EPOW 20-F
E-Power Inc. (EPOW)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
For
the fiscal year ended
OR
OR
Date of event requiring this shell company report:
For the transition period from _________ to _____________.
Commission
file number:
| (Exact name of Registrant as Specified in its Charter) |
| (Jurisdiction of Incorporation or Organization) |
Room 703, West Zone, R&D Building
Zhangdian District, People’s Republic of +861082967728 | ||
| (Address of Principal Executive Offices) |
Room 703, West Zone, R&D Building
Zhangdian District, People’s Republic of | ||
| (Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital stock as of the close of the period covered by the annual report.
An
aggregate of
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If
this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer, ‘accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Emerging growth company |
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No
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.
TABLE OF CONTENTS
i
INTRODUCTION
We are a holding company incorporated in the Cayman Islands with no material operations of our own. We are not a Chinese operating company. Investors of our Ordinary Shares do not own any equity interests in the VIE, but instead own shares of a Cayman Islands holding company. Unless otherwise stated, as used in this annual report and in the context of describing our operations and consolidated financial information, “we,” “us,” “Company,” “Sunrise New Energy”, or “our,” refers to Sunrise New Energy Co., Ltd., a Cayman Islands holding company, and “VIE” refers to the variable interest entity (“VIE”), Global Mentor Board (Zibo) Information Technology Co., Ltd., or SDH.
Unless the context otherwise requires, in this annual report on Form 20-F, references to:
| ● | “Affiliated Entities” are to Sunrise New Energy’s subsidiaries, and the VIE and its subsidiaries; | |
| ● | “APP” are to our mobile application, “Shidonghui APP;” | |
| ● | “China” or the “PRC” are to the People’s Republic of China; | |
| ● | “Class A Ordinary Shares” or “Class A ordinary shares” are to Class A ordinary shares in the capital of the Company, par value $0.0001 per share; | |
| ● | “Class B Ordinary Shares” or “Class B ordinary shares” are to Class B ordinary shares in the capital of the Company, par value $0.0001 per share; | |
| ● | “GIOP BJ” or “WFOE” are to Beijing Mentor Board Union Information Technology Co, Ltd., a limited liability company organized under the laws of the PRC, Zhuhai Zibo’s wholly owned subsidiary; | |
| ● | “GMB HK” are to “Global Mentor Board Information Technology Limited”, Sunrise New Energy’s wholly-owned-subsidiary, a Hong Kong corporation. | |
| ● | “GMB (Hangzhou)” are to Global Mentor Board (Hangzhou) Technology Co., Ltd., a limited liability company organized under the laws of the PRC, the VIE’s wholly owned subsidiary; | |
| ● | “GMB (Beijing)” are to Shidong (Beijing) Information Technology Co., Ltd., a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by the VIE; | |
| ● | “GMB Culture” are to Shanghai Voice of Seedling Cultural Media Co., Ltd., a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by the VIE; | |
| ● | “GMB Consulting” are to Global Mentor Board (Shanghai) Enterprise Management Consulting Co. Ltd., a limited liability company organized under the laws of the PRC and 51% of its equity interest is owned by the VIE; |
ii
| ● | “HK subsidiaries” are to GMB HK and SDH New Energy; and | |
| ● | “PRC subsidiaries” are to GIOP BJ, Zhuhai Zibo, Zhuhai Guizhou and their respective subsidiaries. | |
| ● | “shares,” “Shares,” or “Ordinary Shares” are, collectively, to the Class A Ordinary Shares and Class B Ordinary Shares; | |
| ● | “SDH” or “the VIE” are to Global Mentor Board (Zibo) Information Technology Co., Ltd, formerly known as Global Mentor Board (Beijing) Information Technology Co., Ltd., a limited liability company organized under the laws of the PRC; | |
| ● | “SDH Cloud” are to Global Mentor Cloud (Beijing) Education Technology Co., Ltd.; 75% of the shares of SDH Cloud are held by GIOP BJ and the remaining 25% shares are held by Beijing Yunqianyi Information Technology Co., Ltd. | |
| ● | “SDH New Energy” are to SDH (HK) New Energy Tech Co., Limited, Sunrise New Energy’s wholly-owned-subsidiary, a Hong Kong corporation. | |
| ● | “Sunrise Guizhou” are to Sunrise (Guizhou) New Energy Material Co., Ltd, a limited liability company organized under the laws of the PRC and 39.3519% of its equity interest is owned by Sunrise New Energy; | |
| ● | “U.S.” are to the United States; | |
| ● | “VIE” are to variable interest entity; | |
| ● | “Zhuhai Zibo” are to Zhuhai (Zibo) Investment Co., Ltd., a limited liability company organized under the laws of the PRC, SDH New Energy’s wholly owned subsidiary; |
| ● | “Zhuhai Guizhou” are to Zhuhai (Guizhou) New Energy Investment Co., Ltd., a limited liability company organized under the laws of the PRC, SDH New Energy’s wholly owned subsidiary; |
| ● | “Zibo Shidong” are to Zibo Shidong Digital Technology Service Co., Ltd., a limited liability company organized under the laws of the PRC, the VIE’s wholly owned subsidiary; |
As of the date of this annual report, substantially all of the Company’s business is conducted by (1) Sunrise Guizhou, a joint venture formed by Zhuhai Zibo (a wholly owned subsidiary of the Company) and certain other shareholders in 2022, and (2) SDH, the Company’s VIE entity, in the PRC, using RMB, the currency of China. Our consolidated financial statements are presented in United States dollars or US$. In this annual report, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United States dollars or US$. These US$ references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations and the value of our assets, including accounts receivable.
Unless expressly indicated herein to the contrary, all references to share amounts in this annual report give retroactive effect to share consolidations, the last of which was effected on April 24, 2020.
iii
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains ‘forward-looking statements’ within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
| ● | future financial and operating results, including revenues, income, expenditures, cash balances and other financial items; | |
| ● | our ability to execute our growth and expansion, including our ability to meet our goals; | |
| ● | current and future economic and political conditions; | |
| ● | the future growth of the graphite anode materials industry and knowledge sharing and enterprise service industries; | |
| ● | our ability to continue to operate through the VIE structure; | |
| ● | our capital requirements and our ability to raise any additional funds which we may require; | |
| ● | our ability to attract clients and further enhance our brand recognition; | |
| ● | our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business; | |
| ● | trends and competition in graphite anode materials industry and enterprise service and knowledge sharing industries; | |
| ● | impact of the COVID-19 outbreak on our business operations; and | |
| ● | other assumptions described in this annual report underlying or relating to any forward-looking statements. |
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Other sections of this annual report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from, or worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.
This annual report contains certain data and information that we obtained from various government and private publications. Statistical data in these publications also include projections based on a number of assumptions. The graphite anode materials industry may not grow at the rate projected by market data, or at all. Failure of this market to grow at the projected rate may have a material and adverse effect on our business and the market price of the Class A Ordinary Shares. In addition, the rapidly evolving nature of this industry results in significant uncertainties for any projections or estimates relating to the growth prospects or future condition of our market. Furthermore, if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect.
iv
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
Item 3. KEY INFORMATION
We are a Cayman Islands holding company conducting a substantial portion of our operations in China through our PRC operating entities. Unless otherwise stated, as used in this annual report, the terms “we,” “us,” “our,” “Sunrise New Energy,” “our Company,” and the “Company” refer to Sunrise New Energy Co., Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands; and “SDH” or “the VIE” are to Global Mentor Board (Zibo) Information Technology Co., Ltd., a limited liability company organized under the laws of the PRC.
As of the date of this annual report, substantially all of our business is conducted by (1) Sunrise Guizhou, a joint venture established by Zhuhai Zibo (a wholly owned subsidiary of the Company) and certain other partners, as a limited company pursuant to PRC laws for the purpose of manufacturing and sales of graphite anode materials; and (2) SDH, the Company’s VIE entity that operates a knowledge sharing platform in China. Investors of our Ordinary Shares do not hold shares in the PRC operating entities, but instead hold shares of a Cayman Islands exempted company. Further, neither we nor our subsidiaries own any shares in the VIE. Instead, we entered into a series of contractual arrangements, also known as VIE Agreements, dated June 10, 2019, with the VIE and its shareholders. Under the generally accepted accounting principles in the United States (“U.S. GAAP”), we are deemed to have a controlling financial interest in, and be the primary beneficiary of, the VIE for accounting purposes, because such contractual arrangements are designed so that the operations of the VIE are solely for the benefit of GIOP BJ and, ultimately, the Company. Solely for accounting purpose, the VIE Agreements enable us to consolidate the financial results of the VIE and its subsidiaries in our consolidated financial statements under U.S. GAAP. Pursuant to the VIE Agreements, which have not been tested in a court of law, under, the assets and liabilities of the VIE are treated as our assets and liabilities and the results of operations of the VIE are treated as if they were the results of our operations. See “Item 3. Key Information — Contractual Agreements among GIOP BJ, the VIE and Its Shareholders” for a summary of these VIE Agreements.
The VIE Agreements, however, may not be as effective in providing us with the necessary control over the VIE and its operations. For example, the VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. If we had direct ownership of the VIE, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. Under the current VIE Agreements, however, we rely on the performance by the VIE and its shareholders of their respective obligations under the contracts to direct the activities of a VIE that most significantly impact the VIE’s economic performance. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard. Because of our corporate structure, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to the validity and enforcement of the VIE Agreements. The VIE Agreements may not be effective in providing control over the VIE. We may be also subject to sanctions imposed by PRC regulatory agencies including Chinese Securities Regulatory Commission if we fail to comply with their rules and regulations. See “Risk Factors—Risks Related to Doing Business in China,” and “Risk Factors—Risks Related to Our Corporate Structure.”
As of December 31, 2024, 2023 and 2022, the VIE accounted for an aggregate of 4.05%, 5.48% and 8.79%, respectively, of our consolidated total assets, 7.14%, 6.54% and 13.04%, respectively, of our consolidated total liabilities, and 1.05%, 1.46% and 1.61%, respectively, of our consolidated total net revenues. See our consolidated financial statements and the related notes in this annual report.
1
We are subject to legal and operational risks associated with being based in the PRC, which could result in a material change in our PRC operating entities and the VIE’s operations and/or the value of the securities we are registering for sale, or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless. PRC laws and regulations governing our current business operations are sometimes vague and uncertain. In recent years, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in the PRC with little advance notice, including cracking down on illegal activities in the securities market, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For example, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the need to strengthen the supervision over overseas listings by Chinese companies. As of the date of this annual report, we, our PRC subsidiaries, or the VIE and its subsidiaries have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice, or sanction.
As confirmed by our PRC counsel, Jincheng Tongda & Neal Law Firm (“JT&N”), as of the date of this annual report, we are not subject to cybersecurity review with the Cyberspace Administration of China, or the CAC, under the Cybersecurity Review Measures that became effective on February 15, 2022, or the Regulations on the Network Data Security Administration (the “Security Administration Regulation”), which became effective on January 1, 2025, since (i) as companies that engage in business-oriented consulting services and manufacturing and sales of graphite anode materials, we, our PRC subsidiaries, or the VIE and its subsidiaries, are unlikely to be classified as critical information infrastructure operators (“CIIOs”) by the PRC regulatory agencies; (ii) according to the interpretation of the relevant laws by the CAC, for online platform operators who have listed in foreign countries before the effective date of Cybersecurity Review Measures, and who are not seeking a new listing (such as a secondary or dual listing) in foreign countries, a cybersecurity review is not required; and (iii) the data processed in the business of the VIE and its subsidiaries, which is a knowledge sharing and enterprise service platform business, is unlikely to have a bearing on national security. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Regulation will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Regulation. See “Risk Factors—Risks Relating to Doing Business in the PRC—Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.”
Furthermore, on February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) and five supporting guidelines, which took effect on March 31, 2023. Pursuant to the Trial Measures, PRC domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of relevant applications or its completion of subsequent offerings. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, or the CSRC Notice, which, among others, clarifies that PRC domestic companies that have already been listed overseas before the effective date of the Trial Measures, which is March 31, 2023, shall be deemed as Existing Issuers, and Existing Issuers are not required to complete the filing procedures with the CSRC immediately, and they shall be required to file with the CSRC for any subsequent offerings. We are an Existing Issuer, based on the foregoing, we made the filing with the CSRC on November 7, 2024 as required for our subsequent offering completed on November 5, 2024. As of the date of this annual report, such filing is still under review of the CSRC. we are not aware of any other PRC laws or regulations currently in effect requiring that we obtain permission from any PRC government authority for our continued listing on the Nasdaq. However, since these statements and regulatory actions are newly published, however, official guidance and related implementation rules have not been issued. It is highly uncertain what the potential impact such modified or new laws and regulations will have on the daily business operations of our subsidiaries and the VIE, our ability to accept foreign investments, and our listing on an U.S. exchange. See “Risk Factors—Risks Relating to Doing Business in the PRC—The Trial Measures and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.”
2
Since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (i) establishing the National Anti-Monopoly Bureau; (ii) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law of the PRC (amended on June 24, 2022 and effective on August 1, 2022), the anti-monopoly guidelines for various industries, and the Detailed Rules for the Implementation of the Fair Competition Review System; and (iii) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this annual report, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our or our PRC subsidiaries, or the VIE and its subsidiaries’ ability to conduct business, our ability to accept foreign investments or issue our securities to foreign investors because neither we and our subsidiaries, nor our PRC subsidiaries, or the VIE and its subsidiaries engage in monopolistic behaviors that are subject to these statements or regulatory actions.
