, respectively, to TMT in order to pay for TMT’s extension fee in relation to its initial business combination. TMT issued three convertible promissory notes of $200,000, dated February 27, 2024, $300,000, dated April 1, 2024, and $300,000, dated May 9, 2024, respectively, to the Company with a principal amount of $200,000, $300,000 and $300,000 to evidence the advance. The promissory notes bear no interest and are repayable in full upon consummation of TMT’s initial business combination. The Company may, at its election, convert the promissory notes, in whole or in part, into TMT Units, provided that written notice of such intention is given to TMT at least two (2) business days prior to the consummation of TMT’s initial business combination. The number of TMT Units to be received by the Company in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the Company by (y) $10.00. Each TMT Unit consists of one (1) TMT Ordinary Share and one (1) right to receive two-tenths (2/10) of one (1) TMT Ordinary Share.
As of June 30, 2024, the balance of promissory note receivable was US$ 500,000. There is no drawdown from the $300,000 promissory note issued in April 1, 2024 yet.
5. INVENTORY
Inventory as of June 30, 2024 and December 31, 2023 consisted of the following:
SCHEDULE OF INVENTORY
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | 1,254,770 | $ | 1,447,850 | ||||
| Work-in-process(i) | 17,148 | 17,552 | ||||||
| Semi-finished goods(ii) | 624,628 | 2,391,380 | ||||||
| Finished goods | 809,048 | 899,839 | ||||||
| Inventory, subtotal | 2,705,594 | 4,756,621 | ||||||
| Less: inventory impairment provision | (703,712 | ) | (1,942,922 | ) | ||||
| Inventory, net | $ | 2,001,882 | $ | 2,813,699 | ||||
| (i) | Work-in-process primarily consists of battery cells under production or battery pack under assembly process, which will be transferred into Semi-finished goods or finished goods respectively when completed. |
| (ii) | Semi-finished goods are mainly battery cells which can be used to produce battery packs or sold directly. |
Movement of inventory impairment provision is as below:
SCHEDULE OF MOVEMENT OF INVENTORY IMPAIRMENT PROVISION
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance at beginning of the period | $ | (1,942,922 | ) | $ | (1,810,384 | ) | ||
| Addition | (261,851 | ) | (339,955 | ) | ||||
| Deletion* | 1,464,982 | 794,355 | ||||||
| Write off | - | - | ||||||
| Exchange difference | 36,079 | 50,478 | ||||||
| Balance at end of the period | $ | (703,712 | ) | $ | (1,305,506 | ) | ||
| * | Inventory with impairment provision in the prior period was sold during the six months ended June 30, 2024 and 2023. |
| FS-23 |
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Value added tax recoverable | $ | 859,482 | $ | 888,439 | ||||
| Prepayments to suppliers | 189,783 | 178,340 | ||||||
| Deposits | 8,224 | 8,418 | ||||||
| Deposit of pledged long-term loan payable (i) | 96,323 | - | ||||||
| Advance to a third party (ii) | - | 31,240 | ||||||
| Staff advance | 5,180 | 3,504 | ||||||
| Others | 4,301 | 4,533 | ||||||
| Prepaid expenses and other current assets | $ | 1,163,293 | $ | 1,114,474 | ||||
| (i) | In order to obtain a two-year pledged long-term loan payable (refer to note 14), the Company, in June 2023, remitted a non-refundable deposit of RMB 700,000 (US$ 96,323). This amount will be credited against the final installment upon the loan’s maturity. |
| (ii) | The Company remits an advance payment to a third party for the purpose of making overseas professional fee payments on behalf of the Company. |
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment as of June 30, 2024 and December 31, 2023 consisted of the following:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Leasehold improvements | $ | 3,204,000 | $ | 3,279,498 | ||||
| Machinery equipment (i) | 12,855,500 | 13,420,557 | ||||||
| Office equipment | 767,432 | 990,925 | ||||||
| Motor vehicles | 127,732 | 130,742 | ||||||
| Purchased software | 217,091 | 222,206 | ||||||
| Construction in progress (ii) | 416,467 | 426,280 | ||||||
| Total | 17,588,222 | 18,470,208 | ||||||
| Accumulated depreciation and amortization | (5,756,744 | ) | (5,309,812 | ) | ||||
| Carrying amount | $ | 11,831,478 | $ | 13,160,396 | ||||
| (i) | Machinery equipment also includes mold and tooling. |
| (ii) | During the six months ended June 30, 2024, the Company transferred construction in progress of $0. |
| FS-24 |
During the six months ended June 30, 2023, the Company transferred construction in progress of $176 thousand (RMB1.2 million) to leasehold improvements, and $136 thousand (RMB0.9 million) to machinery equipment.
During the six months ended June 30, 2024 and 2023, the Company had a loss of asset disposal of $175,292 and nil, respectively.
During the six months ended June 30, 2024 and 2023, the Company incurred depreciation expense of $752,100 and $842,830, respectively.
There was no impairment loss during the six months ended June 30, 2024 and 2023.
The aggregate carrying amount of the assets pledged for short term and long term loans by the Company as of June 30, 2024 and December 31, 2023 were as follows:
SCHEDULE OF ASSETS PLEDGED FOR SHORT TERM AND LONG TERM LOANS
| June 30, 2024 | December 31, 2023 | |||||||
| Machinery equipment | $ | 1,643,890 | $ | 1,873,612 | ||||
| Total | $ | 1,643,890 | $ | 1,873,612 | ||||
Supplemental non cash investing activities for the six months ended June 30, 2024 and 2023 was as follows:
SCHEDULE OF SUPPLEMENTAL NON CASH INVESTING ACTIVITIES
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Payable for purchase of property, plant and equipment | $ | - | $ | 129,914 | ||||
8. LEASE
i) Operating Lease
Ganzhou Yipeng entered into a lease agreement for manufacturing facility, warehouses, R&D building and staff quarters, (“Phase II Lease”) in Ganzhou with a third party with the commencement date on August 1, 2020, through December 31, 2041, and the quarterly payment schedule starting on August 1, 2024. The monthly rental payment is approximately RMB963,355($143,148) per month through the lease term.
| FS-25 |
Short-term leases include 1) a one-year leasing of management quarters space from December 9, 2022 to December 8, 2023; and 2) a ten-month leasing from February 19,2024 to December 18, 2024.
Both operating lease expense and short-term lease expense are recognized in cost of revenues and general and administrative expenses.
The components of lease expense for the six months ended June 30, 2024 and 2023 were as follows:
SCHEDULE OF COMPONENTS OF LEASE EXPENSE
2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Lease expense | ||||||||
| Operating lease expense | $ | 771,773 | $ | 803,718 | ||||
| Short-term lease expense | 26,805 | 996 | ||||||
| Total lease expense | $ | 798,578 | $ | 804,714 | ||||
ii) Finance Lease
On August 13, 2022, Ganzhou Yipeng entered into a lease agreement with a third party for an NMP (N-methyl pyrrolidone) liquid solvent recycling equipment of RMB1.5 million (equivalent to $0.2 million) for a five-year term. Pursuant to the agreement, the Company supplies NMP liquid for manufacturing lithium-ion batteries and the Company uses the equipment with no cash payment while supplying a total of ninety five (95) metric tons of NMP liquid produced at market value through the lease term.
The components of finance lease expense for the six months ended June 30, 2024 and 2023 were as follows:
SCHEDULE OF COMPONENTS OF FINANCE LEASE EXPENSE
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Unaudited | Unaudited | |||||||
| Finance lease expense: | ||||||||
| Amortization of right-of-use assets | $ | 17,329 | $ | 18,046 | ||||
| Interest on lease liabilities | 2,014 | 4,739 | ||||||
| Total finance lease expense | $ | 19,343 | $ | 22,785 | ||||
The following is a schedule, by years, of maturities of lease liabilities as of June 30, 2024:
SCHEDULE OF MATURITIES OF LEASE LIABILITIES
| Operating leases | Finance leases | |||||||
| (Unaudited) | (Unaudited) | |||||||
| 2024 (remaining of year) | $ | 2,739,542 | $ | 154,253 | ||||
| 2025 | 3,411,775 | - | ||||||
| 2026 | 1,658,194 | - | ||||||
| 2027 | 1,658,194 | - | ||||||
| 2028 | 1,658,194 | - | ||||||
| Thereafter | 21,277,789 | - | ||||||
| Total future lease payments | 32,403,688 | 154,253 | ||||||
| Less: imputed interest | (10,327,752 | ) | - | |||||
| Present value of lease liabilities | $ | 22,075,936 | $ | 154,253 | ||||
| FS-26 |
Lease term and discount rate:
SCHEDULE OF LEASE TERM AND DISCOUNT RATE
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Weighted-average remaining lease term(years) | ||||||||
| Operating leases | 17.5 | 18.5 | ||||||
| Finance lease | 3.1 | 4.1 | ||||||
| Weighted-average discount rate | ||||||||
| Operating leases | 5.83 | % | 5.83 | % | ||||
| Finance lease | 5.48 | % | 5.48 | % | ||||
Supplemental cash flow information related to leases where the Company was the lessee for six months ended June 30, 2024 and 2023 was as follows:
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION RELATED TO LEASES
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Lease liabilities arising from obtaining right-of-use assets | - | 590,947 | ||||||
9. SHORT TERM LOANS-UNRELATED PARTIES
As of June 30, 2024 and December 31, 2023, short term loans from third parties for working capital purposes were as following:
SCHEDULE OF SHORT TERM LOANS FROM THIRD PARTIES FOR WORKING CAPITAL PURPOSES
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Third party loans | 1,772,237 | 1,143,565 | ||||||
| Total | $ | 1,772,237 | 1,143,565 | |||||
| Short term loans | $ | 1,772,237 | 1,143,565 | |||||
a) Third party loans
Third party loans as of June 30, 2024 and December 31, 2023 consisted of the following:
SCHEDULE OF THIRD PARTY LOANS
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Ms. Xiuxia Wang | 1,274,218 | 704,235 | ||||||
| Mr. Hongshan Liu | 498,019 | 439,330 | ||||||
| Third party loans | $ | 1,772,237 | $ | 1,143,565 | ||||
On June 6, 2023 and December 29, 2023, the Company borrowed two revolving credit loan of RMB2.3 million ($0.3 million) and RMB1.5 million (approximately $211,27) from Mr. Hongshan Liu, an unrelated party individual, bearing 8% per annum and payable on demand. RMB0.7 million (approximately $97,222) was repaid during the year ended December 31, 2023. The loan contract stipulates that the Company shall return the principal amount of the loan and the default penalty to Hongshan Liu with its assets in priority. An extension agreement for the loan was signed on June 2, 2024 for a one-year extension.