In addition, our Class A Ordinary Shares may be prohibited from trading on a national exchange or over-the-counter under the Holding Foreign Companies Accountable Act (the “HFCA Act”) and related regulations, if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is unable to inspect our auditor for two consecutive years beginning in 2022. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law, which included an identical provision of the Accelerating Holding Foreign Companies Accountable Act and amended the HFCA Act by requiring the U.S. Securities and Exchange Commission (the “SEC”) to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the delisting of our Company and the prohibition of trading in our securities if the PCAOB is unable to inspect our accounting firm at such future time. On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. Our former auditor, Marcum Asia CPAs LLP (“MarcumAsia”), as well as our current auditor, Wei, Wei & Co., LLP (“WW”), are PCAOB-registered public accounting firms subject to laws in the United States, pursuant to which the PCAOB conducts regular inspections to assess an auditor’s compliance with the applicable professional standards. As such, as of the date of this annual report, our listing is not affected by the HFCA Act and related regulations. See “Risk Factors—Risks Relating to Doing Business in the PRC—The Holding Foreign Companies Accountable Act and related regulations, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our continued listing on the Nasdaq, and Nasdaq may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor.”
As of the date of this annual report, our Company, our subsidiaries, and the VIE have not distributed any earnings or settled any amounts owed under the VIE Agreements, nor do they have any plan to distribute earnings or settle amounts owed under the VIE Agreements in the foreseeable future. As of the date of this annual report, none of our subsidiaries or the VIE have made any dividends or distributions to our Company and our Company has not made any dividends or distributions to our shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our operating entities, pursuant to the VIE Agreements.
3
The Company’s management is directly supervising cash management. Our finance department is responsible for establishing the cash management policies and procedures among our subsidiaries and departments and our PRC subsidiaries, or the VIE and its subsidiaries. Each subsidiary, department, or PRC operating entity initiates a cash request by putting forward a cash demand plan, which explains the specific amount and timing of cash requested, and submitting it to designated management members of the Company, based on the amount and the use of cash requested. The designated management member examines and approves the allocation of cash based on the sources of cash and the priorities of the needs, and submit it to the cashier specialists of our finance department for a second review. Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred. Prior to the completion of our initial public offering in February 2021, the sources of funding of the Company, its subsidiaries and the VIE primarily consisted of capital injections by shareholders and cash generated from operations. For the last three fiscal years, Cash transfers and transfers of other assets between Sunrise New Energy, its subsidiaries, and the VIE were as follows: (i) For the fiscal year ended December 31, 2024, the Company provided interest-free loans of $516,661 to GMB HK and an interest-free loans of $1,300,000 to the VIE’s subsidiary, Zibo Shidong; the VIE provided interest-free loans of $77,268 to GIOP BJ; Zibo Shidong provided interest-free loans of $150,880 GIOP BJ ; Sunrise Guizhou provided loans of $166,766 with 4% interest rate to GMB Hangzhou and a loan of $347,430 with 4% interest rate to Zibo Shidong. (ii) For the fiscal year ended December 31, 2023, the Company provided interest-free loans of $400,000 to Zibo Shidong, a wholly owned subsidiary of the VIE, and received interest-free loans of $150,000 from the Company’s subsidiary, GMB HK; (iii) For the fiscal year ended December 31, 2022, the VIE provided interest-free loans of $6,188,307 to the Company’s subsidiaries, Zhuhai Zibo and Sunrise Guizhou for the construction costs related to the graphite anode business, and the Company’s subsidiary, GMB HK, provided interest-free loans of $310,000 to the Company for professional fees. To the extent cash in the business is in the PRC, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of our Company, our subsidiaries, or the VIE by the PRC government to transfer cash. See “Risk Factors—Risks Relating to Our Corporate Structure—To the extent cash in the business is in the PRC/Hong Kong or a PRC/Hong Kong entity, the funds may not be available to fund operations or for other use outside of the PRC/Hong Kong due to interventions in or the imposition of restrictions and limitations on the ability of our Company, our subsidiaries, or the VIE by the PRC government to transfer cash.”
Permissions Required from PRC Authorities
As of the date of this annual report, we, our PRC subsidiaries, or the VIE and its subsidiaries, (i) have received from PRC authorities material licenses, permissions, and approvals needed to engage in the businesses currently conducted in the PRC, and (ii) no such permission or approval has been denied. The licenses, permissions, and approvals, which have been successfully obtained, are: (1) business license; (2) the filing-for-record procedures with the relevant competent departments for our knowledge sharing and enterprise service platform business; and (3) the approval for the Construction Land Use Planning Permit, the Construction Works Planning Permit, the Construction Permit, the Pollutant Discharge License, the filing-for-record procedures with the relevant work safety administrative department, the approval for the Environmental Impact Report, the Filing for Environmental Protection Acceptance upon Completion of the Construction Project and the Filing Certificate for Fire Safety Inspection and Acceptance of Construction Project for our graphite anode material business. Besides, based on the progress of our relevant construction projects, we will apply for other necessary licenses or filings that are required by relevant PRC rules from time to time, such as those related to the construction completion acceptance, fire safety inspection and acceptance, work safety acceptance, environmental protection acceptance, and the processing of relevant real estate certificates, etc. However, we cannot assure you that any of these entities will be able to receive clearance of such compliance requirements in a timely manner, or at all. Any failure of these entities to fully comply with such compliance requirements may cause our PRC subsidiaries, or the VIE and its subsidiaries to be unable to begin their new businesses or operations in the PRC, subject them to fines, relevant new businesses or operations suspension for rectification, or other sanctions. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, including our graphite anode manufacturing and sales business and our knowledge share platform, which could have a material adverse impact on our business, financial conditions and results of operations.” We have been closely monitoring the development in the regulatory landscape in China, particularly regarding the requirement of approvals, including on a retrospective basis, from the CSRC, the CAC, or other PRC authorities with respect to this offering, as well as other procedures that may be imposed on us.
4
Selected Condensed Consolidating Financial Schedule
As a holding company with no material operations of our own, we conduct our operations through Sunrise Guizhou, the VIE and its subsidiaries in the PRC. Our subsidiaries and the VIE and its subsidiaries as of the date of this annual report are described below:
| Name | Date
of Incorporation |
Place
of incorporation |
Percentage of
effective ownership |
Principal Activities | ||||
| Subsidiaries | ||||||||
| Global Mentor Board Information Technology Limited (“GMB HK”) | March 22, 2019 | HK | 100% | Holding company | ||||
| Beijing Mentor Board Union Information Technology Co, Ltd. (“GIOP BJ”) | June 3, 2019 | PRC | 100% | Holding company | ||||
| Shidong Cloud (Beijing) Education Technology Co., Ltd (“Shidong Cloud”) | December 22, 2021 | PRC | 75% | Educational consulting | ||||
| SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”) | October 8, 2021 | HK | 100% | Holding company | ||||
| Zhuhai (Zibo) Investment Co., Ltd. (“Zhuhai Zibo”) | October 15, 2021 | PRC | 100% | New energy investment | ||||
| Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai Guizhou”) | November 23, 2021 | PRC | 100% | New energy investment | ||||
| Sunrise (Guizhou) New Energy Materials Co., Ltd. (“Sunrise Guizhou”) | November 8, 2021 | PRC | 39.35% | Manufacture of lithium battery materials | ||||
| Guizhou Sunrise Technology Co., Ltd. (“Sunrise Tech”) | September 1, 2011, acquired through an asset acquisition on July 7, 2022 | PRC | 39.35% | Manufacture of lithium battery materials | ||||
| Sunrise (Guxian) New Energy Materials Co., Ltd. (“Sunrise Guxian”) | April 26, 2022 | PRC | 20.07% | Manufacture of lithium battery materials | ||||
| Guizhou Sunrise Technology Innovation Research Co., Ltd. (“Innovation Research”) | December 13, 2022 | PRC | 39.35% | Research and development | ||||
| Shenzhen Sunrise Yitan New Energy Technology Co., Ltd. (“Sunrise Yitan”) | June 24, 2024 | PRC | 25.58% | Research and development of Sodium-ion battery | ||||
| Shenzhen Sunrise Suiyuan New Materials Technology Co., Ltd. (“Sunrise Suiyuan”) | June 24, 2024 | PRC | 25.58% | Research and development of silicon carbon battery | ||||
| Guizhou Chenhui Trading Co., Ltd. (“Sunrise Chenhui”) | March 25, 2024 | PRC | 39.35% | Sales of lithium battery materials | ||||
| Guizhou Yihui New Energy Co., Ltd. | October 10, 2024 | PRC | 39.35% | Sales of lithium battery materials | ||||
| Sunrise Anhui New Energy Materials Co., Ltd. (“Sunrise Anhui”) | January 21,2025 | PRC | 39.35% | Manufacture of lithium battery materials | ||||
| Variable Interest Entity (“VIE”) and subsidiaries of VIE | ||||||||
| Global Mentor Board (Zibo) Information Technology Co., Ltd. (“SDH” or “VIE”) | December 5, 2014 | PRC | VIE | Knowledge sharing and enterprise service platform provider | ||||
| Global Mentor Board (Hangzhou) Technology Co., Ltd. (“GMB (Hangzhou)”) | November 1, 2017 | PRC | 100% by VIE | Consulting, training and tailored services provider | ||||
| Global Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. (“GMB Consulting”) | June 30, 2017 | PRC | 51% by VIE | Consulting services provider | ||||
| Shanghai Voice of Seedling Cultural Media Co., Ltd. (“GMB Culture”) | June 22, 2017 | PRC | 51% by VIE | Cultural and artistic exchanges and planning, conference services provider | ||||
| Shidong (Beijing) Information Technology Co., LTD. (“GMB (Beijing)”) | June 19, 2018 | PRC | 51% by VIE | Information technology services provider | ||||
| Mentor Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”) | August 29, 2018 | PRC | 30.6% by VIE | Technical services provider | ||||
| Shidong Zibo Digital Technology Co., Ltd. (“Zibo Shidong”) | October 16, 2020 | PRC | 100% by VIE | Technical services provider | ||||
| Beijing Mentor Board Health Technology Co., Ltd (“GMB Health”) | January 7, 2022 | PRC | 100% by VIE | Health services | ||||
| Shidong Yike (Beijing) Technology Co., Ltd. (“Shidong Yike”) | July 16, 2021 | PRC | 100% by VIE | Health services | ||||
| Guizhou Yuanneng Zhihui Enterprise Management Partnership Enterprise (Limited Partnership) (“Guizhou Yuanneng”) | April 1, 2024 | PRC | 94% by VIE | Holding company |
5
The following tables present selected condensed consolidating financial data of Sunrise New Energy and its subsidiaries and the VIE and its subsidiaries for the fiscal years ended December 31, 2024, 2023, and 2022 balance sheet data as of December 31, 2024, 2023, and 2022.
SELECTED CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS DATA
| Year ended December 31, 2024 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter- company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Revenues, net | - | 71,276,389 | 2,899,946 | (9,178,594 | ) | 64,997,741 | ||||||||||||||
| Total cost and operating expenses | 1,776,146 | 86,746,148 | 2,250,369 | (9,178,594 | ) | 81,594,069 | ||||||||||||||
| (Loss) Profit from operations | (1,776,146 | ) | (15,469,759 | ) | 649,577 | - | (16,596,328 | ) | ||||||||||||
| (Loss) Profit before income taxes | (1,778,111 | ) | (17,052,619 | ) | 855,129 | - | (17,975,601 | ) | ||||||||||||
| Net (loss) income | (1,778,111 | ) | (17,057,370 | ) | 854,317 | - | (17,981,164 | ) | ||||||||||||
| Year ended December 31, 2023 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter- company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Revenues, net | - | 44,394,292 | 656,113 | - | 45,050,405 | |||||||||||||||
| Total cost and operating expenses | 6,524,022 | 65,728,723 | 3,327,665 | - | 75,580,410 | |||||||||||||||
| Loss from operations | (6,524,022 | ) | (21,334,431 | ) | (2,671,552 | ) | - | (30,530,005 | ) | |||||||||||
| Loss before income taxes | (6,611,490 | ) | (22,612,303 | ) | (3,697,157 | ) | - | (32,920,950 | ) | |||||||||||
| Net loss | (6,611,490 | ) | (22,612,303 | ) | (3,696,931 | ) | - | (32,920,724 | ) | |||||||||||
| Year ended December 31, 2022 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter- company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Revenues, net | - | 37,511,989 | 613,679 | - | 38,125,668 | |||||||||||||||
| Total cost and operating expenses | 3,586,852 | 39,001,736 | 14,346,213 | - | 56,934,801 | |||||||||||||||
| Loss from operations | (3,586,852 | ) | (1,489,747 | ) | (13,732,534 | ) | - | (18,809,133 | ) | |||||||||||
| Loss before income taxes | (5,990,264 | ) | (1,696,242 | ) | (14,628,926 | ) | - | (22,315,432 | ) | |||||||||||
| Net loss | (5,990,264 | ) | (1,696,003 | ) | (15,438,135 | ) | - | (23,124,402 | ) | |||||||||||
6
SELECTED CONDENSED CONSOLIDATING BALANCE SHEET DATA
| As of December 31, 2024 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter- company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Total current assets | 2,442,761 | 66,149,892 | 14,823,298 | (20,405,078 | ) | 63,010,873 | ||||||||||||||
| Total non-current assets | 14,540,000 | 75,540,659 | 4,537,251 | (14,605,751 | ) | 80,012,159 | ||||||||||||||
| Total assets | 16,982,761 | 141,690,551 | 19,360,549 | (35,010,829 | ) | 143,023,032 | ||||||||||||||
| Total current liabilities | 252,338 | 93,511,037 | 13,398,312 | (20,405,078 | ) | 86,756,609 | ||||||||||||||
| Total non-current liabilities | - | 28,971,750 | - | - | 28,971,750 | |||||||||||||||
| Total liabilities | 252,338 | 122,482,787 | 13,398,312 | (20,405,078 | ) | 115,728,359 | ||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter- company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Total current assets | 3,030,688 | 30,874,514 | 7,673,555 | (5,762,862 | ) | 35,815,895 | ||||||||||||||
| Total non-current assets | 14,540,000 | 80,084,256 | 4,604,379 | (14,540,000 | ) | 84,688,635 | ||||||||||||||
| Total assets | 17,570,688 | 110,958,770 | 12,277,934 | (20,302,862 | ) | 120,504,530 | ||||||||||||||
| Total current liabilities | 31,823 | 64,306,203 | 4,913,254 | (5,762,862 | ) | 63,488,418 | ||||||||||||||
| Total non-current liabilities | - | 11,684,348 | - | - | 11,684,348 | |||||||||||||||
| Total liabilities | 31,823 | 75,990,551 | 4,913,254 | (5,762,862 | ) | 75,172,766 | ||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter- company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Total current assets | 7,330,103 | 33,642,263 | 9,713,750 | (6,048,283 | ) | 44,637,833 | ||||||||||||||
| Total non-current assets | 14,690,000 | 56,445,366 | 5,939,175 | (14,690,000 | ) | 62,384,541 | ||||||||||||||
| Total assets | 22,020,103 | 90,087,629 | 15,652,925 | (20,738,283 | ) | 107,022,374 | ||||||||||||||
| Total current liabilities | 15,550 | 27,666,520 | 4,389,658 | (6,048,283 | ) | 26,023,445 | ||||||||||||||
| Total non-current liabilities | - | 7,637,332 | - | - | 7,637,332 | |||||||||||||||
| Total liabilities | 15,550 | 35,303,852 | 4,389,658 | (6,048,283 | ) | 33,660,777 | ||||||||||||||
7
SELECTED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS DATA
| Year ended December 31, 2024 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Net cash used in operating activities | (1,269,634 | ) | (2,574,103 | ) | (1,508,420 | ) | - | (5,352,157 | ) | |||||||||||
| Net cash provided by (used in) investing activities | 1,071,942 | (2,293,647 | ) | 423,298 | 1,430,868 | 632,461 | ||||||||||||||
| Net cash (used in) provided by financing activities | (150,000 | ) | 11,251,341 | 961,196 | (1,430,868 | ) | 10,631,669 | |||||||||||||
| Year ended December 31, 2023 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Net cash (used in) provided by operating activities | (1,516,279 | ) | (5,592,986 | ) | (423,730 | ) | 250,000 | (7,282,995 | ) | |||||||||||
| Net cash provided by (used in) investing activities | 878,000 | (7,881,035 | ) | - | - | (7,003,035 | ) | |||||||||||||
| Net cash provided by (used in) financing activities | - | 13,529,267 | 400,000 | (250,000 | ) | 13,679,267 | ||||||||||||||
| Year ended December 31, 2022 | ||||||||||||||||||||
| Parent | Subsidiaries | VIE and VIE’s subsidiaries | Inter-company elimination | Group consolidated | ||||||||||||||||
| (US$) | ||||||||||||||||||||
| Net cash used in operating activities | (808,226 | ) | (5,444,733 | ) | (3,320,442 | ) | - | (9,573,401 | ) | |||||||||||
| Net cash used in investing activities | - | (45,299,072 | ) | (6,188,307 | ) | 5,878,307 | (45,609,072 | ) | ||||||||||||
| Net cash provided by financing activities | 310,000 | 51,328,368 | - | (5,878,307 | ) | 45,760,061 | ||||||||||||||
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
8
D. Risk Factors
An investment in our Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this annual report. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Ordinary Shares to decline, resulting in a loss of all or part of your investment. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Ordinary Shares if you can bear the risk of loss of your entire investment.
Risks Related to Our Business
Risks and uncertainties related to our business include, but are not limited to, the following:
| ● | We have a limited operating history and are subject to the risks encountered by development-stage companies. |
| ● | We have incurred substantial losses in the past and may incur losses in the future. There is substantial doubt about our ability to continue as a going concern. |
| ● | If we cannot manage our growth effectively and efficiently, our results of operations or profitability could be adversely affected. |
| ● | We may not be successful in implementing important new strategic initiatives, which may have an adverse impact on our business and financial results. |
| ● | We may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, including our graphite anode manufacturing and sales business and our knowledge share platform, which could have a material adverse impact on our business, financial conditions and results of operations. |
Risks Related to Our Graphite Anode Manufacturing and Sales Business
Risks and uncertainties related to our graphite anode manufacturing and sales business include, but are not limited to, the following:
| ● | Our graphite anode manufacturing and sales joint venture may not perform as well as we expected. |
| ● | Joint venture with which we engage for developing graphite anode manufacturing and sales business presents a number of challenges that could have a material adverse effect on our business and results of operations and cash flows. |
| ● | We may not respond quickly to continued innovations. |
| ● | Complying with numerous health, safety and environmental regulations is both complex and costly. |
| ● | Sunrise Guizhou depends on a few major customers, and the loss of any of which could cause a significant decline in our revenues. |
| ● | Sunrise Guizhou faces the risk of fluctuations in the cost, availability, and quality of raw materials, which could adversely affect our results of operations. |
| ● | Price volatility of our finished goods. |
| ● | Sunrise Guizhou may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on acceptable terms or at all. |
9
Risks Related to Our Corporate Structure
The VIE conducts the knowledge sharing and enterprise service platform and we consolidate the financials of the VIE under the U.S. GAAP for accounting purpose only; however, the VIE Agreements have not been tested in a court of law and are subject to significant risks, as set forth in the following risk factors. For a description of these VIE Agreements, see “ITEM 4. INFORMATION ON THE COMPANY — C. Organizational Structure”.
Risks and uncertainties related to our corporate structure include, but are not limited to, the following:
| ● | If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. |
| ● | We rely on contractual arrangements with the VIE and its subsidiaries, and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership. |
| ● | The contractual arrangements we have entered into with the VIE and its shareholders, and any other arrangements and transactions among related parties that we currently have or will have in future may be subject to scrutiny by the PRC tax authorities and they may determine that we owe additional taxes, which could substantially reduce our consolidated net income and the value of your investment. |
| ● | The shareholders of the VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition. |
| ● | We may lose the ability to use and enjoy assets held by the VIE that are material to the operation of certain portion of our business if the VIE goes bankrupt or become subject to a dissolution or liquidation proceeding. |
| ● | As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with such corporate governance listing standards. |
| ● | As a “controlled company” under the listing rules of the NASDAQ Stock Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders |
| ● | The dual class structure of our ordinary shares has the effect of concentrating voting control with our Chairman, and his interest may not be aligned with the interests of our other shareholders. |
Risks Related to Doing Business in China
Risks and uncertainties related to doing business in China include, but are not limited to, the following:
| ● | The Chinese government exerts substantial influence over the manner in which we must conduct our business, and may intervene or influence our operations at any time, which could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and, and cause the value of our Class A Ordinary Shares to significantly decline or be worthless. |
| ● | Recent greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our securities. |
| ● | The Trial Measures and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future. |
| ● | A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial condition. |
| ● | We face risks related to health epidemics such as the COVID-19, which significantly disrupted our operations and may continue to adversely affect our business, financial condition and results of operations. |
10
| ● | Because our business is dependent upon government policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair our ability to operate profitably, if at all. |
| ● | PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may materially and adversely affect our business and impede our ability to continue our operations. |
| ● | Because our business is conducted in RMB and the price of our Class A Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments. |
| ● | Under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders. |
| ● | There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. |
| ● | PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, the VIE and its subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business. |
| ● | Government control in currency conversion may adversely affect our financial condition, our ability to remit dividends, and the value of your investment. |
| ● | If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation. |
| ● | The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC. |
| ● | The Holding Foreign Companies Accountable Act and related regulations all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our continued listing on the Nasdaq, and Nasdaq may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor. |
| ● | Our contractual arrangements with the VIE are governed by the laws of the PRC and we may have difficulty in enforcing any rights we may have under these contractual arrangements. |
| ● | The failure to comply with PRC regulations relating to mergers and acquisitions of domestic entities by offshore special purpose vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure. |
| ● | PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us. |
| ● | Increases in labor costs in the PRC may adversely affect our business and our profitability. |
| ● | U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China. |
11
Risks Related to Our Class A Ordinary Shares and the Trading Market
Risks and uncertainties related to our Class A Ordinary Shares and the trading market include, but are not limited to, the following:
| ● | If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of our Class A Ordinary Shares could be subject to adverse United States federal income tax consequences. |
| ● | We have identified several control deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud. |
| ● | We do not intend to pay dividends for the foreseeable future. |
| ● | The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price. |
| ● | As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, which may limit the information publicly available to our investors and afford them less protection than if we were a U.S. issuer. |
| ● | If we cannot satisfy the listing requirements and other rules of Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them. |
Risks Related to Our Business
We have a limited operating history and are subject to the risks encountered by development-stage companies.
Our PRC operating entities have been in business since 2014 as a consulting company. In 2022, we entered into a new business, manufacturing and sales of graphite anode materials, by forming a joint venture (Sunrise Guizhou) in Guizhou Province, China. As a development-stage company, our business strategies and model are constantly being tested by the market and operating results, and we adjust the allocation of our resources accordingly. As such, our business may be subject to significant fluctuations in operating results in terms of amounts of revenues and percentages of total with respect to the business segments.
We are, and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a development-stage business. As a result, we must establish many functions necessary to operate a business, including expanding our managerial and administrative structure, assessing and implementing our marketing program, implementing financial systems and controls and personnel recruitment. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies with a limited operating history. These risks and challenges are, among other things:
| ● | we operate in industries that are or may in the future be subject to increasing regulation by various governmental agencies in China; | |
| ● | we may require additional capital to develop and expand our operations which may not be available to us when we require it; | |
| ● | our marketing and growth strategy may not be successful; | |
| ● | our business may be subject to significant fluctuations in operating results; and | |
| ● | we may not be able to attract, retain and motivate qualified professionals. |
Our future growth will depend substantially on our ability to address the risks described in this annual report. If we do not successfully address these risks, our business would be significantly harmed.
We have incurred substantial losses in the past and may incur losses in the future. There is substantial doubt about our ability to continue as a going concern.
As discussed in “Note 3” to the consolidated financial statements to this annual report, we have suffered significant losses from operations resulting in a significant decrease in working capital that raises substantial doubt about our ability to continue as a going concern. Our net revenue was $64,997,741, $45,050,405 and $38,125,668 for the years ended December 31, 2024, 2023 and 2022, respectively. Our net loss was $17,981,164, $32,920,724 and $23,124,402 for the year ended December 31, 2024, 2023 and 2022, respectively. The losses during the reporting periods were mainly due to the material and negative impact of the COVID-19 pandemic on our knowledge sharing and enterprise business in fiscal year 2022, the large capital investment injected by us into the new business venture, Sunrise Guizhou, to enter into the manufacture and sales of lithium-ion power battery anode materials, and the subsequent losses Sunrise Guizhou has incurred due to overcapacity and intense competition in the graphite material industry. Our limited history of operation makes it difficult to evaluate our future prospects.
In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources and ability to obtain additional financial support in the future, and its operating and capital expenditure commitments.
12
Management’s plan to alleviate the substantial doubt about our ability to continue as a going concern as the following: working to improve our liquidity and working capital sources, mainly through cash flow from its operations, renewal of bank borrowings, equity or debt offering and borrowing from related parties. In order to fully implement our business plan and recover from continuing losses, we may also seek equity financing from outside investors. There can be no assurance that additional financing, if required, would be available on favorable terms or at all and/or that the foregoing plans and arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other requirements.
If we cannot manage our growth effectively and efficiently, our results of operations or profitability could be adversely affected.
In April 2022, we entered into an investment agreement with certain partners to form a joint venture, Sunrise Guizhou, which is dedicated to the production of lithium-ion power battery anode materials. As of the date of this annual report, we have made substantial investment into the new venture. Such expansion has placed, and will continue to place, substantial demands on our financial, managerial, operational, technological and other resources. Our expansion has placed significant demands on us to maintain the quality of our services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our services. In order to manage and support our growth, we must continue to improve our existing operational and administrative systems and our quality control, and recruit, train and retain additional qualified professionals as well as other administrative and sales and marketing personnel, particularly as we expand into new business ventures and launch new business initiatives. We may not be able to effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel and integrate new expansion into our operations. As a result, our results of operations or profitability could be adversely affected.
We may not be successful in implementing important new strategic initiatives, which may have an adverse impact on our business and financial results.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial results. For example, our latest strategic initiative, establishing our graphite anode manufacturing and sales joint venture, Sunrise Guizhou, is designed to create growth, improve our results of operations and drive long-term shareholders value; however, our management may lack required experience, knowledge, insight, or human and capital resources to carry out the effective implementation to expand into new spaces outside of our current focuses. Furthermore, overcapacity and intense competition in the graphite material industry have led to a decline in the sales prices of our graphite material products, which contributed significantly to the Company's net losses during the reporting periods. As such, we may not be able to realize our expected growth, and our business and financial results will be adversely impacted.
We may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, including our graphite anode manufacturing and sales business and our knowledge share platform, which could have a material adverse impact on our business, financial conditions and results of operations.
Before we develop certain new products in our graphite anode manufacturing and sales business, we must obtain a variety of approvals from local and municipal governments in the PRC for the operating of our graphite anode manufacturing and sales business. We have obtained the following in relation to our graphite anode manufacturing and sales business: construction permits, fire acceptance record certificate, sewage discharge permit, environmental impact statements, and product quality system certification, including: ISO 14001:2015, ISO 45001:2018, ISO 9001:2015, ISO 16949:2016, ISO27001:2022 and GB/T29490-2023. In addition, based on the progress of our relevant construction projects, we will apply for other necessary licenses that are required by relevant PRC rules from time to time. There is no assurance that we will be able to obtain all required licenses, permits, or approvals from government authorities. If we fail to obtain all required licenses, permits or approvals, we may be unable to expand our operations.
The operation of our knowledge sharing platform is subject to governmental supervision and regulation by the relevant PRC governmental authorities, including the Ministry of Commerce, or MOFCOM, the Ministry of Industry and Information Technology, or MIIT, the National Radio and Television Administration or NRTA, and other governmental authorities in charge of the relevant categories of services offered by us. Together, these government authorities promulgate and enforce regulations that cover many aspects of the operation we provide on our APP, including the scope of permissible business activities, licenses and permits for various business activities, and foreign investment.