For the six months ended June 30, 2024, the Company borrowed a total of $RMB 0.5 million on several occasions (approximately $69,300) from Mr. Hongshan Liu, respectively, bearing 8% interest and payable on demand.
On December 7, 2023, the Company borrowed a revolving credit loan of RMB5.0 million (approximately $704,235) from Ms. Xiuxia Wang, respectively, bearing 8% interest and payable on demand.
For the six months ended June 30, 2024, the Company borrowed a total of $RMB 6.25 million on several occasions (approximately $866,256) from Ms. Xiuxia Wang, bearing 8% per annum and payable on demand. RMB2.0 million (approximately $275,814) was repaid during the six months ended December 31, 2024.
During six months ended June 30, 2024 and 2023, interest of $63,382 and $8,149 were incurred on the Company’s borrowings from unrelated parties, respectively.
b) Changes in borrowings were as follows:
SCHEDULE OF CHANGES IN BORROWINGS
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Beginning balance | $ | 1,143,565 | $ | 2,305,283 | ||||
| Proceeds from factoring loan related to notes receivable | - | 339,797 | ||||||
| Proceeds from third parties | 935,551 | 297,469 | ||||||
| Repayment of borrowings to third parties | (275,814 | ) | (64,951 | ) | ||||
| Maturity of bank acceptance notes | - | (1,573,253 | ) | |||||
| Exchange difference | (31,065 | ) | (67,989 | ) | ||||
| Ending balance | $ | 1,772,237 | $ | 1,236,356 | ||||
| FS-27 |
10. ACCOUNTS PAYABLE
Accounts consisted of the following:
SCHEDULE OF ACCOUNTS PAYABLE
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Accounts payable | $ | 1,138,068 | $ | 1,176,852 | ||||
| Total | $ | 1,138,068 | $ | 1,176,852 | ||||
11. NOTES PAYABLE
Accounts consisted of the following:
SCHEDULE OF NOTES PAYABLE
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Notes payable | 2,511,779 | - | ||||||
| Total | $ | 2,511,779 | $ | - | ||||
On February 22, 2024, May 7, 2024 and June 14, 2024, the Company issued notes of an aggregate principal amount of up to HKD$10,000,000, 5,000,000 and 5,000,000 (approximately USD$1,282,051, 641,052 and 641,052) to CISI Investment Limited, as the noteholder. The rate of interest on the notes is 10% per annum with maturities of 364 calendar days after the issue date.
12. ACCRUED EXPENSES AND OTHER LIABILITIES
SCHEDULE OF ACCRUED EXPENSES AND OTHER LIABILITIES
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Accrued legal expenses (i) | $ | 2,078,779 | $ | 2,127,763 | ||||
| Accrued payroll and welfare | 310,194 | 439,731 | ||||||
| Payable for purchase of property, plant and equipment | 753,647 | 865,949 | ||||||
| Interest payable | 123,814 | 5,819 | ||||||
| Other payable for endorsed notes receivable | - | 15,493 | ||||||
| Accrued professional fees | 24,769 | 279,081 | ||||||
| Others | 139,222 | 65,456 | ||||||
| Total | $ | 3,430,425 | $ | 3,799,292 | ||||
| (i) | Accrued legal expense- On May 18, 2022, a customer of the Company filed a lawsuit in Guiyang Municipal Huaqi District People’s Court, Guizhou Province, against Huizhou Yipeng for failure to pay pursuant to the terms of the contract for selling battery packs. The plaintiff sought a total amount of $836,537 (RMB5,769,760) for the relevant battery replacing cost and labor cost. On June 13, 2022, the Court rebuked Huizhou Yipeng’s appeals. On March 6, 2023, the Court entered into a judgment that Huizhou Yipeng was liable for the above mentioned expenses. The Company thus accrued the legal expense of $0.8 million (RMB5.8 million) in full as of December 31, 2022 accordingly and the payment has not been made as of June 30, 2024. |
In November 2022, a customer of the Company filed the lawsuit in Nanjing Shushui District People’s Court, Jiangsu Province, against Huizhou Yipeng on product quality, demanding outstanding payable of $0.4 million (RMB2.5 million). The Company assessed the case seriously, and recognized the remaining accrued liability of $0.2 million (RMB1.6 million) as of June 30, 2024 and December 31, 2023, respectively. (See Note 22-Commitments and Contingencies - (ii) litigation).
In 2021, a user of the Company’s product filed a lawsuit in Xianning, Hubei Province against a Company’s customer (first defendant) and the Company (the second defendant). The Company accrued RMB7,459,000 ($1.1 million) lawsuit compensation expense during the year ended December 31, 2021. (See Note 22-Commitments and Contingencies - (ii) litigation).
13. PRODUCT WARRANTY PROVISION
The movement of product warranty provision is as following:
SCHEDULE OF MOVEMENT OF PRODUCT WARRANTY PROVISION
| June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Balance at beginning of period | $ | 2,925,070 | $ | 3,438,160 | ||||
| Warranty costs incurred | (35,019 | ) | (669,919 | ) | ||||
| Provision for new warranties | - | 33,576 | ||||||
| Foreign exchange adjustment | (67,087 | ) | (139,550 | ) | ||||
| Balance at end of period | 2,822,964 | 2,662,267 | ||||||
| Less: Current portion | 2,061,718 | 2,241,231 | ||||||
| Non-current portion | $ | 761,246 | $ | 421,036 | ||||
| FS-28 |
Warranty provisions are based upon historical experience. Changes in provisions related to pre-existing legacy products were made based on actual claims and intensive testing and analysis on the legacy products.
The cost of repairs and replacement, and the frequency of claims corresponding to the products sold by the Company from 2018 to 2021 have increased due to the fact that the components purchased from one supplier do not meet the Company’s quality standards. As a result, the Company determined that the impacted legacy products sold due to the need to be repaired or replaced before the expiration of the warranty term resulted in provision of product warranty liability totaling $8.5 million (RMB58.7 million) related with this matter from 2018 to 2021. As of June 30, 2024, the remaining product warranty liability provision for this legacy supplier was approximately $2.0 million.
14. LONG-TERM LOAN PAYABLE
SCHEDULE OF LONG-TERM LOAN PAYABLE
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Current portion of long-term loan payable | $ | 481,616 | $ | 492,965 | ||||
| Long-term portion of long-term loan payable | - | 246,482 | ||||||
| Total loan payable with pledged assets | $ | 481,616 | $ | 739,447 | ||||
On June 16, 2023, the Company entered into a two-year pledged long-term loan payable of RMB7.0 million ($965,344), with a third party lender, payable in monthly installments of RMB291,666 ($40,227), bearing interest at 6.8 % per annum, with carrying value of machinery equipment of $1,643,890 pledged. The Company recorded interests of RMB157,145 ($22,678) and RMB19,562 ($2,823) during the six months ended June 30, 2024 and 2023, respectively.
15. INCOME TAXES
Corporate income tax
Cayman Islands
Under the current laws of the Cayman Islands, Elong Power Holding Limited (“Elong Power”) is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
The Company’s subsidiary, Elong Power International Co, Limited (“Elong Power International”) is incorporated in the BVI and under the current laws of the BVI, Elong Power International is not subject to tax on income or capital gain. In addition, payments of dividend by the subsidiary to their shareholders are not subject to withholding tax in the BVI.
Hong Kong
Under the current Hong Kong Inland Revenue Ordinance, the Company’s Hong Kong subsidiary, Elong Power (Hong Kong) International Limited (“Elong Power (Hong Kong)”) is subject to 16.5% income tax on its taxable income generated from operations in Hong Kong. On December 29, 2017, Hong Kong government announced a two-tiered profit tax rate regime. Under the two-tiered tax rate regime, the first HKD $2.0 million assessable profits will be subject to an 8.25% lower tax rate and remaining taxable income will continue to be taxed at the existing 16.5% tax rate. The two-tiered tax regime becomes effective from the assessment year of 2018, which is on or after April 1, 2018. The application of the two-tiered rates is restricted to only one nominated enterprise among connected entities. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong for any of the periods presented.
| FS-29 |
The PRC
The Company’s subsidiaries that are each incorporated in the PRC are subject to Corporate Income Tax (“CIT”) on the taxable income as reported in their respective statutory financial statements adjusted in accordance with the new PRC Enterprise Income Tax Laws (“PRC Income Tax Laws”) effective from January 1, 2008. Pursuant to the PRC Income Tax Laws, the Company’s PRC subsidiaries are subject to a CIT statutory rate of 25%.
Pursuant to Announcement on the Continuation of the Corporate Income Tax Policy for the Development of the Western Region issued by Department of Finance Ministry, State Taxation Administration, National Development and Reform Committee on April 23, 2020 (Notice No. 2020-23), the Company’s subsidiary, Ganzhou Yipeng Energy & Technology Co., Ltd. (“Ganzhou Yipeng “) is entitled to a reduced income tax rate of 15% from January 1, 2021 to December 31, 2030.
The Company’s provision for income taxes expenses consisted of:
SCHEDULE OF PROVISION FOR INCOME TAXES EXPENSES
2024 | 2023 | |||||||
| Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC income tax | ||||||||
| Current | $ | - | $ | - | ||||
| Deferred | - | - | ||||||
| Total | $ | - | $ | - | ||||
Reconciliations of the income tax expenses (benefits) computed by applying the PRC statutory income tax rate of 25% to the Company’s income tax expenses of the years presented are as follows:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
2024 | 2023 | |||||||
| Six Months Ended June 30, | ||||||||
2024 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Income (loss) before income taxes | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| Tax credit at PRC corporate income tax rate of 25% | (940,852 | ) | (611,673 | ) | ||||
| Tax effect of entity at preferential tax rate | 203,162 | 260,463 | ||||||
| Non-deductible expenses | 186,495 | - | ||||||
| Changes in valuation allowance | 551,195 | 351,210 | ||||||
| Income tax expenses | $ | - | $ | - | ||||
The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will be more-likely-than-not realized. This assessment considers, among other matters, the nature, frequency and severity of recent loss and forecasts of future profitability. These assumptions require significant judgment, and the forecasts of future taxable income are consistent with the plans and estimates the Company is using to manage the underlying businesses. The statutory income tax rate of 25% or applicable preferential income tax rates were applied when calculating deferred tax assets.
The Company’s deferred tax assets (liabilities) consisted of the following components:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
June 30, 20234 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Deferred tax assets | ||||||||
| Net operating loss carry-forwards | $ | 6,719,513 | $ | 5,962,064 | ||||
| Accrued cost and expense | 652,146 | 838,747 | ||||||
| Allowance for doubtful accounts and inventory provision | 614,994 | 922,030 | ||||||
| Provision for warranty liability | 473,237 | 491,898 | ||||||
| Lease expense | 907,556 | 808,349 | ||||||
| Others | 647 | 5,626 | ||||||
| Less: valuation allowance | (9,368,093 | ) | (9,028,714 | ) | ||||
| Deferred tax assets, net of valuation allowance | $ | - | $ | - | ||||
| FS-30 |
A valuation allowance is provided against deferred tax assets when the Company determines that it is more-likely-than-not that the deferred tax assets will not be utilized in the future.
The Company has tax losses arising in Mainland China of US$ 31,929,015 (RMB 230,366,365) that will expire in one to five years for deduction against future taxable profits.
16. EMPLOYEE BENEFIT PLAN
Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing provident funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Currently, our PRC subsidiaries are making contributions to the plans based on the minimum standards as required by law for most employees. With respect to the underpaid or unpaid employee benefits, we may be required to complete registrations, make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid or unpaid employee benefits, our financial condition and results of operations may be adversely affected. We may also be subject to regulatory investigations and other penalties if our other employment practices are deemed to be in violation of relevant PRC laws and regulations.
The Company accrues for these benefits based on certain percentages of the employees’ salaries, up to a maximum amount specified by the local government. The total employee benefits expensed as incurred were $60,377(RMB 435,616) and $156,273(RMB 1,082,706) for the six months ended June 30, 2024 and 2023, respectively.
17. RELATED PARTY BALANCES AND TRANSACTIONS
The principal related parties with which the Company had transactions as of June 30, 2024 and December 31, 2023, and also for the six months ended June 30, 2024 and 2023 are as follows:
a) Related Parties -
SCHEDULE OF RELATED PARTIES AND THEIR RELATIONSHIPS
| Name | Relationship with the Company | |
| Mr. Hongzhong Yu | Senior management of Huizhou Yipeng | |
| Mr. Jianqin Shu | Shareholder of the Company | |
| Mr. Jiliang Dong | Senior management of Huizhou Yipeng | |
| Mr. Haijun Weng | Senior management of Huizhou Yipeng | |
| Shenzhen High-power Technology Co., Ltd. | Affiliate of non-controlling interest shareholder | |
| Huizhou Kelie Precision Products Co., Ltd. | Affiliate of non-controlling interest shareholder | |
| Beijing Xinlongmai Enterprise Management Co., Ltd. (“ Beijing Xinlongmai”) | Afficilate of non-controlling interest shareholder | |
| Huizhou Highpower Technology Co., Ltd. (“Huizhou High power”) | Afficilate of non-controlling interest shareholder power”) | |
| Ms. Xiaodan Liu | CEO of Elong Power | |
| Mr. Shilin Xun | Senior management of the Company |
| FS-31 |
b) Related party transactions
The following table consists of the purchases that have been entered into with related parties:
SCHEDULE OF RELATED PARTY TRANSACTIONS
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Purchase of raw materials from a related party | ||||||||
| – Huizhou Kelie Precision Products Co., Ltd. | $ | - | $ | 37,468 | ||||
The following table consists of the financing that have been entered into with related parties:
SCHEDULE OF SHORT-TERM LOANS PAYABLE TO RELATED PARTIES
c) Short-term loans payable to related parties
| Note | June 30, 2024 | December 31, 2023 | ||||||||
| Beijing Xinlongmai | (a) | $ | 412,814 | $ | 422,541 | |||||
| Huizhou High power | (a) | 137,604 | 140,847 | |||||||
| Total | $ | 550,418 | $ | 563,388 | ||||||
| (a) | On October 30, 2023, the Company entered into two one-year loans with its related parties Beijing Xinlongmai Enterprise Management Co., Ltd. (“Beijing Xinlongmai”) and Huizhou Highpower Technology Co., Ltd. (“Huizhou Highpower”) of RMB 3 million (US$0.4 million) and RMB 1 million (US$0.1 million), respectively, both bearing zero interest rate and payable on demand.
The Company received the principal of RMB 3 million (US$0.4 million) and RMB 1 million (US$0.1 million) on October 30, 2023 and November 8, 2023, respectively. |
During the six months ended June 30, 2024 and 2023 interest expense of nil was incurred on the Company’s borrowings from related parties, respectively.
| FS-32 |
d) Amounts due from related parties
Amounts due from related parties consisted of the following for the periods indicated:
SCHEDULE OF AMOUNTS DUE FROM RELATED PARTIES
| Relationship | June 30, 2024 | December 31, 2023 | Note | |||||||||
| Mr. Jianqin Shu | Shareholder of the Company | $ | - | 108 | Employee advance | |||||||
| Mr. Haijun Weng | Senior management of Huizhou Yipeng | - | 141 | Employee advance | ||||||||
| Total | $ | - | $ | 249 | ||||||||
e) Amounts due to related parties
Amounts due to related parties consisted of the following for the periods indicated:
SCHEDULE OF AMOUNTS DUE TO RELATED PARTIES
| Relationship | June 30, 2024 | December 31, 2023 | Note | |||||||||
| Mr. Hongzhong Yu | Senior management of Huizhou Yipeng | $ | 2,516 | $ | 2,575 | Payable for employee reimbursement | ||||||
| Mr. Jianqin Shu | Senior management of Huizhou Yipeng | 193 | 198 | Payable for employee reimbursement | ||||||||
| Mr. Jiliang Dong | Senior management of Huizhou Yipeng | - | 607 | Payable for employee reimbursement | ||||||||
| Ms. Xiaodan Liu | CEO and Board Chair of Elong Power | - | 75,173 | Payable for employee reimbursement | ||||||||
| Mr. Shilin Xun | Senior management of the Company | - | 1,715 | Payable for employee reimbursement | ||||||||
| Huizhou Kelie Precision Products Co., Ltd. | Affiliate of non-controlling interest shareholder | 35,449 | 36,285 | Payable for raw material purchases on behalf of the Company | ||||||||
| Shenzhen High-power Technology Co., Ltd. | Affiliate of non-controlling interest shareholder | 42,875 | 43,885 | Payable to affiliate for expenses paid on behalf of the Company | ||||||||
| Total | $ | 81,033 | $ | 160,438 | ||||||||
18. EQUITY
Ordinary shares
On August 18, 2023, Elong Power Limited was incorporated in the Cayman Islands. On October 21, 2023, Elong Power became the holding company pursuant to the Reorganization described in Note 1. In connection with the Reorganization and 500,000,000 authorized shares of Elong Power, including
| ● | 4,000,000,000 Class A ordinary shares of par value of US$0.00001, entitled to one voting each; | |
| ● | 1,000,000,000 Class B ordinary shares of par value of US$0.00001, entitled to fifty voting each |
| FS-33 |
Upon the Reorganization, Elong Power issued totaling 6,845,290 Class A ordinary shares to four shareholders and 16,538,142 Class B ordinary shares to one shareholder in exchange for respective equity interests that they held in Huizhou Yipeng immediately after the Reorganization. Share data have been retrospectively restated to give effect to the reorganization that is discussed in Note 1.
As of June 30, 2024 and December 31, 2023, Elong Power had issued and outstanding Class A ordinary shares of 6,845,290 and Class B ordinary share of 16,538,142, respectively.