Our ICP License (the Administrative Measures on Internet Information Services, or the Internet Measures, promulgated by the State Council requires commercial internet content-related services operators to obtain a VATS (“value added telecommunications service”) License for internet content provision business, or the ICP License) expired in July 2024 and we believe an ICP License is no longer needed for our knowledge sharing and enterprise service platform business, since except the Company itself, there is no other party conducting business through our APP. Although we do not currently believe we are required to hold any other licenses, we may be required to obtain additional licenses, permits or approval, given the significant uncertainties of the interpretation and implementation of certain regulatory requirements applicable to our business. See “Regulations— Regulations Related to Online Transmission of Audio-Visual Programs.”
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There are uncertainties with respect to the interpretation and implementation of existing and future laws and regulations governing our business activities. As of the date of this annual report, we (i) have received from PRC authorities the material licenses, permissions, and approvals needed to engage in the businesses currently conducted in the PRC, (ii) no such permission or approval has been denied, and (iii) based on the progress of our relevant construction projects, we will apply for other necessary licenses that are required by relevant PRC rules from time to time. However, we cannot assure you that any of these entities will be able to receive clearance of such compliance requirements in a timely manner, or at all. Any failure of these entities to fully comply with such compliance requirements may cause our PRC subsidiaries, or the VIE and its subsidiaries to be unable to begin their new businesses or operations in the PRC, subject them to fines, relevant new businesses or operations suspension for rectification, or other sanctions, which may materially and adversely affect our business, financial conditions and results of operations.
Cyber-attacks or other failures in our telecommunications or information technology systems, or those of our collaborators, third-party logistics providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption of our business operations.
We, our programs, our collaborators, third-party logistics providers, distributors and other contractors and consultants utilize information technology, or IT, systems and networks to process, transmit and store electronic information, including but not limited to intellectual property, proprietary business information and personal information, in connection with our business activities. Our internal IT systems and those of current and future third parties on which we rely may fail and are vulnerable to breakdown, breach, interruption or damage from cyber incidents, employee error or malfeasance, theft or misuse, sophisticated nation-state and nation-state-supported actors, unauthorized access, natural disasters, terrorism, war, telecommunication and electrical failures or other compromises. As use of digital technologies has increased, cyber incidents, including third parties gaining access to employee accounts using stolen or inferred credentials, computer malware, viruses, spamming, phishing attacks, denial-of-service attacks or other means, and deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency, intensity, and sophistication. These threats pose a risk to the security of our, our programs’, our collaborators’, third-party logistics providers’, distributors’ and other contractors’ and consultants’ systems and networks, and the confidentiality, availability and integrity of our data. There can be no assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. We may not be able to anticipate all types of security threats, and we may not be able to implement preventive measures effective against all such security threats. The techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist organizations or hostile foreign governments or agencies. Similarly, there can be no assurance that our collaborators, third-party logistics providers, distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on their systems. Any loss of clinical trial data from our completed or ongoing clinical trials for any of our product candidates could result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Although to our knowledge we have not experienced any such material system failure or material security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of development programs and business operations.
Any cyber-attack that leads to unauthorized access, use, or disclosure of personal information, data breach or destruction or loss of data could result in a violation of applicable U.S. and international privacy, data protection and other laws and regulations, subject us to litigation and governmental investigations, proceedings and regulatory actions by federal, state and local regulatory entities in the United States and by international regulatory entities, resulting in exposure to material civil and/or criminal liability, cause us to breach our contractual obligations, which could result in significant legal and financial exposure and reputational damages. As cyber threats continue to evolve, we may be required to incur significant additional expenses in order to implement further data protection measures or to remediate any information security vulnerability. Further, our general liability insurance and corporate risk program may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that maybe imposed, which could have a material adverse effect on our business and prospects. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages as a result of the events referenced above.
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If we fail to hire, train or retain qualified managerial and other employees, our business and results of operations could be materially and adversely affected.
Our personnel are critical to maintaining the quality and consistency of our services, brand and reputation. It is important for us to attract qualified managerial and other employees. There may be a limited supply of such qualified individuals. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our rapid growth while maintaining consistent quality of services across our operations. We must also provide continuous training to our managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality services. If we fail to do so, the quality of our services may decrease, which in turn, may cause a negative perception of our brand and adversely affect our business.
We may be involved from time to time in legal proceedings and commercial or contractual disputes, which could have a material adverse effect on our business, results of operations and financial condition.
From time to time, we may be involved in legal proceedings and commercial disputes. Such proceedings or disputes are typically claims that arise in the ordinary course of business, including, without limitation, commercial or contractual disputes, and other disputes with customers and suppliers, intellectual property matters, tax matters and employment matters. There can be no assurance that such proceedings and claims, should they arise, will not have a material adverse effect on our business, results of operations and financial condition.
Any failure to protect our trademarks and other intellectual property rights could have a negative impact on our business.
We believe our key trademark, “Sunrise” and “晖阳,” for which we have obtained trademark protection , and 32 patents , are critical to our success. Any unauthorized use of our trademarks or other intellectual property rights could harm our competitive advantages and business. Historically, China has not protected intellectual property rights to the same extent as the United States, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Monitoring and preventing unauthorized use are difficult. The measures we take to protect our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, we may lose these rights and our business may suffer materially.
Risks Related to Graphite Anode Manufacturing and Sales Business
Our graphite anode manufacturing and sales joint venture may not perform as well as we expected.
In 2022, Zhuhai Zibo entered into an Investment Agreement with 13 other parties to form a graphite anode manufacturing and sales joint venture, Sunrise Guizhou. While we believe the joint venture could give the Company new potential growth, it may not perform as well as we expected and, as a result, could impact the Company’s financial performance.
Joint venture with which we engage for developing graphite anode manufacturing and sales business presents a number of challenges that could have a material adverse effect on our business and results of operations and cash flows.
The success of our overall development plans for our graphite anode manufacturing and sales business depends on our relationships with our joint venture partners. Transactions included in developing a joint venture typically involve a number of risks and present financial, managerial and operational challenges, including the existence of unknown potential disputes, liabilities or contingencies that arise after entering into the joint venture related to the counterparties to such joint venture. We could experience financial or other setbacks, if transactions encounter unanticipated problems due to challenges, including problems related to execution or integration. Any of these risks could reduce our revenues or increase our expenses, which could adversely affect our results of operations and cash flows.
We require cooperation from our joint venture partners to establish and operate the graphite anode manufacturing and sales business.
To successfully establish and operate the graphite anode manufacturing and sales business, in addition to capital contributions, we need our partner’s expertise in a number of areas, such as advanced technology R&D, marketing and sales. In the event that we cannot maintain our cooperative relationships with our joint venture partners, on terms favorable to us or at all, we will need to source other business partners, and we may lose access to key strategic assets, which could result in material and adverse effects on our business and results of operations.
We may not respond quickly to continued innovations in the graphene products industry.
We believe that technological advances in graphite manufacture will continue to evolve and new technologies will continue to develop. Advances in the manufacture of graphite could allow our competitors to develop products faster or produce more efficiently or at lower cost than we can. If we are unable to adapt or incorporate technological advances into our operations, our production facilities could become less competitive. Further, it may be necessary for us to incur significant expenditures to acquire any new technologies and retrofit our current processes to remain competitive.
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We must continuously invest in research and development.
To remain competitive, we must continuously invest in research and development which can be costly. Much of our technology and intellectual property portfolio is at an early stage of development, and we may not be able to continue to identify, develop, exploit, market and, in certain cases, secure regulatory approval for, innovative products in a timely manner or at all.
Risks of relationships with third parties in respect of research and development.
Although we have resources and staff dedicated to research and development, market conditions and other factors such as management efficiencies may make it required or preferable for us to enter into arrangements with third parties for the development, production and commercialization of graphite. If we are unable to negotiate favorable terms for such arrangements with respect to intellectual property or otherwise or disagreements arise between us and any partner or potential partner, our business, financial condition, and results of operations may be adversely affected. Further, there can be no assurance that any otherwise successful collaborations will generate products or intellectual property which can be commercialized or will result in any revenue or cash flow.
Government support of electric vehicles and renewable energy may be reduced.
Demand for and development of the products that incorporate our graphite products, including electric vehicles, renewable energy technologies, and power storage technologies, are significantly affected by government policies, support, and subsidies. Any reduction in government support for relevant industries or technologies may adversely affect our business.
Price volatility of our finished goods.
Whether due to the entry into the market of new manufacturers, the development of new graphite products manufacturing technologies, changes in downstream technologies, or other causes, there may be an increase in the availability of graphite products in the market relative to the demand for those products. In the event that production exceeds demand, we may not be able to negotiate favorable pricing for the sale of our products, and there is no assurance that we will maintain or achieve growth in revenue, profitability or cash flow from our graphite products.
Complying with numerous health, safety and environmental regulations is both complex and costly.
Sunrise Guizhou’s graphite manufacturing business is subject to numerous health, safety, and environmental requirements in the PRC. Such laws and regulations govern, among other matters, air emissions, wastewater discharges, solid and hazardous waste management and the use, composition, handling, distribution, and transportation of hazardous materials. Many such laws and regulations are becoming increasingly stringent (and may impose strict liability) and the cost of compliance with these requirements can be expected to increase over time. Although we believe that our operations will comply with applicable regulations, any failure to comply with these laws and regulations could result in us incurring costs and/or liabilities, including as a result of regulatory enforcement, personal injury, property damage and claims and litigation resulting from such events, which could adversely affect our results of operations and financial condition.
Industrial operations can be hazardous.
Accidents involving the mishandling of heavy equipment or hazardous substances could cause severe or critical damage or injury to property and human health. Such an event could result in civil lawsuits and/or regulatory enforcement proceedings, both of which could lead to significant liabilities. Any damage to persons, equipment or property or other disruption of our business could result in significant additional costs to replace, repair and insure assets, which could negatively affect our business, prospects, operating results and financial condition.
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Sunrise Guizhou depends on a few major customers, and the loss of any of which could cause a significant decline in our revenues.
Sunrise Guizhou’s customers are manufacturers of industrial and consumer energy storage lithium-ion batteries, such as batteries for electric vehicles and electric ships, and smart consumer electronics. For the fiscal year ended December 31, 2024, Sunrise Guizhou had 26 customers. One customer accounted for more than 10% of Sunrise Guizhou’s total sales, accounting for 67%. For the fiscal year ended December 31, 2023, Sunrise Guizhou had 23 customers. Three customers accounted for more than 10% of Sunrise Guizhou’s total sales, accounting for 38%, 25%, and 11%, respectively. For the fiscal year ended December 31, 2022, Sunrise Guizhou had 16 customers. Four customers accounted for more than 10% of Sunrise Guizhou’s total sales, accounting for 28%, 20%, 19% and 19% respectively.
If any of its key customers reduces, delays or cancels its orders for any reason, or the financial condition of any of its key customers deteriorates, Sunrise Guizhou’s business could be seriously harmed. Similarly, a failure to manufacture sufficient quantities of products to meet the demands of these customers may cause Sunrise Guizhou to lose business. Furthermore, if Sunrise Guizhou experiences difficulties in the collection of its accounts receivables from its key customers, the results of our operation may be materially and adversely affected.
Sunrise Guizhou faces the risk of fluctuations in the cost, availability, and quality of raw materials, which could adversely affect our results of operations.
The cost, availability, and quality of the principle raw materials, such as asphalt coke, petroleum coke, needle coke, and American petroleum coke, are essential to Sunrise Guizhou’s operations. It purchases these raw materials from suppliers in China, Romania, and Indonesia, in order to meet the requirements of different customers, as well as to maintain a diversified supplier base which is beneficial to a stable supply chain. Lack of availability of raw materials, whether due to shortages in supply, delays or interruptions in processing, failure of timely delivery, or otherwise, could interrupt Sunrise Guizhou’s operations and adversely affect our financial results. If the costs of raw materials increases due to policy changes, significant market price fluctuation, or any other causes that generally cannot be controlled by Sunrise Guizhou, Sunrise Guizhou’s business and results of operations could be adversely affected.
Further, defective raw materials or raw materials with quality deficiencies could subject Sunrise Guizhou to product liability claims or legal actions, which circumstances could adversely affect Sunrise Guizhou’s financial conditions and results of operations.
Sunrise Guizhou entrusts third-party contract manufacturers for certain processes for the manufacturing of its graphite anode products.
As of the date of this annual report, Sunrise Guizhou entrusts certain processes of the manufacturing of its graphite anode products to third-party contractors, who might be unable to timely manufacture its products or produce the quantity and quality required to meet its commercial needs, or may not be able to execute our manufacturing procedures appropriately, or may not perform as agreed upon, or to produce, store and distribute its products satisfactorily. Any of the above could adversely affect the business results of operations and financial condition.
Sunrise Guizhou may need additional capital to pursue business objectives and respond to business opportunities, challenges or unforeseen circumstances, and financing may not be available on acceptable terms or at all.
As Sunrise Guizhou intends to continue to make investments to support the growth of its business, it may require additional capital to pursue its business objectives and respond to business opportunities, challenges or unforeseen circumstances, including expanding manufacturing capacities, developing new products and service offerings, increasing sales and marketing expenditures, and engage customers through expanded channels, enhancing its operating infrastructure and acquiring complementary businesses and technologies. Accordingly, Sunrise Guizhou may need to engage in equity or debt financing to secure additional funds. However, additional funds may not be available when needed, on terms that are acceptable, or at all. Repayment of any such debt may divert a substantial portion of cash flow to repay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes. Sunrise Guizhou may suffer as a result of any default and foreclosure on assets pledged to secure any such financing, if the operating cash flow is insufficient to service debt obligations, which could in turn result in acceleration of obligations to repay the indebtedness and limit sources of financing.