19. STATUTORY RESERVE AND RESTRICTED NET ASSETS
As stipulated by the relevant laws and regulations in the PRC, the Company established in the PRC (the “PRC subsidiary”) is required to maintain a statutory reserve made out of profit for the year based on the PRC subsidiary’ statutory financial statements which are prepared in accordance with the accounting principles generally accepted in the PRC. The amount and allocation basis are decided by the director of the PRC subsidiary annually and is not to be less than 10% of the profit for the year of the PRC subsidiary. The aggregate amount allocated to the reserves will be limited to 50% of registered capital for certain subsidiaries. Statutory reserve can be used for expanding the capital base of the PRC subsidiary by means of capitalization issue. In addition, as a result of the relevant PRC laws and regulations which impose restriction on distribution or transfer of assets out of the PRC, the Company had PRC statutory reserve of $708,470 and $708,470 as of June 30, 2024 and December 31, 2023, respectively.
The Company also complies with PRC safety production regulations on battery industry to set aside reserve of $622,609 and $595,720 as of June 30, 2024 and December 31, 2023, which are under restriction for distribution and included in the balance of accumulated deficit in the equity table.
20. LOSS PER SHARE
The following is the calculation of loss per share:
SCHEDULE OF LOSS PER SHARE
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| Weighted average shares outstanding for Class A and Class B – basic and diluted | 23,383,432 | 23,383,432 | ||||||
| Loss per share | ||||||||
| Basic | $ | (0.16 | ) | $ | (0.10 | ) | ||
| Diluted | $ | (0.16 | ) | $ | (0.10 | ) | ||
21. SEGMENT REPORTING
The Company’s chief operating decision maker has been identified as the Chief Executive Officer (“CEO”) who reviews financial information of operating segments based on US GAAP amounts when making decisions about allocating resources and assessing performance of the Company.
The Company determined that it operated in one operating segment includes the manufacture, commercialization and distribution of a wide variety of battery cells and battery packs for use in a wide array of applications.
| FS-34 |
The Company primarily operates in the PRC and substantially all of the Company’s long-lived assets are located in the PRC.
SCHEDULE OF LONG-LIVED ASSETS
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 365,975 | $ | 2,132,022 | ||||
| Less: | ||||||||
| Cost of revenues (i) | 2,002,861 | 1,332,197 | ||||||
| Cost of revenue – idle capacity (ii) | - | 230,480 | ||||||
| Provision for (reversal from) credit losses | 141,639 | (414,793 | ) | |||||
| (Deletion) provision of obsolete inventory | (1,203,131 | ) | (454,400 | ) | ||||
| Provision for warranty liability | - | 33,576 | ||||||
| Staff cost | 472,137 | 1,610,133 | ||||||
| Lease expense | 1,042,414 | 827,499 | ||||||
| Depreciation and amortization expense | 752,100 | 842,830 | ||||||
| Professional fee | 748,875 | 249,862 | ||||||
| Interest expense | 156,362 | 27,287 | ||||||
| Income tax expense | - | - | ||||||
| Other segment items* | 16,126 | 294,042 | ||||||
| Segment net loss | (3,763,408 | ) | (2,446,691 | ) | ||||
| Consolidated net loss | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| Consolidated total assets | $ | 36,055,192 | $ | 40,831,028 | ||||
| (i) | Cost of revenues excludes provision of obsolete inventory, staff cost, depreciation and amortization expense, and lease expense which are separately listed above. |
| (ii) | Cost of revenue – idle capacity excludes staff cost, depreciation and amortization expense, and lease expense which are separately listed above, which was calculated by the monthly actual expenses times (x) monthly capacity utilization ratio. |
| * | Other segment items include selling expenses, remaining general and administration expenses, and other income (expense). |
22. COMMITMENTS AND CONTIGENCIES
(i) Capital Commitments
As of June 30, 2024 and December 31, 2023, the Company had no capital commitments.
(ii) Litigation
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Our subsidiaries in PRC have significant litigations in contractual disputes in court. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews the need for any such liability on a regular basis.
| FS-35 |
The following table sets forth the current legal proceedings that we are involved, which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.
SCHEDULE OF CURRENT LEGAL PROCEEDINGS
| No. | Plaintiff | Defendant | Cause of Action | Status on June 30, 2024 | Fund Frozen Amount* (USD) as of June 30, 2024 |
Status of Subsequent Updates to the Filing Date | Name of the Court | |||||||||
| 1 | Shenzhen Haiying Science & Technology Co., Ltd. | Ganzhou Yipeng & Huizhou Yipeng | Contractual Dispute | Case applying for preservation | 63,262 | No change | Shenzhen Futian District People’s Court | |||||||||
| 2 | Xianning Fengdan Public Transportation Co., Ltd. (i) | Huizhou Yipeng & Ganzhou Yipeng | Contractual Dispute | Judgment effected, Company is preparing for the 2nd appeal | 6,431,129 | No change | Xianning Xianan People’s Court | |||||||||
| 3 | Huizhou Hongchaoyang Dehumidification and Purification Equipment Co., Ltd. | Huizhou Yipeng & Ganzhou Yipeng | Contractual Dispute | Final judgment effected | 48,819 | No change | Huizhou Huicheng District People’s Court | |||||||||
| 4 | Ganzhou Darui Machinery Equipment Co., Ltd. | Ganzhou Yipeng & Huizhou Yipeng | Contractual Dispute | Case applying for preservation | 19,232 | No change | Ganzhou Economic Development Zone People’s Court | |||||||||
| 5 | Shenzhen Yuqiang Co., Ltd | Ganzhou Yipeng | Contractual Dispute | Case applying for preservation | 10,809 | No change | Zhongshan No 2 People’s Court | |||||||||
| 6 | Anfeinuo Auto Connection System (Changzhou) Co. Ltd. | Huizhou Yipeng | Contractual Dispute | Case applying for preservation | 13,760 | No change | Changzhou High-Tech Development Zone People’s Court | |||||||||
| 7 | Shenzhen Haoneng Science & Technology Co., Ltd. | Ganzhou Yipeng | Contractual Dispute | Case applying for preservation | 123,844 | No change | Shenzhen Pingshan District People’s Court | |||||||||
| 8 | Shenzhen Kaifu Machinery Equipment Co., Ltd. | Ganzhou Yipeng | Contractual Dispute | Case applying for preservation | 19,924 | No change | Shenzhen Longgang District People’s Court | |||||||||
| 9 | Nanjing Golden Dragon bus Co., Ltd. (ii) | Huizhou Yipeng | Contractual Dispute | Judgment effected. Company is preparing for the 2nd appeal | - | No change | Shushui District People’s Court | |||||||||
| 10 | Suzhou Industrial Park Deyanfu Machinery Equipment Co., Ltd. | Huizhou Yipeng | Contractual Dispute | Case applying for preservation | 12,470 | No change | Suzhou Industrial Park People’s Court | |||||||||
| 11 | Shenzhen Yanxiangda Science & Technology Co., Ltd. | Huizhou Yipeng | Contractual Dispute | Case applying for preservation | 46,642 | No change | Shenzhen Guangming District People’s Court | |||||||||
| 12 | Shenzhen Lingyueda Technology Co., Ltd | Huizhou Yipeng | Contractual Dispute | Case applying for preservation | 13,674 | No change | Shenzhen Guangming District People’s Court | |||||||||
| 13 | Yutong Bus Co.,Ltd. (iii) | Huizhou Yipeng & Elong Power (Ganzhou) | Contractual Dispute | Case applying for preservation | 1,799,482 |
No change | Zhengzhou Guancheng District People’s Court | |||||||||
| 14 | Suzhou Qinglizi New Energy Science Technology Co.,Ltd. | Huizhou Yipeng & Ganzhou Yipeng | Contractual Dispute | Case applying for preservation | 13,623 |
No change | Tiacang People’s Court | |||||||||
| Total amount: | $ | 8,616,670 | ||||||||||||||
| * | The courts set up this maximum amount which is to be restricted based on each litigation status. The actual frozen cash amount caused by the court orders was $303,744 and $307,826 as of June 30, 2024 and December 31, 2023, respectively. |
| i) | In 2021, a user of the Company’s product filed a lawsuit in Xianning, Hubei Province against a Company’s customer (first defendant) and the Company (the second defendant). On May 19, 2022, the Company was judged by the court to pay RMB7,459,000 ($1.2 million) and RMB1,000 ($145) per day per vehicle from March 1, 2022 till all vehicles are in normal operation which resulted in an estimate amount around RMB 39,000,000 ($5.4 million). The Company accrued RMB7,459,000 ($1.2 million) lawsuit compensation charge during the year ended December 31, 2021. While the additional estimated RMB 39,000,000 ($5.4 million) loss is not accrued based on the Company’s assessment that this loss contingency is reasonably possible but not probable according to ASC 450-20-50-5 as of the date of this consolidated financial statements are issued. In the opinion of the Company, the above settlements were not in line with legal proceedings and lack of legal evidence. As of the date the unaudited condensed consolidated financial statements are issued, the Company is on the going process of this appealing lawsuit. |
| FS-36 |
| ii) | In November 2022, a customer of the Company filed the lawsuit in Jiangsu Province against Huizhou Yipeng, demanding outstanding payable of US$0.4 million (RMB2.5 million) and claiming compensation in the amount of US$2.1 million (RMB14.0 million). The Company assessed and recognized an accrued liability of US$0.4 million (RMB2.5 million) accordingly. Right now the case is in the process of appealing, and the Company considered the remaining US$2.1 million (RMB14.0 million) as uncertain due to lack of legal supporting. |
| iii) | On March 7, 2024, a customer of the Company filed a lawsuit in Zhengzhou, Henan Providence against Huizhou Yipeng and Elong Power (Ganzhou), demanding a compensation charge with amount of RMB 13,077,192 ($1.8 million) which was caused by the product quality issue. The case is still in its early stage and the Company believed this loss contingency should be properly disclosed without accrual since the likelihood of the loss is reasonably possible but not probable according to ASC 450-20-50-5 based on its assessment. |
The Company is subject to legal proceedings and regulatory actions in the ordinary course of business, such as disputes with customers and suppliers. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any of such matters will have a material adverse effect on the consolidated balance sheets, comprehensive loss, or cash flows on an individual basis or in the aggregate. As of June 30, 2024 and December 31, 2023, other than as disclosed above, the Company is not a party to any material legal or administrative proceedings.
(iii) Registration Rights
The Sponsor of TMT Acquisition Corp and certain Company shareholders (including the holders of Warrant Shares) will at or prior to the closing of the Business Combination, enter into a registration rights agreement with the Company, in a form agreed to by the parties to the Business Combination Agreement, provided that such registration rights agreement will have customary terms and conditions including at least three (3) sets of demand registration rights and piggyback rights, which registration rights agreement will become effective as of the closing of the Business Combination.
| FS-37 |
(iv) Finder Fees
On April 21, 2023, TMT Acquisition Corp (“TMT”) signed a Finder’s Engagement Agreement with a third-party named Ever Talent Consultants Limited (“Ever Talent”), and per the agreement, Ever Talent is responsible for identifying and introducing the acquisition target to TMT with the exchange consideration of 900,000 ordinary shares (“Finder Fees”) to be issued by the company of combined listing entity upon the closing of the business combination. Guided by ASC 718 and ASU 2018-07, this transaction is accounted for as nonemployee performance-based payment awards, with the grant date as April 21, 2023 the agreement signing date, and the estimated fair value of the Finder Fees in the amount of $9,000,000 at $10 per share. In addition, per ASC 718-10-25-20, the accruals of compensation cost for this award with performance condition shall be based on the probable outcome of that performance condition. Consider the uncertainty of the business combination, the related compensation cost will not be recognized until the closing date of the business combination. Such shares were issued on November 21, 2024, see Note 24 for the subsequent events.
23. CONCENTRATION AND CREDIT RISK
(a) Customer Concentrations
The Company had the following customers that individually comprised 10% or more of net revenue for the six months endedJune 30, 2024 and 2023 as follows:
SCHEDULE OF CUSTOMER CONCENTRATIONS
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Percentage of the Company’s sales of finished goods and raw materials | ||||||||
| Customer A | 52 | % | -* | % | ||||
| Customer B | 17 | % | -* | % | ||||
| Customer C | 16 | % | -* | % | ||||
| Customer D | -* | % | 27 | % | ||||
| Customer E | -* | % | 20 | % | ||||
| Customer F | -* | % | 15 | % | ||||
| Customer G | -* | % | 12 | % | ||||
| Customer H | -* | % | 11 | % | ||||
| * | represent percentage less than 10% |
The Company had the following customers that individually comprised 10% or more of net account receivable (included VAT) as of June 30, 2024 and December 31, 2023 as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Percentage of the Company’s accounts receivables | ||||||||
| Customer A | 37 | % | 34 | % | ||||
| Customer B | 24 | % | 22 | % | ||||
| Customer C | 34 | % | 31 | % | ||||
(b) Supplier Concentration
The Company relies on third parties for the supply of raw materials. In instances where these parties fail to perform their obligations, the Company may find alternative suppliers in the open market.
| FS-38 |
The Company had the following suppliers that individually comprised 10% or more of net purchase for the six months ended June 30, 2024 and 2023 as follows:
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Percentage of the Company’s net purchase of raw materials | ||||||||
| Supplier A | 61 | % | -* | % | ||||
| Supplier B | 19 | % | -* | % | ||||
| Supplier C | -* | % | 12 | % | ||||
| * | represent percentage less than 10% |
The Company had the following suppliers that individually comprised 10% or more of account payable as of June 30, 2024 and December 31, 2023 as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| Percentage of the Company’s account payable | ||||||||
| Supplier A | 11 | % | -* | % | ||||
| Supplier B | -* | % | 11 | % | ||||
| * | represent percentage less than 10% |
(c) Credit Risk
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents and pledged deposits. As of December 31, 2023 and 2022 substantially all of the Company’s cash and cash equivalents were held by major financial institutions and online payment platforms located in the PRC, which management believes are of high credit quality. The Company has not experienced any losses on cash and cash equivalents to date. The Company does not require collateral or other securities to support financial instruments that are subject to credit risk.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses.
24. SUBSEQUENT EVENTS
The Company has evaluated subsequent events and transactions that occurred after the balance sheet date through the date the unaudited condensed consolidated financial statements were issued and no subsequent events, other than noted below, occurred that require accrual or disclosure.
Fully Exercise of the Warrant Shares
In November 2023, the Company issued 105,430,851 Warrant Shares to certain holders, and the holders of Warrant Shares exercised all of their warrants on October 29, 2024 upon the completion of the ODI Approvals on September 11, 2024.
Finder fee and related issuance of shares
On April 21, 2023, TMT Acquisition Corp (“TMT”) signed a Finder’s Engagement Agreement with a third-party named Ever Talent Consultants Limited (“Ever Talent”), and per the agreement, Ever Talent is responsible for identifying and introducing the acquisition target to TMT with the exchange consideration of 900,000 ordinary shares (“Finder Fees”). The 900,000 Class A shares were issued by the company upon the business combination on November 21, 2024.
Loans to TMT
On July 2, 2024 and August 14, 2024, the Company advanced $200,000 and $75,000 to TMT in order to pay for TMT’s extension fee in relation to its initial business combination. TMT issued a convertible promissory note of $200,000, dated as of July 1, 2024, and $75,000, dated as of August 14, 2024, to the Company with a principal amount of $200,000 and $75,000 to evidence the advance. The promissory note bears no interest and is repayable in full upon consummation of TMT’s initial business combination. The Company may, at its election, convert this promissory note, in whole or in part, into TMT Units, provided that written notice of such intention is given to TMT at least two (2) business days prior to the consummation of TMT’s initial business combination. The number of TMT Units to be received by the Company in connection with such conversion shall be an amount determined by dividing (x) the sum of the outstanding principal amount payable to the Company by (y) $10.00. Each TMT Unit consists of one (1) TMT Ordinary Share and one (1) right to receive two-tenths (2/10) of one (1) TMT Ordinary Share. As of November 1, 2024, total $275,000 promissory note were drawn down.
| FS-39 |
Subscription Agreement with the PIPE Investors
On September 10, 2024, the Company entered into Subscription Agreements with the PIPE Investors, pursuant to which the Company agreed to issue 700,000 Class A Ordinary Shares, at a purchase price of $10.00 per share, in a private placement to be consummated concurrently with the Transaction. At the closing, each PIPE Investor will also enter into the registration rights agreement to be signed in connection with the closing of the Merger Agreement. Under the Subscription Agreements, the Company may not issue Class A or Class B Ordinary Shares or securities exercisable for, or exchangeable or convertible into Class A or Class B Ordinary Shares, for one year after the closing (subject to certain limited exceptions), without the consent of each PIPE Investor who still holds 20% of the shares originally purchased by it. In addition, as an inducement for the PIPE Investors to enter into the Subscription Agreements, Elong, the Investors and Gracedan Co., Limited, the holder of all of Elong’s issued and outstanding Class B Ordinary Shares (the “Supporting Shareholder”), agreed as follows:
(1) Within five (5) Trading Days after the last day of the Registration Adjustment Period, the Supporting Shareholder shall assign and transfer to each PIPE Investor a number of Class A Ordinary Shares so that, after such assignment and transfer, the quotient of (a) such PIPE Investor’s subscription amount, divided by (b) the sum of (i) the number of Class A Ordinary Shares purchased by such PIPE Investor under the Subscription Agreement and (ii) the number of Class A Ordinary Shares so transferred to such PIPE Investor by the Supporting Shareholder, shall equal the VWAP Price.
(2) The Supporting Shareholder shall convert, in accordance with Article 13 of the Elong M&A, such number of Class B Ordinary Shares held by it into Class A Ordinary Shares as is sufficient to satisfy the Supporting Shareholder’s obligations to transfer shares to the PIPE Investors.
(3) For the avoidance of doubt, in no event shall the Supporting Shareholder be required to assign and transfer, on an aggregate basis to all PIPE Investors, more than 2,100,000 Class A Ordinary Shares.
For the purposes of the foregoing, the “VWAP Price” is the greater of (a) 85% of the average of the three lowest daily volume weighted average prices of the Class A Ordinary Shares during the Registration Adjustment Period, and (b) $2.50. The “Registration Adjustment Period” is the ten trading day period ending on the later of (i) the date of effectiveness of a resale registration statement that, alone or in combination with other resale registration statements, includes all Class A Ordinary Shares issuable in the private placement that are then held by (or transferrable to) PIPE Investors who are not affiliates of the Company, (ii) the date that, in accordance with the advice of counsel to the Company, all such Class Ordinary Shares then held by (or transferrable hereunder to) the PIPE Investors who are not affiliates of the Company are eligible for resale pursuant Rule 144 under the Securities Act of 1933, as amended, without volume or manner of sale limitations, and (iii) the first anniversary of the closing of the private placement.
On October 28, 2024, the Company received the first subscription payment of $3.5 million from the PIPE investors. On November 5, 2024, the Company received the second subscription payment of $3.5 million. $7.0 million of the PIPE investment was received in full and the deal was closed on November 21, 2024.