Volatility in the credit markets may also have an adverse effect on Sunrise Guizhou’s ability to obtain debt financing. If it raises additional funds through further issuance of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Ordinary Shares. If Sunrise Guizhou is unable to obtain adequate financing or financing on terms satisfactory to it when required, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges or unforeseen circumstances could be significantly limited, and our business, financial condition, results of operations and prospects could be adversely affected.
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Risks Related to Our Corporate Structure
The VIE Agreements have not been tested in a court of law and are subject to significant risks, as set forth in the following risk factors. For a description of these VIE Agreements, see “ITEM 4. INFORMATION ON THE COMPANY — C. Organizational Structure”.
If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of certain value-added telecommunications services, or the VATS, is subject to restrictions under current PRC laws and regulations. For example, the ultimate foreign equity ownership in a VATS provider may not exceed 50%. Also, for a foreign investor contemplating to acquire any equity interest in a VATS business in China, it must satisfy a number of stringent performance and operational experience requirements. In addition, to conduct any VATS business in China, foreign investors have to set up foreign-invested enterprises and obtain a relevant telecommunications business operating license. See “Regulations—Regulations Related to Foreign Investment.”
The Company’s knowledge sharing business previously included VATS, and in light of the above restrictions and requirements, the Company opted to rely on contractual arrangements between GIOP BJ and the VIE to operate its knowledge sharing and enterprise business in China. As a result of which, under United States generally accepted accounting principles, the assets and liabilities of the VIE are treated as our assets and liabilities and the results of operations of the VIE are treated as if they were the results of our operations. For a description of these contractual arrangements, see “Business—Contractual Arrangements between GIOP BJ, the VIE and Its Shareholders” and “Related Party Transactions—Contractual Arrangements with GIOP BJ, the VIE and Its Shareholders.” As of the date of this annual report, the Company no longer engages in business activities that are VATS.
In the opinion of our PRC legal counsel, JT&N, based on its understandings of the relevant PRC laws and regulations, (i) the ownership structures of the VIE in China and GIOP BJ are not in violation of applicable PRC laws and regulations currently in effect; and (ii) each of the contracts among GIOP BJ, the VIE and its shareholders is legal, valid, binding and enforceable in accordance with its terms and applicable PRC laws. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Accordingly, the PRC regulatory authorities may ultimately take a view contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or the VIE are found to be in violation of any PRC laws or regulations, if the contractual arrangements among GIOP BJ, the VIE and its shareholders are determined to be illegal or invalid by a PRC court, arbitral tribunal or regulatory authorities, or if we or the VIE fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including:
| ● | revoking the business and/or operating licenses of GIOP BJ or the VIE; |
| ● | discontinuing or restricting the operations of GIOP BJ or the VIE; |
| ● | imposing conditions or requirements with which we, GIOP BJ, or the VIE may not be able to comply; |
| ● | requiring us, GIOP BJ, or the VIE to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our Ordinary Shares in the equity of the VIE; |
| ● | restricting or prohibiting our use of the proceeds from our initial public offering to finance our business and operations in China; and\or |
| ● | imposing fines. |
The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of the VIE in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of the VIE or our right to receive substantially all of the economic benefits and residual returns from the VIE and we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of the VIE in our consolidated financial statements. Either of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect on our financial condition and results of operations.
We rely on contractual arrangements with the VIE and its subsidiaries, and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership.
We have relied and expect to continue to rely on contractual arrangements with the VIE, its subsidiaries and shareholders to operate our business in China. For a description of these contractual arrangements, see “Business—Contractual Arrangements between GIOP BJ, the VIE and Its Shareholders” and “Related Party Transactions— Contractual Arrangements with GIOP BJ, the VIE and Its Shareholders.” These contractual arrangements may not be as effective in providing us with control over the VIE and its subsidiaries as direct ownership. We have no direct or indirect equity interests in the VIE or any of its subsidiaries.
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If we had direct ownership of the VIE and its subsidiaries, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE and its subsidiaries, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. But under the current contractual arrangements, as a legal matter, if the VIE or any of its subsidiaries and shareholders fails to perform their obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which may not be effective. For example, if the shareholders of the VIE were to refuse to transfer their equity interest in the VIE to us or our designee when we exercise the call option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal action to compel them to fulfill their contractual obligations.
Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our affiliated entities, and our ability to conduct our business may be negatively affected.
The contractual arrangements we have entered into with the VIE and its shareholders, and any other arrangements and transactions among related parties that we currently have or will have in future may be subject to scrutiny by the PRC tax authorities and they may determine that we owe additional taxes, which could substantially reduce our consolidated net income and the value of your investment.
Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within ten years after the taxable year when the transactions are conducted. We could face material and adverse tax consequences if the PRC tax authorities determine that the VIE contractual arrangements were not entered into on an arm’s-length basis in such a way as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the income of the VIE in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by the VIE for PRC tax purposes, which could in turn increase its tax liabilities without reducing GIOP BJ’s tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if the VIE’s tax liabilities increase or if it is required to pay late payment fees and other penalties.
Because we are a Cayman Islands holding company and conduct a knowledge sharing platform through the VIE in China, if we fail to comply with applicable PRC law, we could be subject to severe penalties and our business could be adversely affected.
We are a Cayman Islands holding company and operate a portion of our business through the VIE in China through VIE Agreements, as a result of which, under United States generally accepted accounting principles, the assets and liabilities of the VIE are treated as our assets and liabilities and the results of operations of the VIE are treated in all respects as if they were the results of our operations. There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of the VIE Agreements between GIOP BJ and the VIE.
The Provisions Regarding Mergers and Acquisitions of Domestic Projects by Foreign Investors (the “M&A Rules”) requires an overseas special purpose vehicle that are controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies using shares of such special purpose vehicle or held by its shareholders as considerations to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. However, the application of the M&A Rules remains unclear. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval. Any failure to obtain or delay in obtaining CSRC approval for such an offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.
If GIOP BJ, the VIE or their ownership structure or the VIE Agreements are determined to be in violation of any existing or future PRC laws, rules or regulations, or GIOP BJ or the VIE fail to obtain or maintain any of the required governmental permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:
| ● | revoking the business and operating licenses of GIOP BJ or the VIE; | |
| ● | discontinuing or restricting the operations of GIOP BJ or the VIE; | |
| ● | imposing conditions or requirements with which we, GIOP BJ, or the VIE may not be able to comply; |
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| ● | requiring us, GIOP BJ, or the VIE to restructure the relevant ownership structure or operations which may significantly impair the rights of the holders of our ordinary shares in the equity of the VIE; and\or | |
| ● | imposing fines. |
We cannot assure you that the PRC courts or regulatory authorities may not determine that our corporate structure and VIE Agreements violate PRC laws, rules or regulations. If the PRC courts or regulatory authorities determine that our contractual arrangements are in violation of applicable PRC laws, rules or regulations, the VIE Agreements will become invalid or unenforceable, and the VIE will not be treated as VIE entities and we will not be entitled to treat the VIE’s assets, liabilities and results of operations as our assets, liabilities and results of operations, which could effectively eliminate the assets, revenue and net income of the VIE from our balance sheet, which would most likely require us to cease conducting our business and would result in the delisting of our Class A Ordinary Shares from the Nasdaq Capital Market and a significant impairment in the market value of our Class A Ordinary Shares.
The shareholders of the VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
Almost all of our beneficiary owners hold equity interests in the VIE. They may have conflicts of interest with us. Conflicts of interest may arise between the dual roles of them who are both shareholders of our Company and shareholders of SDH, the VIE. These shareholders may breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and SDH, which would have a material and adverse effect on our ability to effectively control the VIE and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our Company, except that we could exercise our purchase option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in the VIE to a PRC entity or individual designated by us, to the extent permitted by PRC law. If we cannot resolve any conflicts of interest or disputes between us and those individuals, we would have to rely on legal proceedings, which may materially disrupt our business. There is also substantial uncertainty as to the outcome of any such legal proceeding.
Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which has come into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. For instance, under the Foreign Investment Law, “foreign investment’’ refers to the investment activities directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify VIE Agreements as a form of foreign investment, there is no assurance that operation conducted by foreign investors or foreign-invested enterprises via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council to provide for VIE Agreements as a form of foreign investment. In any of these cases, it will be uncertain whether the VIE Agreements will be deemed to be in violation of the market access requirements for foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing VIE Agreements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure, corporate governance and business operations.
The dual class structure of our ordinary shares has the effect of concentrating voting control with our Chairman, and his interest may not be aligned with the interests of our other shareholders.
We have adopted a dual-class voting structure, consisting of Class A Ordinary Shares and Class B Ordinary Shares. Under this structure, holders of Class A Ordinary Shares are entitled to one vote per Class A Ordinary Share, and holders of Class B Ordinary Shares are entitled to twenty votes per Class B Ordinary Share, which may cause the holders of Class B Ordinary Shares to have an unbalanced, higher concentration of voting power. As of the date of this annual report, Haping Hu, our CEO and chairman of the board of directors, beneficially owns 2,056,989, or 10.07%, of our issued Class A Ordinary Shares, and 6,567,272, or 100%, of our issued Class B Ordinary Shares, representing approximately 87.90% of the voting rights in our Company. As a result, until such time as Haiping Hu’s voting power is below 50%, he, as the controlling shareholder, has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. He may take actions that are not in our best interest or in the best interest of other shareholders. These corporate actions may be taken even if they are opposed by other shareholders. Further, such concentration of voting power may discourage, prevent, or delay the consummation of change of control transactions that shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. Future issuances of Class B Ordinary Shares may also be dilutive to the holders of Class A Ordinary Shares. As a result, the market price of our Class A Ordinary Shares could be adversely affected.
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As a “controlled company” under the listing rules of the NASDAQ Stock Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.
As of the date of this annual report, Mr. Haiping Hu, our CEO and chairman of the board of directors, beneficially owns the majority of the voting power of our outstanding Ordinary Shares. Under NASDAQ Listing Rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the NASDAQ Listing Rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future if we meet certain disclosure requirements. If we elect to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, during any time while we remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ Stock Market corporate governance requirements. Our status as a controlled company could cause our Class A Ordinary Share to look less attractive to certain investors or otherwise harm our trading price.
We may lose the ability to use and enjoy assets held by the VIE that are material to the operation of certain portion of our business if the VIE goes bankrupt or become subject to a dissolution or liquidation proceeding.
As part of our contractual arrangements with the VIE, the VIE and its subsidiaries hold certain assets that are material to the operation of certain portion of our business, including intellectual property and licenses. If the VIE goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, the VIE may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our prior consent. If the VIE undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
Because we are a Cayman Islands exempted company and all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain.
We are incorporated in the Cayman Islands and conduct our operations primarily in China. Substantially all of our assets are located outside of the United States. In addition, all of our directors and officers reside outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may not permit you to enforce a judgment against our assets or the assets of our directors and officers.
The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in China. China has recently adopted a revised securities law, and Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators, which could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted in China.
As an exempted company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with such corporate governance listing standards.
As a Cayman Islands exempted company listed on the Nasdaq Stock Market, we are subject to the Nasdaq listing standards. However, the Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Currently, we rely on home country practice with respect to certain aspects of our corporate governance. See “Item 16G. Corporate Governance.” Our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers given our reliance on the home country practice exception.
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Risks Related to Doing Business in China
The Chinese government exerts substantial influence over the manner in which we must conduct our business, and may intervene or influence our operations at any time, which could result in a material change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and, and cause the value of our Class A Ordinary Shares to significantly decline or be worthless.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
Furthermore, given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently not required to obtain permission from any of the PRC federal or local government authorities and have not received any denial to list on the U.S. exchange, it is uncertain when and whether we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and cause the value of our securities to significantly decline or be worthless.
Recent greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our securities.
On December 28, 2021, 13 governmental departments of the PRC, including the Cyberspace Administration of China, or the CAC, issued the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries.
On January 1, 2025, the Regulations on the Network Data Security Administration (the “Security Administration Regulation”), which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Regulation, data processing operators who possess personal data of at least ten million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC.
As confirmed by our PRC counsel, JT&N, as of the date of this annual report, we are not subject to cybersecurity review with the CAC, under the Cybersecurity Review Measures that became effective on February 15, 2022, or the Security Administration Regulation, since (i) as companies that engage in business-oriented consulting services and manufacturing and sales of graphite anode materials, we, our PRC subsidiaries, or the VIE and its subsidiaries are unlikely to be classified as CIIOs by the PRC regulatory agencies; (ii) according to the interpretation of the relevant laws by the CAC, for online platform operators who have listed in foreign countries before the effective date of Cybersecurity Review Measures, and who are not seeking a new listing (such as a secondary or dual listing) in foreign countries, a cybersecurity review is not required; (iii) the data processed in the business of the VIE and its subsidiaries, which is knowledge sharing and enterprise service platform business, is unlikely to have a bearing on national security. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Regulation will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Regulation. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply with and to mitigate any adverse effect of such new laws, regulations, rules, or implementation and interpretation on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and network data security review in the future. During such reviews, if required, our operations could be suspended or experience other disruptions. Further, cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations.
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The Trial Measures and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.
On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which took effect on March 31, 2023. Pursuant to the Trial Measures, PRC domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of relevant applications or its completion of subsequent offerings. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, or the CSRC Notice, which, among others, clarifies that PRC domestic companies that have already been listed overseas before the effective date of the Trial Measures, which is March 31, 2023, shall be deemed as Existing Issuers, and Existing Issuers are not required to complete the filing procedures with the CSRC immediately, and they shall be required to file with the CSRC for any subsequent offerings. We are an Existing Issuer, based on the foregoing, and we are not, therefore, required to complete the filing procedures with the CSRC immediately, and shall be required, however, to file with the CSRC for any subsequent offerings.