Business Combination Completion
On November 21, 2024, the Company completed its business combination with TMT Acquisition Corp.
| FS-40 |
25. UNAUDITED CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirement and concluded that it was applicable to the Company as the restricted net assets of the Company’s PRC subsidiary exceeded 25% of the consolidated net assets of the Company, therefore, the condensed financial statements for the parent company are included herein.
For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party.
For the parent company, the Company records its investments in subsidiaries under the equity method of accounting as prescribed in ASC 323, Investments – Equity Method and Joint Ventures. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries” and the respective profit or loss as “Equity in earnings of subsidiaries” on the condensed statements of operations.
The Company did not pay any dividend for the periods presented. As of June 30, 2024 and December 31, 2023, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the parent company, except for those which have been separately disclosed in the consolidated financial statements, if any.
As of June 30, 2024 and December 31, 2023, the parent company’s share of losses of an investee exceed the carrying amount of an investment accounted for by the equity method. Due to the fact that Elong Power was committed to provide financial support for the subsidiaries, the parent company continued to applying the equity method in accordance with ASC 323-10-35-20.
Basis of presentation
The unaudited condensed financial information of the Parent Company has been prepared using the same accounting policies as set out in the Company’s unaudited condensed consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries. For the parent company, the Company records its investments in subsidiaries under the equity method of accounting as prescribed in ASC 323, Investments – Equity Method and Joint Ventures. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries” or “Investment deficit in subsidiaries” and the respective loss as “Equity in loss of subsidiaries” on the condensed statements of operations.
| FS-41 |
SCHEDULE OF BALANCE SHEETS
UNAUDITED CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
(Amounts in US$, except for number of shares and per share data)
| June 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Investment in subsidiaries | - | 978,336 | ||||||
| TOTAL ASSETS | $ | - | $ | 978,336 | ||||
| LIABILITIES | ||||||||
| Investment deficit in subsidiaries | $ | 2,780,537 | $ | - | ||||
| TOTAL LIABILITIES | 2,780,537 | - | ||||||
| SHARHOLDERS’ DEFICIT | ||||||||
| Class A ordinary shares, $0.00001 par value, 4,000,000,000 shares authorized,6,845,290 share issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | 68 | 68 | ||||||
| Class B ordinary shares, $0.00001 par value, 1,000,000,000 shares authorized,16,538,142 share issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | 165 | 165 | ||||||
| 165 | 165 | |||||||
| Additional paid in capital | 38,502,737 | 38,502,737 | ||||||
| Statutory reserve | 708,470 | 708,470 | ||||||
| Accumulated deficit | (42,553,599 | ) | (38,790,191 | ) | ||||
| Accumulated other comprehensive income | 561,622 | 557,087 | ||||||
| TOTAL STOCKHOLDERS’ DEFICIT | (2,780,537 | ) | 978,336 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | - | $ | 978,336 | ||||
| FS-42 |
SCHEDULE OF UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Amounts in US$, except for number of shares and per share data)
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| OPERATING LOSS | ||||||||
| Equity in loss of subsidiaries | $ | (3,763,408 | ) | $ | (2,446,691 | ) | ||
| Loss before income tax expense | (3,763,408 | ) | (2,446,691 | ) | ||||
| income tax expenses | - | - | ||||||
| NET LOSS | (3,763,408 | ) | (2,446,691 | ) | ||||
| Other comprehensive loss | ||||||||
| Foreign currency adjustments | 4,535 | (179,447 | ) | |||||
| COMPREHENSIVE LOSS | $ | (3,758,873 | ) | $ | (2,626,138 | ) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| FS-43 |
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
There were no cash activities of the parent company for the six months ended June 30, 2024 and 2023.
| FS-44 |
Exhibit 99.3
Unless the context otherwise requires, all references in this section to the “Company,” “Elong,” “we,” “us,” or “our” refer to Elong Power Holding Limited and its subsidiaries and “TMT” refers to TMT Acquisition Corp. Other capitalized terms used but not defined in this exhibit have the meanings given to them in the Shell Company Report on Form 20-F to which this exhibit is attached (the “Form 20-F”).
The following unaudited pro forma condensed combined financial information of Elong and TMT, gives effect to the Business Combination, the PIPE Financing and related transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with SEC rules and regulations.
The unaudited pro forma condensed combined financial statements are based on the Elong historical financial statements and TMT historical financial statements as adjusted to give effect to the Business Combination, the PIPE Financing and related transactions. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Business Combination, the PIPE Financing and related transactions as if they had been consummated on June 30, 2024. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2024 gives effect to the Business Combination, the PIPE Financing and related transactions as if they had occurred on January 1, 2024, the beginning of the earliest period presented. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 gives effect to the Business Combination, the PIPE Financing and related transactions as if they had occurred on January 1, 2023, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial information is based upon, and should be read in conjunction with, the historical financial statements and related notes of Elong and TMT for the applicable periods included or incorporated by reference in the Form 20-F.
The unaudited pro forma condensed combined financial information has been presented for informational purposes only and is not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the Business Combination, the PIPE Financing and related transactions been completed as of the dates indicated. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company’s following the Business Combination, the PIPE Financing and related transactions.
Elong and TMT have not had any historical relationship prior to the Business Combination. Accordingly, no transaction accounting adjustments were required to eliminate activities between the companies.
The following summarizes the pro forma capitalization of the combined company expected immediately following the Closing:
Post-Business Combination | ||||||||
| TMT public stockholders (99.3% redemption from the trust account) | 42,114 | 0.1 | % | |||||
| Shares of TMT public stockholders issuable upon conversion of TMT Rights at closing | 1,200,000 | 2.0 | % | |||||
| TMT Sponsors and its permitted transferees | 1,870,000 | 3.2 | % | |||||
| Shares of TMT founders and its permitted transferees issuable upon conversion of TMT founder rights | 74,000 | 0.1 | % | |||||
| TMT underwriter shares | 270,000 | 0.5 | % | |||||
| Finder shares | 900,000 | 1.5 | % | |||||
| Elong Class A and B Ordinary Shares | 45,000,000 | 76.2 | % | |||||
| Elong Earnout shares | 9,000,000 | 15.2 | % | |||||
| PIPE Investors | 700,000 | 1.2 | % | |||||
| Total shares at closing | 59,056,114 | 100.0 | % | |||||
The share percentages set forth above with respect to Elong Ordinary Shares includes the shares originally issued to shareholders of Elong (as adjusted for the Elong Reverse Share Split), the Warrant Shares issuable to the holders of the Elong Warrants, the warrant holders exercised all of their warrants upon the completion of the ODI Approvals (as adjusted for the Elong Reverse Share Split), and the Earnout Shares. Because each Elong Class B Ordinary Share will entitle the holder thereof to 50 votes on all matters subject to vote at general meetings of New Elong, the Elong shareholders will hold 98.5% of the outstanding voting power immediately after Closing.
| 1 |
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2024
| Elong | TMT Acquisition Corp | Combined | ||||||||||||||||
| As
of June 30, 2024 | As
of June 30, 2024 | Transaction Accounting adjustments | Note 3 | Pro
Forma Combined | ||||||||||||||
| ASSETS | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 1,014,106 | $ | 683 | $ | 65,455,907 | A | $ | 7,739,106 | |||||||||
| 7,000,000 | F | |||||||||||||||||
| (67,151,435 | ) | P | ||||||||||||||||
| (100,000 | ) | N | ||||||||||||||||
| (533,315 | ) | N | ||||||||||||||||
| (500,000 | ) | C | ||||||||||||||||
| 500,000 | C | |||||||||||||||||
| 855,000 | D | |||||||||||||||||
| 1,291,510 | Q | |||||||||||||||||
| (93,350 | ) | S | ||||||||||||||||
| Restricted cash | 303,744 | - | 303,744 | |||||||||||||||
| Promissory note receivable | 500,000 | - | (500,000 | ) | C | - | ||||||||||||
275,000 | D | |||||||||||||||||
(275,000 | ) | D | ||||||||||||||||
| Accounts receivable, net | 768,509 | - | 768,509 | |||||||||||||||
| Inventories | 2,001,882 | - | 2,001,882 | |||||||||||||||
| Prepaid expenses and other current assets | 1,163,293 | 82,405 | 1,245,698 | |||||||||||||||
| Deferred closing costs | 374,672 | - | (374,672 | ) | E | - | ||||||||||||
| Total current assets | 6,126,206 | 83,088 | 12,058,939 | |||||||||||||||
| Investments held in Trust Account | - | 65,455,907 | (65,455,907 | ) | A | - | ||||||||||||
| 1,291,510 | Q | |||||||||||||||||
| (1,291,510 | ) | Q | ||||||||||||||||
| 880,000 | D | |||||||||||||||||
| (880,000 | ) | D | ||||||||||||||||
| Long term accounts receivable | 1,917,692 | - | 1,917,692 | |||||||||||||||
| Property, plant and equipment, net | 11,831,478 | - | 11,831,478 | |||||||||||||||
| Operating lease right-of-use assets | 16,073,724 | - | 16,073,724 | |||||||||||||||
| Finance lease right-of-use assets | 106,092 | - | 106,092 | |||||||||||||||
| Other non current assets | - | - | ||||||||||||||||
| Total assets | 36,055,192 | 65,538,995 | 41,987,925 | |||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Short term loans | 1,772,237 | - | 1,772,237 | |||||||||||||||
| Short term loans-related parties | 550,418 | 550,418 | ||||||||||||||||
| Current portion of long-term loan payable | 481,616 | - | 481,616 | |||||||||||||||
| Accounts and notes payable | 3,649,847 | 800,000 | (775,000 | ) | C | 5,054,847 | ||||||||||||
| 1,380,000 | D | |||||||||||||||||
| Amounts due to related parties | 81,033 | 144,225 | (100,000 | ) | N | 125,258 | ||||||||||||
| Contract liabilities | 3,817,000 | - | 3,817,000 | |||||||||||||||
| Accrued expenses and other current liabilities | 3,430,425 | 678,953 | (475,983 | ) | N | 4,358,395 | ||||||||||||
| 725,000 | N | |||||||||||||||||
| Product warrant provision-current | 2,061,718 | - | 2,061,718 | |||||||||||||||
| Operating lease liability-current | 3,928,409 | - | 3,928,409 | |||||||||||||||
| Finance lease liability-current | 154,253 | - | 154,253 | |||||||||||||||
| Total current liabilities | 19,926,956 | 1,623,178 | 22,304,151 | |||||||||||||||
| Long-term loans | - | - | - | |||||||||||||||
| Product warrant provision-non current | 761,246 | - | 761,246 | |||||||||||||||
| Operating lease liability-non current | 18,147,527 | - | 18,147,527 | |||||||||||||||
| Finance liability-non current | - | - | - | |||||||||||||||
| Total liabilities | 38,835,729 | 1,623,178 | 41,212,924 | |||||||||||||||
| Commitments and contingencies | ||||||||||||||||||
| TMT-Ordinary shares subject to possible redemption | 65,455,907 | (65,455,907 | ) | B | - | |||||||||||||
| 2,171,510 | R | |||||||||||||||||
| (2,171,510 | ) | R | ||||||||||||||||
| - | ||||||||||||||||||
| Stockholder’s (deficit) equity | - | |||||||||||||||||
| TMT-Preferred shares | - | - | - | |||||||||||||||
| TMT-Ordinary shares | - | 214 | (214 | ) | G | - | ||||||||||||
| Elong Power-Class A ordinary shares | 68 | - | 532 | |||||||||||||||
| 60 | B | |||||||||||||||||
| 1,144 | H | |||||||||||||||||
| 9 | I | |||||||||||||||||
| 34 | J | |||||||||||||||||
| (731 | ) | K | ||||||||||||||||
| (60 | ) | P | ||||||||||||||||
| New Elong common stock, par value $0.0001 per share; none issued and outstanding as of June 30, 2024 | 7 | F | ||||||||||||||||
| Elong Power- Class B ordinary shares | 165 | - | 57 | |||||||||||||||
| (108 | ) | K | ||||||||||||||||
| Additional paid-in capital | 38,502,737 | - | 6,999,930 | F | 53,438,273 | |||||||||||||
| 65,455,847 | B | |||||||||||||||||
| 214 | G | |||||||||||||||||
| (1,144 | ) | H | ||||||||||||||||
| 8,999,991 | I | |||||||||||||||||
| (34 | ) | J | ||||||||||||||||
| 838 | K | |||||||||||||||||
| (1,540,304 | ) | L | ||||||||||||||||
| (67,151,375 | ) | P | ||||||||||||||||
| 2,171,510 | R | |||||||||||||||||
| Statutory Reserve | 708,470 | - | 708,470 | |||||||||||||||
| Retained Earnings (Accumulated Deficit) | (42,553,599 | ) | (1,540,304 | ) | (53,933,954 | ) | ||||||||||||
(374,672 | ) | E | ||||||||||||||||
| (9,000,000 | ) | I | ||||||||||||||||
| 1,540,304 | L | |||||||||||||||||
| (782,333 | ) | N | ||||||||||||||||
| (250,000 | ) | D | ||||||||||||||||
| 1,291,510 | Q | |||||||||||||||||
| (2,171,510 | ) | R | ||||||||||||||||
| (93,350 | ) | S | ||||||||||||||||
| Accumulated other comprehensive loss | 561,622 | 561,622 | ||||||||||||||||
| Total stockholder’s equity (deficit) | (2,780,537 | ) | (1,540,090 | ) | 775,001 | |||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | 36,055,192 | 65,538,995 | 41,987,925 | |||||||||||||||
| 2 |
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2024
(Amounts in US$, except for per share data)
| Elong | TMT Acquisition Corp | |||||||||||||||||
| For the six months ended June 30, 2024 | For the six months ended June 30, 2024 | Transaction Accounting adjustments | Note 3 | Pro Forma Combined | ||||||||||||||
| A | B | |||||||||||||||||
| Revenues | ||||||||||||||||||
| Revenues | $ | 365,975 | $ | $ | - | $ | 365,975 | |||||||||||
| Cost of revenues | (821,023 | ) | (821,023 | ) | ||||||||||||||
| Cost of revenue – idle capacity | (1,251,322 | ) | (1,251,322 | ) | ||||||||||||||
| Gross loss | (1,706,370 | ) | - | (1,706,370 | ) | |||||||||||||
| Operating expenses | ||||||||||||||||||
| Selling expenses | (63,541 | ) | (63,541 | ) | ||||||||||||||
| General and administrative expenses | (1,720,377 | ) | (637,379 | ) | (11,357,756 | ) | ||||||||||||
| (9,000,000 | ) | CC | ||||||||||||||||
| Provision for credit losses | (141,639 | ) | (141,639 | ) | ||||||||||||||
| Research and development expenses | (56,904 | ) | (56,904 | ) | ||||||||||||||
| Total operating expenses | (1,982,461 | ) | (637,379 | ) | (11,619,840 | ) | ||||||||||||
| Loss from operations | (3,688,831 | ) | (637,379 | ) | (13,326,210 | ) | ||||||||||||
| Other income (expenses) | ||||||||||||||||||
| Interest income | 2,245 | 1,395,429 | (1,395,429 | ) | AA | 2,245 | ||||||||||||
| Interest expense | (156,362 | ) | - | (156,362 | ) | |||||||||||||
| Foreign currency exchange gains (losses) | 9,731 | - | 9,731 | |||||||||||||||
| Government grant | 224,534 | - | 224,534 | |||||||||||||||
| Other income (expenses) | (154,725 | ) | - | (154,725 | ) | |||||||||||||
| Total other income (expense), net | (74,577 | ) | 1,395,429 | (74,577 | ) | |||||||||||||
| Income (loss) before income tax expense | (3,763,408 | ) | 758,049 | (13,400,787 | ) | |||||||||||||
| Income tax expense | - | - | - | |||||||||||||||
| Net Income (loss) | (3,763,408 | ) | 758,049 | (13,400,787 | ) | |||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Foreign currency translation adjustment | 4,535 | 4,535 | ||||||||||||||||
| Comprehensive Loss | (3,758,873 | ) | (13,396,252 | ) | ||||||||||||||
| LOSS PER SHARE ATTRIBUTABLE TO ELONG POWER CLASS A AND B ORDINARY SHARES* | $ | (0.16 | ) | $ | (0.27 | ) | ||||||||||||
| Weighted average shares outstanding, basic and diluted of Elong Power Class A and B ordinary shares | 23,383,432 | 26,372,682 | DD | 49,756,114 | ||||||||||||||
| BASIC AND DIUTED INCOME PER SHARE | $ | 0.09 | ||||||||||||||||
| Weighted average shares outstanding, basic and diluted | 8,140,000 | |||||||||||||||||
| 3 |
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2023
(Amounts in US$, except for per share data)
| Elong | TMT Acquisition Corp | |||||||||||||||||
| For the year ended December 31, 2023 | For the year ended December 31, 2023 | Transaction Accounting adjustments | Note 3 | Pro Forma Combined | ||||||||||||||
| A | B | |||||||||||||||||
| Revenues | ||||||||||||||||||
| Revenues | $ | 3,162,739 | $ | $ | - | $ | 3,162,739 | |||||||||||
| Cost of revenues | (3,563,832 | ) | (3,563,832 | ) | ||||||||||||||
| Cost of revenue – idle capacity | (3,512,954 | ) | (3,512,954 | ) | ||||||||||||||
| Gross loss | (3,914,047 | ) | - | (3,914,047 | ) | |||||||||||||
| Operating expenses | ||||||||||||||||||
| Selling expenses | (260,287 | ) | (260,287 | ) | ||||||||||||||
| General and administrative expenses | (3,197,349 | ) | (690,613 | ) | (557,333 | ) | BB | (13,445,295 | ) | |||||||||
| (9,000,000 | ) | CC | ||||||||||||||||
| Provision for credit losses | 301,002 | ) | 301,002 | ) | ||||||||||||||
| Research and development expenses | (873,968 | ) | (873,968 | ) | ||||||||||||||
| Total operating expenses | (4,030,602 | ) | (690,613 | ) | (14,278,548 | ) | ||||||||||||
| Loss from operations | (7,944,649 | ) | (690,613 | ) | (18,192,595 | ) | ||||||||||||
| Other income (expenses) | ||||||||||||||||||
| Interest income | 18,656 | 2,260,478 | (2,260,478 | ) | AA | 18,656 | ||||||||||||
| Interest expense | (101,130 | ) | - | (101,130 | ) | |||||||||||||
| Foreign currency exchange gains (losses) | - | - | - | |||||||||||||||
| Government grant | 124,685 | - | 124,685 | |||||||||||||||
| Other income (expenses) | 456,437 | - | 456,437 | |||||||||||||||
| Total other income (expense), net | 498,648 | 2,260,478 | 498,648 | |||||||||||||||
| Income (loss) before income tax expense | (7,446,001 | ) | 1,569,865 | (17,693,947 | ) | |||||||||||||
| Income tax expense | - | - | - | |||||||||||||||
| Net Income (loss) | (7,446,001 | ) | 1,569,865 | (17,693,947 | ) | |||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||
| Foreign currency translation adjustment | (77,359 | ) | (77,359 | ) | ||||||||||||||
| Comprehensive Loss | (7,523,360 | ) | (17,771,306 | ) | ||||||||||||||
| LOSS PER SHARE ATTRIBUTABLE TO ELONG POWER CLASS A AND B ORDINARY SHARES* | $ | (0.32 | ) | $ | (0.36 | ) | ||||||||||||
| Weighted average shares outstanding, basic and diluted of Elong Power Class A and B ordinary shares | 23,383,432 | 26,372,682 | DD | 49,756,114 | ||||||||||||||
| BASIC AND DIUTED INCOME PER SHARE | $ | 0.19 | ||||||||||||||||
| Weighted average shares outstanding, basic and diluted | 8,140,000 | |||||||||||||||||
* excluding Earnout shares (held in escrow) and Indemnification (held in escrow)
| 4 |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The unaudited pro forma combined financial statements were prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 requires pro forma adjustments that depict the accounting for the transaction (“Transaction Accounting Adjustments”) and allows optional pro forma adjustments that present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information.