On February 24, 2023, the CSRC, together with the MOF, the National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions on Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing, which were issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009, or the Provisions. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023, together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (i) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (ii) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company, our subsidiaries or the VIE and its subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime. See “Regulations—Regulations Related to Mergers and Acquisitions and Overseas Listings.”
The Trial Measures and the revised Provisions that recently issued by the PRC authorities may subject us to additional compliance requirements in the future, as there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, and we cannot assure you that we will be able to comply with all the new regulatory requirements of the Trial Measures, the revised Provisions, or any future implementing rules on a timely basis, or at all. Any failure by us to fully comply with the new regulatory requirements, including but not limited to the failure to complete the filing procedures with the CSRC if required, may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless.
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A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business and our financial condition.
The rapid growth of the Chinese economy has slowed down since 2012, and there is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the People’s Bank of China and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in volatility in oil and other markets. There have also been concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.
Changes in international trade policies, or the escalation of tensions in international relations, particularly with regard to China, may adversely impact our business and operating results.
There have been heightened tensions in international relations, particularly between the United States and China. Recently, the U.S. government has taken steps to reassess its trade policies with several countries, with a primary focus on China. As of May 2025, these policies have undergone significant changes, including the imposition of escalating tariffs, strategic export controls, and targeted sanctions. However, the future direction of U.S. and global trade policy remains uncertain. It is unclear what additional actions may be taken by the U.S. or other governments regarding international trade agreements, tariffs on imported goods, tax policies related to international commerce, or other trade-related measures. Should new tariffs, legislation, or regulations be introduced—or if existing trade agreements are renegotiated or further retaliatory actions are taken in response to ongoing U.S.-China trade tensions—such developments could materially and adversely affect our business, financial condition, and results of operations.
These tensions have strained both diplomatic and economic relations between the two countries. Heightened geopolitical friction may reduce trade volumes, investment activity, technology exchange, and other forms of economic engagement between the U.S. and China. A further deterioration in international relations could negatively impact China’s broader economic and social conditions. Given our dependence on the Chinese market, any such developments may have a material adverse effect on our business, financial condition, and results of operations.
We face risks related to health epidemics such as the COVID-19, which significantly disrupted our operations and may continue to adversely affect our business, financial condition and results of operations.
Our business operations depend on China’s overall economy and demand for our service and products, which could be disrupted by health epidemics. In the fiscal years 2020 through 2022, due to the government imposed restrictions and lock-downs that were intended to contain the spread of the COVID-19 pandemic, our knowledge sharing business was materially and adversely impacted. For the year ended December 31, 2022, the revenues generated from the core services of our knowledge sharing platform decreased by approximately 95%, compared to that of fiscal year 2021. Although the PRC government relaxed its COVID-19 restrictions since December 2022, and in fiscal year 2022, the Company transitioned its core business from knowledge sharing and enterprise services to graphite anode material sales, which was not materially impacted by the COVID-19 pandemic, there still remains a possibility of further outbreaks of COVID-19 variants or other adverse public health developments in China. Such outbreaks or other development could significantly impact the Chinese economy, disrupt our operations and adversely affect our business, financial condition and results of operations.
Because our business is dependent upon government policies that encourage a market-based economy, change in the political or economic climate in the PRC may impair our ability to operate profitably, if at all.
Although the PRC government has been pursuing a number of economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC. Because of the nature of our business, we are dependent upon the PRC government pursuing policies that encourage private ownership of businesses. We cannot assure you that the PRC government will pursue policies favoring a market-oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC.
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PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may materially and adversely affect our business and impede our ability to continue our operations.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. In fact, the PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. Furthermore, if China adopts more stringent standards with respect to environmental protection or social issues, which are increasingly becoming the focus globally, we may incur increased compliance cost or become subject to additional restrictions in our operations. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainties over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
For example, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued an announcement to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. Since this announcement is relatively new, uncertainties still exist in relation to how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us.
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Because our business is conducted in RMB and the price of our Class A Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.
Our business is conducted in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and dollar affect the value of our assets and the results of our operations in United States dollars. The value of the RMB against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition.
Under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.
The EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or SAT, issued the Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management, known as SAT Circular 82, which has been revised by the Decision of the State Administration of Taxation on Issuing the Lists of Invalid and Abolished Tax Departmental Rules and Taxation Normative Documents on December 29, 2017 and by the Decision of the State Council on Cancellation and Delegation of a Batch of Administrative Examination and Approval Items on November 8, 2013. Circular 82 has provided certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal, salary and wages) are made or need to be made by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
We believe that Sunrise New Energy is not a resident enterprise for PRC tax purpose. Sunrise New Energy is not controlled by a PRC enterprise or PRC enterprise group and we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of Sunrise New Energy, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body”.
If we are deemed as a PRC “resident enterprise” by PRC tax authorities, we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Ordinary Shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). It is unclear whether holders of our Ordinary Shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse effect on the value of your investment in us and the price of our Ordinary Shares.
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There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
Under the EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, a withholding tax rate of 10% may be lowered to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the Double Tax Avoidance Arrangement and other applicable PRC laws.
However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, which became effective on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which became effective as of April 1, 2018, when determining an applicant’s status as the “beneficial owner” regarding tax treatments in connection with dividends, interests, or royalties in the tax treaties, several factors will be taken into account. Such factors include whether the business operated by the applicant constitutes actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax, grant tax exemption on relevant incomes, or levy tax at an extremely low rate. This circular further requires any applicant who intends to be proved of being the “beneficial owner” to file relevant documents with the relevant tax authorities. Our PRC subsidiaries is wholly owned by their respective HK based parent companies. However, we cannot assure you that our determination regarding our qualification to enjoy the preferential tax treatment will not be challenged by the relevant PRC tax authority or we will be able to complete the necessary filings with the relevant PRC tax authority and enjoy the preferential withholding tax rate of 5% under the Double Tax Avoidance Arrangement with respect to dividends to be paid by our PRC subsidiaries to our HK subsidiaries, in which case, we would be subject to the higher withdrawing tax rate of 10% on dividends received.
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, the VIE and its subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
We are an offshore holding company conducting our operations in China through Sunrise Guizhou, the VIE and its subsidiaries. We may make loans to Sunrise Guizhou, the VIE and its subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any capital contributions or loans that we, as an offshore entity, make to our PRC subsidiaries, are subject to PRC regulations. For example, loans to our PRC subsidiaries cannot exceed statutory limits and are subject to foreign exchange loan registrations. Our capital contributions to our PRC subsidiaries must be registered with the MOFCOM or its local counterpart. For more details, see “Regulation—Regulations Related to Foreign Debt.” and “Regulation—Regulations Related to Foreign Exchange.”
In light of the various requirements imposed by of PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals or filings on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or the VIE or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals on a timely basis or at all, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Government control in currency conversion may adversely affect our financial condition, our ability to remit dividends, and the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have.
Under existing PRC foreign exchange regulations, Renminbi cannot be freely converted into any foreign currency, and conversion and remittance of foreign currencies are subject to PRC foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, we will have sufficient foreign exchange to meet our foreign exchange requirements. Under the current PRC foreign exchange control system, foreign exchange transactions under the current account conducted by us, including the payment of dividends, do not require advance approval from SAFE, but we are required to present documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks within China that have the licenses to carry out foreign exchange business. Foreign exchange transactions under the capital account conducted by us, however, must be approved in advance by SAFE.
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Under existing foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, we cannot assure you that these foreign exchange policies regarding payment of dividends in foreign currencies will continue in the future.
In fact, in light of the flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the Ordinary Shares. Our capital expenditure plans and our business, operating results and financial condition may be materially and adversely affected.
If we become directly subject to the scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation.
U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from growing our business. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our stock.
The disclosures in our reports and other filings with the SEC and our other public pronouncements may be subject to the scrutiny of any regulatory bodies in the PRC.
We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosures and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by the CSRC, a PRC regulator that is responsible for oversight of the capital markets in China. However, on February 17, 2023, with the approval of the State Council, the CSRC released the Trial Measures and five supporting guidelines, which took effect on March 31, 2023. According to the Trial Measures, PRC domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedures and submit relevant documents, including the prospectus and other listing documents submitted to overseas regulatory authorities, to the CSRC. However, as the laws and regulations are relatively new, substantial uncertainties exist with respect to its interpretation and implementation regarding such laws and regulations. It is not clear how the CSRC may review and scrutinize these listing documents and we cannot assure you whether and how such scrutiny may affect our listing on an U.S. exchange.
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The Holding Foreign Companies Accountable Act and related regulations all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our continued listing on the Nasdaq, and Nasdaq may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the company’s auditors.
On December 18, 2020, the “Holding Foreign Companies Accountable Act” was signed by President Donald Trump and became law. This legislation requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. Furthermore, if the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years beginning in 2021, the issuer’s securities are banned from trade on a national exchange or through other methods.
On June 22, 2021, the U.S. Senate passed the “Accelerating Holding Foreign Companies Accountable Act”, which proposed to decrease the number of non-inspection years for foreign companies to comply with PCAOB audits from three to two years, thus reducing the time period before their securities may be prohibited from trading or delisted.
On December 16, 2021, the PCAOB issued a report on its determinations that the Board was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC), because of positions taken by PRC authorities in those jurisdictions (the “Determination”). The Board made these determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies Accountable Act (HFCAA).
On August 26, 2022, the CSRC, the MOF, and the PCAOB signed a Protocol, governing inspections and investigations of audit firms based in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC.
On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination.
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On December 29, 2022, the provisions of the Accelerating Holding Foreign Companies Accountable Act were signed into law by President Biden as part of the Consolidated Appropriations Act, amending the HFCAA and requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchange if its auditor is not subject to PCAOB inspections for two consecutive years instead of three consecutive years. The PCAOB continues to demand complete access in mainland China and Hong Kong moving forward and has resumed regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has also indicated that it will act immediately to issue new determinations with the HFCAA, if needed.
Our former and current auditor are PCAOB-registered public accounting firms subject to laws in the United States, pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards As such, as of the date of this annual report, our listing is not affected by the Holding Foreign Companies Accountable Act and related regulations. However, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as related to the audit of our financial statements. Furthermore, there is a risk that our auditor cannot be inspected by the PCAOB in the future. The lack of inspection could cause trading in our securities to be prohibited under the Holding Foreign Companies Accountable Act, and, as a result, Nasdaq may determine to delist our securities, which may cause the value of our securities to decline or become worthless.
The failure to comply with PRC regulations relating to mergers and acquisitions of domestic entities by offshore special purpose vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure.
On August 8, 2006, MOFCOM, joined by the CSRC, the State-owned Assets Supervision and Administration Commission of the State Council, the SAT, the State Administration for Industry and Commerce (the “SAIC”, currently known as the PRC State Administration for Market Regulation, or the SAMR), and State Administration of Foreign Exchange (“SAFE”), jointly promulgated regulations entitled the Provisions Regarding Mergers and Acquisitions of Domestic Entities by Foreign Investors (the “M&A Rules”), which took effect as of September 8, 2006, and as amended on June 22, 2009. These regulations, among other things, have certain provisions that require offshore special purpose vehicles formed for the purpose of acquiring PRC domestic companies and controlled directly or indirectly by PRC individuals and companies, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock market. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval. The application of the M&A Rules with respect to our corporate structure remains unclear, with no current consensus existing among leading PRC law firms regarding the scope and applicability of the M&A Rules.
If the CSRC, MOFCOM, or another PRC regulatory agency determines that government approval was required for the VIE arrangement between GIOP BJ and the VIE, or if prior CSRC approval for overseas financings is required and not obtained, we may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financings into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Class A Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel overseas financings, to restructure our current corporate structure, or to seek regulatory approvals that may be difficult or costly to obtain.
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PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us.
On July 4, 2014, SAFE issued the Circular on Issues Concerning Foreign Exchange Control over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37, which became effective as of July 4, 2014 and has replaced the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles (“SAFE Circular 75”). According to SAFE Circular 37, prior registration with the local SAFE branch is required for PRC residents, including PRC individuals and PRC corporate entities as well as foreign individuals that are deemed as PRC residents for foreign exchange administration purpose, in connection with their direct or indirect contribution of domestic assets or interests to offshore companies, known as SPVs. SAFE Circular 37 further requires amendment to the SAFE registrations in the event of any changes with respect to the basic information of the offshore special purpose vehicle, such as change of a PRC individual shareholder, name and operation term, or any significant changes with respect to the offshore special purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future. In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, effective June 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.
In addition to SAFE Circular 37 and SAFE Notice 13, our ability to conduct foreign exchange activities in China may be subject to the interpretation and enforcement of the Implementation Rules of the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance with SAFE provisions, the failure of which may subject such PRC individual to warnings, fines or other liabilities.
All of our shareholders who are subject to the SAFE Circular 37 and Individual Foreign Exchange Rules have completed the initial registrations with the qualified banks as required by the regulations. However, we may not be informed of the identities of all the PRC residents holding direct or indirect interest in our company, and we have no control over any of our beneficial owners. Thus, we cannot provide any assurance that our current or future PRC resident beneficial owners will comply with our request to make or obtain any applicable registrations or continuously comply with all registration procedures set forth in these SAFE regulations. Such failure or inability of our PRC residents beneficial owners to comply with these SAFE regulations may subject us or our PRC residents beneficial owners to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially adversely affected.
Our contractual arrangements with the VIE are governed by the laws of the PRC and we may have difficulty in enforcing any rights we may have under these contractual arrangements.
As all of our contractual arrangements with the VIE are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Disputes arising from these contractual arrangements between us and the VIE will be resolved through arbitration in China, although these disputes do not include claims arising under the United States federal securities law and thus do not prevent you from pursuing claims under the United States federal securities law. The legal environment in the PRC is not as developed as in the United States. As a result, uncertainties in the PRC legal system could further limit our ability to enforce these contractual arrangements, through arbitration, litigation and other legal proceedings remain in China, which could limit our ability to enforce these contractual arrangements and exert effective control over the VIE. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over the VIE, and our ability to conduct our business may be materially and adversely affected.
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Increases in labor costs in the PRC may adversely affect our business and our profitability.
China’s economy has experienced increases in labor costs in recent years, which is expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially and adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefits of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.
The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in Hong Kong or other jurisdictions may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, China has recently adopted a revised securities law that became effective on March 1, 2020, Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, it could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted outside of China, which may further increase difficulties faced by you in protecting your interests.
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Risks Related to Our Class A Ordinary Shares and the Trading Market
If we are a passive foreign investment company for United States federal income tax purposes for any taxable year, United States holders of our Class A Ordinary Shares could be subject to adverse United States federal income tax consequences.
A non-United States corporation will be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year if either (i) at least 75% of its gross income for such taxable year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income. Based on the current and anticipated value of our assets and the composition of our income and assets, we do not expect to be a PFIC for United States federal income tax purposes for our current taxable year or in the foreseeable future. However, the determination of whether or not we are a PFIC according to the PFIC rules is made on an annual basis and will depend on the composition of our income and assets and the value of our assets from time to time. Therefore, changes in the composition of our income or assets or the value of our assets may cause us to become a PFIC. The determination of the value of our assets (including goodwill not reflected on our balance sheet) may be based, in part, on the quarterly market value of our Class A Ordinary Shares, which is subject to change and may be volatile. It is possible that, for any subsequent year, more than 50% of our assets may be assets which produce passive income. We will make this determination following the end of any particular tax year.
Although the U.S. tax law with regards to VIEs is unclear, we are treating the VIE as being owned by us for United States federal income tax purposes, not only because we control their management decisions, but also because we are entitled to the economic benefits associated with the VIE, and as a result, we are treating the VIE as our wholly-owned subsidiary for U.S. federal income tax purposes. For purposes of the PFIC analysis, in general, according to Section 1297(c) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), a non-U.S. corporation is deemed to own its pro rata share of the gross income and assets of any entity in which it is considered to own at least 25% of the equity by value. Although our Company does not technically own any stock in the VIE there are numerous factors that give rise to a strong conclusion that its control of management decisions, the entitlement to economic benefits associated with the VIE, and the inclusion of the VIE as part of the consolidated group (Under Accounting Standards Codification (ASC) Topic 810, “Consolidation,” VIEs are generally consolidated with other related entities under common control) is so akin to our Company holding a stock interest in the VIE that it is reasonable and consistent to consider our Company’s interest in the VIE as a deemed stock interest. Therefore, the income and assets of the VIE should be included in the determination of whether or not we are a PFIC in any taxable year. It is important to emphasize that there is little to no guidance other than the statute itself (Internal Revenue Code Section 1297(c)) and analogous portions of the code, treasury regulations and other accepted authorities and as such it is possible for the IRS to challenge the argument that the look through rule would apply in this case, especially since the statute explicitly says “stock”.
The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain IRS guidance relating to the classification of assets as producing active or passive income. Such regulations and guidance are potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.
If we are a PFIC for any taxable year during which a United States person holds Class A Ordinary Shares, certain adverse United States federal income tax consequences could apply to such United States person.
For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company.”
U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS ABOUT THE PFIC RULES, THE POTENTIAL APPLICABILITY OF THESE RULES TO THE COMPANY CURRENTLY AND IN THE FUTURE, AND THEIR FILING OBLIGATIONS IF THE COMPANY IS A PFIC.
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We have identified several material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
The Securities and Exchange Commission, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting when the Company no longer qualifies as an emerging company. Our reporting obligations as a public company place a significant strain on our management, operational and financial resources and systems for the foreseeable future.
Since we are an emerging company, our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. During the course of preparing our consolidated financial statements as of and for the fiscal year ended December 31, 2024, we identified material weaknesses and other control deficiencies in our internal control over financial reporting. Many of the deficiencies noted below were communicated to us from our independent registered public accounting firm as observations, which stemmed from their audit. The material weaknesses identified included: (1) a lack of formal internal controls policies over financial closing and reporting processes, which may increase risk of error, fraud, misstatement of financial reporting, or even non-compliance with related regulations for a U.S. listed Group; (2) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements, and accounting policies and procedures manual that covers U.S. GAAP and SEC financial reporting requirements to complete relate US GAAP and SEC reporting; and (3) a lack of appropriately restricted to privileged level access to employees. As a result of the above, our management has concluded that, as of December 31, 2024, our disclosure controls and procedures were not effective.
We are taking a number of measures to tackle the control deficiencies identified, including: (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) preparing a comprehensive accounting policies and procedures manual that covers financial closing and reporting processes, U.S. GAAP and SEC financial reporting requirements, and ensuring that accounting personnel are familiar with and follow the manual; and (iv) Reinforcing the implementation of IT authorization limits matrix and segregation of duties systems to ensure the appropriateness of all approvals, authorizations, and confirmations granted.
Effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our Class A Ordinary Shares. Furthermore, we anticipate that we will incur considerable costs and devote significant management time and efforts and other resources to comply with Section 404 of the Sarbanes-Oxley Act.
We do not intend to pay dividends for the foreseeable future.
We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A Ordinary Shares if the market price of our Class A Ordinary Shares increases.
The market price of our Class A Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
The market price of our Class A Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
| ● | actual or anticipated fluctuations in our revenue and other operating results; | |
| ● | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; | |
| ● | actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; | |
| ● | announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; |
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| ● | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; | |
| ● | lawsuits threatened or filed against us; and | |
| ● | other events or factors, including those resulting from war or incidents of terrorism, or responses to these events. |
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, and are exempt from certain Nasdaq corporate governance standards applicable to U.S. issuers, which may limit the information publicly available to our investors and afford them less protection than if we were a U.S. issuer.
As a Cayman Islands company listed on the Nasdaq Global Select Market, we are subject to the Nasdaq Stock Market listing standards (“Nasdaq Rules”). However, the Nasdaq Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Rules. We currently follow home country practice in lieu of the requirements under the Nasdaq Rules with respect to certain corporate governance standards. For example, based on home country practice, we are not required to seek shareholder approval for issuance of 20% or more of our outstanding ordinary shares or voting power in a private offering (as defined by Nasdaq Rules). Accordingly, our shareholders may not be provided with the benefits of certain corporate governance requirements of the Nasdaq Rules. Please see ITEM 16.G. CORPORATE GOVERNANCE for further details.
Further, as a foreign private issuer we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. We are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and the selective disclosure rules by issuers of material non-public information under Regulation FD. |
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
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Anti-takeover provisions in our memorandum and articles of association may discourage, delay or prevent a change in control.
Some provisions in our memorandum and articles of association, may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following:
| ● | provisions that permit our board of directors by resolution to issue classes of shares with preferred, deferred or other special rights or restrictions as the board of directors determine in their discretion, without any further vote or action by our shareholders. If issued, the rights, preferences, designations and limitations of any class of preferred shares could operate to the disadvantage of the outstanding ordinary shares the holders of which would not have any pre-emption rights in respect of such an issue of preferred shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers; |
| ● | provisions that restrict the ability of our shareholders holding in aggregate less than thirty percent (30%) of the outstanding voting shares in the company to call general meetings or annual general meetings and to include matters for consideration at shareholder meetings; and |
| ● | provisions that prevent shareholders holding in aggregate less than ten percent (10%) of the outstanding voting shares in the company to requisition general meetings of the Company. |
If we cannot satisfy the listing requirements and other rules of Nasdaq Capital Market, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.
In order to maintain our listing on the Nasdaq Capital Market, we are required to comply with certain rules of Nasdaq Capital Market, including those regarding minimum stockholders’ equity, minimum share price and certain corporate governance requirements. Even if we initially meet the listing requirements and other applicable rules of the Nasdaq Capital Market, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy the Nasdaq Capital Market criteria for maintaining our listing, our securities could be subject to delisting.
If the Nasdaq Capital Market delists our securities from trading, we could face significant consequences, including:
| ● | a limited availability for market quotations for our securities; | |
| ● | reduced liquidity with respect to our securities; | |
| ● | a determination that our Class A Ordinary Shares are a “penny stock,” which will require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Class A Ordinary Shares; | |
| ● | limited amount of news and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
You may be unable to call, requisition or present proposals before general meetings.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association and have been provided for in the amended articles and memorandum of association of the Company, subject to the restrictions described therein. General meetings may be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than ten percent of the rights to vote at such general meetings.
To the extent that shareholders hold in aggregate less than thirty percent (30%) of the outstanding voting shares in the Company, they cannot: (a) call general meetings or annual general meetings; and (b) include matters for consideration at shareholder meetings.
A shareholder may give notice to the Company of business proposed to be brought before an annual general meeting provided that such notice of proposal of business must be delivered to, or mailed and received at the principal executive offices of the Company not less than ninety (90) days and not more than one hundred and twenty (120) days prior to the one-year anniversary of the preceding year’s annual general meeting; provided, however, that if the date of the annual general meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, such notice by the Member, to be timely, must be so delivered, or so mailed and received, not later than the ninetieth (90th) day prior to such annual general meeting or, if later, the tenth (10th) day following the day on which “public disclosure” of the date of such meeting was first made by the Company.
The dual-class structure of our ordinary shares may adversely affect the trading market and price for our Class A Ordinary Shares.
We have adopted a dual-class share voting structure. Several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual class structure of our ordinary shares may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our Class A Ordinary Shares. Furthermore, our Class A Ordinary Shares may be excluded from certain stock indices as a result of our disparate voting stock structure, which structure may adversely affect the trading market and price for our Class A Ordinary Shares.
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ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
We are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we primarily operate our businesses through PRC operating entities. In 2022, Sunrise Guizhou was established by our wholly owned subsidiary, Zhuhai Zibo, and certain other joint venture partners, as a limited company pursuant to PRC laws, for the purpose of manufacturing and sales of graphite anode materials. Zhuhai Zibo currently owns a 39.35% equity interest in Sunrise Guizhou, but has the power to cast a majority of votes at the meeting of the board of directors and governs the financial and operating policies of Sunrise Guizhou under an agreement among the shareholders. We operate a knowledge sharing platform through the VIE, of which we do not own any equity interest; rather we consolidate the VIE via a series of contractual arrangements between GIOP BJ and the VIE. The VIE (formerly known as Beijing Huatai Yihe Co., Ltd.) was established in 2014 as a limited company pursuant to PRC laws for the purpose of providing corporate consulting services.
The VIE established a wholly owned subsidiary, GMB Hangzhou, on November 1, 2017, pursuant to PRC laws.
In 2017 and 2018, the VIE also established three subsidiaries pursuant to PRC laws, which were GMB (Beijing), GMB Culture, and GMB Consulting. The VIE owns 51% of the equity interest of each of these three subsidiaries. Additionally, GMB Culture has a subsidiary, Mentor Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd., and owns 60% of its equity interest.
On February 22, 2019, the holding company, Sunrise New Energy Co., Ltd. (then known as Global Internet of People, Inc.), was incorporated as an exempted company with limited liability under the laws of the Cayman Islands. Sunrise New Energy Co., Ltd. owns 100% of GMB HK, a Hong Kong company incorporated on March 22, 2019.
On June 3, 2019, GIOP BJ was incorporated pursuant to PRC laws as a wholly foreign owned enterprise. GMB HK holds 100% of the equity interest in GIOP BJ. On August 26, 2022, GMB HK transferred its equity interest in GIOP BJ to Zhuhai Zibo, and GIOP BJ became a wholly owned subsidiary of Zhuhai Zibo.
On October 16, 2020, the VIE established another wholly owned subsidiary, Zibo Shidong, pursuant to PRC laws. See “Item 4C. Organizational Structure for a chart of our current structure.”
On February 11, 2021, the Company closed its initial public offering (“IPO”). The ordinary shares of par value US$0.0001 each in the capital of the Company commenced trading on The Nasdaq Capital Market under the ticker symbol “SDH” on February 9, 2021.
On October 8, 2021, the Company established a wholly-owned-subsidiary, SDH New Energy, pursuant to Hong Kong laws.
On October 15, 2021, SDH New Energy established a wholly-owned-subsidiary, Zhuhai Zibo, pursuant to PRC laws.
On November 23, 2021, SDH New Energy established a wholly-owned-subsidiary, Zhuhai Guizhou, pursuant to PRC laws.
On January 7, 2022, the VIE established Beijing Mentor Board Health Technology Co., Ltd (“GMB Health”) pursuant to PRC laws. The VIE owns 100% of the equity interest of GMB Health. Additionally, on December 8, 2023, GMB Health acquired a subsidiary, Shidong Yike (Beijing) Technology Co., Ltd., and owns 51% of its equity interest.
On April 2, 2022, Zhuhai Zibo entered into an investment agreement (the “Agreement”) with certain parties to form Sunrise Guizhou, a joint venture (the “JV”) dedicated to the production of high-grade lithium-ion power battery anode materials. Pursuant to the Agreement, Zhuhai Zibo owned 51% equity interest in the JV. The Agreement and related transactions were approved by Sunrise New Energy’s shareholders at an extraordinary general meeting of shareholders held on April 1, 2022.
On June 13, 2022, Zhuhai Zibo and the other thirteen founding shareholders of Sunrise Guizhou (the “Original Shareholders”) entered into an investment agreement (the “Investment Agreement”) with Guizhou Province New Kinetic Industry Development Fund Partnership (the “Investor”). Pursuant to the Investment Agreement, the Investor invested RMB 200 million in Sunrise in exchange for 22.8395% of Sunrise Guizhou’s equity interest (the “Capital Increase”), and the Original Shareholders have agreed to waive their pre-emptive rights and accept the Investor as a new shareholder of Sunrise. As a result of the Capital Increase, each Original Shareholder’s equity interest in Sunrise was reduced by the same ratio. Zhuhai Zibo’s equity share in Sunrise Guizhou was reduced from 51% to 39.3519%. On April 12, 2022, Zhuhai Zibo entered into an “Agreement of Action in Concert” with twelve of the thirteen Original Shareholders, who agreed to act in concert with Zhuhai Zibo in matters relating to the corporate governance of Sunrise, including voting on shareholder proposals and nominating directors of Sunrise Guizhou. The Agreement of Action in Concert ensures that Zhuhai Zibo controls 74.0743% of Sunrise Guizhou’s voting rights after the Capital Increase took effect pursuant to the Investment Agreement.