The Business Combination transaction will be accounted for as a reverse acquisition and recapitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. Under this method of accounting, TMT will be treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination transaction will be treated as the equivalent of Elong issuing stock for the net assets of TMT, accompanied by a recapitalization. The net assets of TMT will be stated at historical cost, with no goodwill or other intangible assets recorded.
The unaudited pro forma condensed combined financial statements have been developed from and should be read in conjunction with these accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined balance sheet has been prepared using and should be read in conjunction with the following:
The unaudited pro forma condensed combined balance sheet as of June 30, 2024 gives pro forma effect to the Business Combination as if it had been consummated on June 30, 2024.
The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2024 give pro forma effect to the Business Combination as if it had been consummated on January 1, 2024, the beginning of the earliest period presented in the unaudited pro forma condensed combined statements of operations.
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The pro forma adjustments reflecting the consummation of the Business Combination are based on the actual transactions happened on or before the date of November 21, 2024 which is the date the Business Combination completed.
2. Accounting Policies
Upon completion of the Business Combination, management will perform a comprehensive review of TMT’s and Elong’s accounting policies. As a result of the review, management may identify differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of the combined company.
3. Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
The transaction accounting adjustments to the unaudited combined pro forma balance sheet consists of the following:
A. Reflects the liquidation and reclassification of $65,455,907 of Investments held in trust account held in the trust account to cash and cash equivalents that becomes available for general use following the Closing.
B. Reflects the reclassification of 65,455,907 TMT ordinary shares subject to possible redemption to permanent equity immediately prior to the Closing.
C. Reflects the issuance of two convertible promissory notes (US$200,000 and$300,000) dated February 27, 2024, April 1, 2024 from TMT.
On February 27, 2024, April 1, 2024 and May 9, 2024, the Company advanced $200,000, $300,000 and $300,000, respectively, to TMT in order to pay for TMT’s extension fee in relation to its initial business combination. TMT issued three convertible promissory notes of $200,000, dated February 27, 2024, $300,000, dated April 1, 2024, and $300,000, dated May 9, 2024, respectively, to the Company with a principal amount of $200,000, $300,000 and $300,000 to evidence the advance.
D. Reflects the issuance of convertible promissory notes of total 1,380,000 after June 30, 2024 from TMT.
E. Reflects the reclassification of $374,672 deferred closing costs to retained earnings.
The Business Combination accounted for as a reverse recapitalization in accordance with U.S. GAAP ASC 805. Under this method of accounting, Elong is accounting acquirer, and as a result, qualifying transaction costs incurred by Elong are treated as deferred offering cost and any balance below the net proceeds from this reverse recapitalization will be charged directly to equity. This recording complies with the requirements of FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Deferred offering costs consist of legal and other professional expenses incurred through the balance sheet date that are directly related to the Proposed Business Combination and that will be charged to shareholders’ equity upon the completion of the Proposed Business Combination with any balance below the net proceeds from this Business Combination. Should the Proposed Business Combination prove to be unsuccessful, these deferred costs charged to operation expenses. There was no net proceeds from this Business Combination left and all the deferred offering cost was adjusted to the operation expenses.
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F. Reflects the proceeds received from the PIPE Investment with the corresponding issuance of 700,000 shares of New Elong common stock at $10.00 per share.
G. Reflects the cancellation of TMT’s ordinary shares.
H. Reflects the issuance of Elong Class A Ordinary Shares at the Closing as Warrant Shares. The amount is allocated to ordinary shares at $0.00001 per share, and is charged to additional paid-in capital, all shareholders have exercised their options, and the merger completed on November 21, 2024.
I. Reflects the issuance of shares to Ever Talent Consultants Limited, immediately at the Closing.
J. Reflects the issuance of Elong Class A Ordinary Shares at the Closing for TMT. The amount is allocated to ordinary shares at $0.00001 per share, and is charged to additional paid-in capital.
K. Represents the Elong Reverse Share Split of the Elong Ordinary Shares immediately prior to the Closing.
L. Reflects the elimination of TMT’s historical retained earnings.
N. Represents the total preliminary estimated direct and incremental transaction costs of $557,333 that paid in cash and settlement of accrued transaction expenses of $700,983 and payable to related party for advanced expense of 100,000. The total transaction costs and expenses include the fees of legal counsel, auditor, SEC registration, trust account, proxy services, and printing, etc., recorded as a reduction of additional paid-in capital or retained earnings.
P. Reflects the 5,957,886 Public Shares that have been submitted for redemption before the business combination.
Q. Reflects TMT's interest income during June 30, 2024 to November 21, 2024.
R. Reflects TMT's cash movement from trust account during June 30, 2024 to November 21, 2024.
S. Reflects TMT’s operating expense during June 30, 2024 to November 21, 2024.
4. Unaudited Pro Forma Condensed Combined Statement of Operations Adjustments
The adjustments included in the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2024 for Elong and TMT are as follows:
AA. Represents the elimination of investment income on the funds held in the trust account of TMT for the period ended June 30, 2024.
BB. Represents the direct and incremental transaction costs expenses of $557,333 for the period from June 30, 2024 to November 21, 2024, prior to, or concurrent with, the Closing.
CC. Represents the transaction cost incurred in connection with the following transaction: At the Effective Time, 900,000 Elong Class A Ordinary Shares will be issued to Ever Talent Consultants Limited for its services in connection with the Business Combination. On April 21, 2023, TMT signed an engagement letter with Ever Talent Consultants Limited, pursuant to which Ever Talent Consultants Limited is entitled to receive the shares upon the closing of the Business Combination. This amount is reflected in the unaudited pro forma condensed combined balance sheet in the estimated fair value in the amount of $9,000,000 at $10.00 per share and cause (i) an total increase of $9,000,000 in Class A ordinary share and additional paid-in capital; and (ii) an increase of $9,000,000 in accumulated deficit to reflect the incurred transaction cost.
Guided by ASC 718-10-25-20, the 900,000 shares issuable at the closing is nonemployee performance- based payment awards, and the accruals of such cost with performance condition shall be based on the probable outcome of that performance condition. Therefore, it is recognized as transaction cost at the closing date of the business combination.
DD. Reflects the increase in the weighted average shares in connection with the issuance of Elong Class A Ordinary Shares and Elong Reverse Share Split for the Business Combination, which are weighted as if they had been issued for the entire period. The 9,000,000 Earnout Shares and 300,000 Indemnification Shares were not included in the calculation of weighted average shares.
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Per ASC 260-10-45-13, shares issuable for little or no cash consideration upon the satisfaction of certain conditions (contingently issuable shares) shall be considered outstanding common shares and included in the computation of basic EPS as of the date that all necessary conditions have been satisfied (in essence, when issuance of the shares is no longer contingent). The 9,000,000 Earnout Shares and the 300,000 Indemnification Shares are defined as contingently issuable shares in the scope of ASC 260-10-45-13. Based on the above analysis, both of the shares will be excluded from the weighted average shares outstanding until they are no longer contingent.
5. Net Loss per Share
Net loss per share is calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination, assuming such additional shares were outstanding since June 1, 2024. As the Business Combination is being reflected as if it had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and diluted net income per share assumes the shares issuable relating to the Business Combination and related transactions have been outstanding for the entire periods presented. Under the maximum redemption scenario, this calculation is adjusted to eliminate such shares for the entire period.
The unaudited pro forma condensed combined financial information has been prepared for the six months ended June 30, 2024:
| Combined | ||||
| Six Months Ended | ||||
| June 30, 2024 | ||||
| Pro forma net loss to common shareholders | $ | (13,400,787 | ) | |
| Net loss per share – basic and diluted | $ | (0.27 | ) | |
| Pro forma weighted average shares outstanding, basic and diluted | ||||
| Elong holders of Class A and Class B ordinary shares* | 44,700,000 | |||
| Finder shares | 900,000 | |||
| TMT initial stockholders, including sponsors and its permitted transferees | 1,944,000 | |||
| TMT underwriter shares | 270,000 | |||
| TMT public stockholders | 42,114 | |||
| Shares of TMT public stockholders issuable upon conversion of TMT Rights at closing | 1,200,000 | |||
| TMT sponsor shares issuable upon conversion of TMT sponsor convertible notes | 30,000 | |||
| TMT sponsor shares issuable upon conversion of TMT sponsor convertible notes related TMT rights at closing | 6,000 | |||
| PIPE Investors | 700,000 | |||
| Total pro forma weighted average shares outstanding, basic and diluted | 49,792,114 | |||
* excluding Earnout shares (held in escrow) and Indemnification (held in escrow)
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