On July 11, 2022, the Company relocated its principal executive offices from Room 208, Building 1, No. 28 Houtun Road, Haidian District, Beijing, PRC, to Room 703, West Zone, R&D Building, Zibo Science and Technology Industrial Entrepreneurship Park, No. 69 Sanying Road, Zhangdian District, Zibo City, Shandong Province, PRC.
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On August 5, 2022, at the 2022 annual general meeting of shareholders of the Company, the shareholders of the Company approved to change the Company’s name from Global Internet of People, Inc. to Sunrise New Energy Co., Ltd. The name change of the Company became effective on August 10, 2022. In conjunction with the name change, the Company’s Ordinary Shares of par value US$0.0001 each began trading on the NASDAQ Capital Market under the new ticker symbol “EPOW” as of the opening of trading on August 15, 2022.
On February 8, 2024, at the 2023 annual general meeting of shareholders of Company, the shareholders approved a re-designation and re-classification of the Company’s Ordinary Shares into Class A Ordinary Shares and Class B Ordinary Shares.
Pursuant to PRC laws, each entity formed under PRC law shall have certain business scopes as submitted to the Administration of Industry and Commerce or its local counterpart. Pursuant to specific business scopes, approval by the relevant competent regulatory agencies may be required prior to commencement of business operations. As such, GIOP BJ’s business scope is to primarily engage in the following: technology development, technology promotion, technology transfer, technical consultation, technical services; sales of self-developed products; business management consulting; corporate planning; conference services, organization of cultural and artistic exchange activities (excluding commercial performances); economic and trade consulting. Since the sole business of GIOP BJ is to provide the VIE with technical support, consulting services and other management services relating to its day-to-day business operations and management in exchange for a service fee approximately equal to the VIE’s earnings before corporate income tax, i.e., the VIE’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and the VIE’s operation needs, such business scope is necessary and appropriate under PRC laws.
We consolidate the VIE through contractual arrangements, which are described under “Business — Contractual Arrangements between GIOP BJ, the VIE and Its Shareholders.” Sunrise New Energy is a holdings company with no business operation other than holding the shares in GMB HK, which is also a pass-through entity with no business operation.
Our principal executive offices are located at Room 703, West Zone, R&D Building, Zibo Science and Technology Industrial Entrepreneurship Park, No. 69 Sanying Road, Zhangdian District, Zibo City, Shandong Province, PRC, and our phone number is +86 10-82967728. Our registered office in the Cayman Islands is located at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands, and the phone number of our registered office is +1 345 945 3901. We maintain a corporate website at https://www.sunrisenewenergy.com/.
Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our agent for service of process in the United States is Cogency Global Inc., 122 East 42nd Street, 18th Floor, New York, NY 10168.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures” for a discussion of our capital expenditures.
B. Business Overview
We are a Cayman Islands holding company conducting a substantial portion of our operations in China through our PRC operating entities. Unless otherwise stated, as used in this annual report, the term’s “we,” “us,” “our,” “Sunrise New Energy,” “our Company,” and the “Company” refer to Sunrise New Energy Co., Ltd., an exempted company limited by shares incorporated under the laws of the Cayman Islands; and “SDH” or “the VIE” are to Global Mentor Board (Zibo) Information Technology Co., Ltd., a limited liability company organized under the laws of the PRC.
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As of the date of this annual report, substantially all of our business is conducted by (1) Sunrise Guizhou, a joint venture formed by Zhuhai Zibo (a wholly owned subsidiary of the Company) and certain other partners, as a limited company pursuant to PRC laws for the purpose of manufacturing and sales of graphite anode materials, and (2) SDH, the Company’s VIE entity that operates a knowledge sharing platform in China. Investors of our Ordinary Shares do not hold shares in the PRC operating entities, but instead hold shares of a Cayman Islands company. Further, neither we nor our subsidiaries own any shares in the VIE. For accounting purposes, we consolidate the financial results through the VIE Agreements, each of which are dated June 10, 2019, and which enable us to consolidate the financial results of the VIE and its subsidiaries in our consolidated financial statements under U.S. GAAP. See “Item 3. Key Information — Contractual Agreements among GIOP BJ, SDH the VIE and Its Shareholders” for more details.
The VIE, or SDH, started as a consulting company providing enterprise services to small and medium-sized enterprises in the PRC in December 2014, and launched a knowledge sharing and enterprise service platform in May 2016.
Beginning in fiscal year 2022, we started transitioning our core business from knowledge sharing and enterprise services to sales of graphite anode material products. In April 2022, we entered into the graphite anode material manufacturing and sales business through a joint venture, Sunrise Guizhou, of which we currently own 39.35% through Zhuhai Zibo, our wholly owned subsidiary. We consolidate Sunrise Guizhou’s financials because we own a majority of seats on its board of directors and control its financial and operating policies pursuant to an agreement among its funding shareholders. Sunrise Guizhou is located at Yilong New District, Xingyi City, Qian Southwest State, Guizhou Province, China. The land use of Sunrise Guizhou’s graphite anode manufacturing site is approximately 294,452.6 square meters, which Sunrise Guizhou purchased in March 2022 for approximately $6.6 million. Sunrise Guizhou began construction of the manufacturing plant in April 2022, and the first and second phase construction of (30,000 tons annual manufacturing capacity) of the manufacturing plant has been completed. The third phase of construction of the manufacturing plant (20,000 tons annual manufacturing capacity) was approved by the board of the directors of the Company in March 2023, and is under construction.
Graphite anode materials are essential components used in fast-charging batteries, energy storage batteries, electric vehicle power batteries, and long-cycle high-power batteries. The market is driven primarily by demand for Li-ion batteries that require anode materials. We believe that a significant driver for Li-ion batteries is their use in electric vehicles (EVs) and in grid-storage applications. According to a research report published by Goldman Sachs on February 10, 2023, entitled “Electric vehicles are forecast to be half of global car sales by 2035”, EV sales is expected to soar to about 73 million units in 2040, up from around 2 million in 2020. The percentage of EVs in worldwide car sales, meanwhile, is expected to rise to 61% from 2% during that time-span, and EV sales are anticipated to be well over 80% in many developed countries in 2040. The International Energy Agency (“IEA”)’s Net Zero by 2050 Roadmap predicts that 2 billion battery electric, plug-in hybrid and fuel-cell electric light-duty vehicles are needed by that year to reach net zero emission. A typical Li-ion High-Energy (100 Ah) cell of around 3,400g requires over 650g of graphite and each EV contains approximately 70kg of graphite. The Company sees this as a major growth driver for the graphite anode industry. Sunrise Guizhou’s products are critical to the transition to a more sustainable, resilient and environmentally friendly future. We expect that the sales for Sunrise Guizhou’s graphite anode material products will continue to grow.
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Our Past Performance
We generated net revenue of $64,997,741, $45,050,405 and $38,125,668 for the fiscal years ended December 31, 2024, 2023 and 2022, respectively. For fiscal year 2024, net revenue increased by $19,947,336, or 44.28%, which increase was mainly driven by the continued growth of our graphite anode business. For fiscal year 2023, net revenue increased by $6,924,737, or 18.16%, which increase was mainly driven by the sale of graphite anode material products. For fiscal year 2022, net revenue increased by $30,716,396, or 415%, which increase was mainly driven by the sale of graphite anode material products.
Our revenues for fiscal years 2024, 2023 and 2022 were derived from the following sources:
| REVENUES, NET | 2024 | 2023 | 2022 | |||||||||
| Graphite anode business | $ | 64,365,362 | $ | 44,384,004 | $ | 37,580,677 | ||||||
| Knowledge sharing and enterprise business | 632,379 | 666,401 | 544,991 | |||||||||
| Revenues, net | $ | 64,997,741 | $ | 45,050,405 | $ | 38,125,668 | ||||||
For fiscal year 2024, revenue from the sale of graphite anode material products was $64,365,362, which accounted for 99.03% of our total revenues, and revenue from knowledge sharing and enterprise business was $632,379, which accounted for approximately 0.97% of our total revenue.
For fiscal year 2023, revenue from the sale of graphite anode material products was $44,384,004, which accounted for 98.52% of our total revenues, and revenue from knowledge sharing and enterprise business was 666,401, which accounted for approximately 1% of our total revenue.
For fiscal year 2022, revenue from the sale of graphite anode material products was $37,580,677, which accounted for 99% of our total revenues, and revenue from the knowledge sharing and enterprise services business was $544,991, which was a 93% decline from fiscal 2021 and accounted for only 1% of our total revenues. The decline of this business was due to the material negative impact of the large-scale COVID-19 lockdowns in China, during which time the normal business operations were seriously disrupted, as the VIE relied on in-person networking and meetings in order to both conduct and promote many aspects of this business.
Graphite Anode Material Manufacturing and Sales Business
In April 2022, we entered into the graphite anode material manufacturing and sales business through a joint venture, Sunrise Guizhou, of which we currently own 39.35% through our wholly owned subsidiary, Zhuhai Zibo. Sunrise Guizhou is located at Yilong New District, Xingyi City, Qian Southwest State, Guizhou Province, China. The land use of Sunrise Guizhou’s graphite anode manufacturing site is approximately 294,452.6 square meters. Sunrise Guizhou purchased the site in March 2022 for approximately $6.6 million. Sunrise Guizhou began construction of the manufacturing plant in April 2022, and the first and second phases of construction of (30,000 tons annual manufacturing capacity) of the manufacturing plant has been completed. The third phase of construction of the manufacturing plant (20,000 tons annual manufacturing capacity) was approved by the board of the directors of the Company in March 2023, and is currently under construction.
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Products
Sunrise Guizhou’s products include various artificial graphite anode material products. Artificial graphite is made of petroleum coke, needle coke and pitch coke as the main material, and formed after crushing, shaping, granulation and graphitization. The performance, features and uses of Sunrise Guizhou’s products are as follows:
| Type | Product Image | Medium Particle Size (um) | Designed Capacity (mAh/g) | Compaction (g/cc) | Features | Uses | ||||||
| Cost-effective artificial graphite | 15.5±2.5 | 340-348 | 1.50-1.60 | Excellent comprehensive performance, long cycle, cost-effective | Power batteries and energy storage batteries; cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| Volumetric artificial graphite | 16.5±2.5 | 348-355 | 1.60-1.65 | High energy density and comprehensive performance | Multiple long-cycle square, cylindrical, polymer batteries | |||||||
| Multiplier rate artificial graphite | 13.5±3.0 | 347-353 | 1.55-1.63 | Excellent comprehensive performance, long cycle, good rate performance | Power anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| High capacity and high compaction artificial graphite | 16.0±2.0 | 353-358 | 1.63-1.68 | High energy density, excellent comprehensive performance | Power anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| Volumetric artificial graphite | 13.5±3.0 | 350-355 | 1.60-1.65 | High energy density and comprehensive performance | Multiple long-cycle square, cylindrical, polymer batteries | |||||||
| High capacity and rate artificial graphite | 12.5±3.0 | 349-354 | 1.58 -1.65 | High energy density and power performance, long cycle life | Multiple long cycle square and polymer batteries | |||||||
| Cost-effective long-cycle artificial graphite | 11.0±2.5 | 340-345 | 1.45-1.55 | Excellent comprehensive performance, long cycle, cost-effective | Energy storage anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| Higher energy density artificial graphite | 13.5±2.0 | 355-360 | 1.65-1.70 | High energy density, good rate performance | Power batteries and energy storage batteries; cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| EV fast charging artificial graphite | 12.0±2.5 | ≥350 | 1.50-1.60 | High energy density, good rate performance,long cycle | Power batteries and energy storage batteries; cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| Higher energy density and long cycle artificial graphite | 11.0±2.0 | 350-355 | 1.55-1.60 | High energy density,long cycle | Energy storage anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| High temperature performance and long cycle artificial graphite | 11.0±2.0 | ≥350 | 1.55-1.60 | Low swelling,High temperature performance and long cycle | Energy storage anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| Low temperature performance and long cycle artificial graphite | 8.5±1.5 | 345±4 | 1.5-1.55 | Low temperature performance and long cycle | Energy storage anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| Low swelling and long cycle artificial graphite | 11.5±2.5 | ≥350.0 | 1.50~1.60 | Low swelling and long cycle | Energy storage anode material, cell of soft pack, square aluminum shell, and cylindrical batteries | |||||||
| High energy efficiency and long cycle artificial graphite | 12.0±2.0 | 354.0±4.0 | 1.55~1.65 | High energy efficiency ,high-rate and long cycle | Power batteries and energy storage batteries; cell of soft pack, square aluminum shell, and cylindrical batteries |
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Direct Sales Channel
Sunrise Guizhou markets its graphite anode products through a direct sales channel by its sales department, which consists of five experienced employees who report directly to the CEO of Sunrise Guizhou. The CEO of Sunrise Guizhou has more than 20 years of experience in the lithium-ion battery material industry, and has accumulated extensive business connections in this industry. The initial step to develop relationships with a potential customer is making a targeted sales pitch, and if a potential customer responds to the sales pitch or shows interest in the products, Sunrise Guizhou then goes through the qualification process in order to become a supplier. The qualification process usually consists of the following steps: (1) Sunrise Guizhou sends out samples of its graphite anode to the potential customer, (2) the potential customer conducts preliminary tests to evaluate the sample products, (3) if the sample products pass the initial evaluations, the next step is generally a small commercial order placed by the potential customer to verify the product quality on a commercial scale, and (4) the potential customers often send an engineering team to visit Sunrise Guizhou’s R&D center and quality control department, to further assess the quality and performance of Sunrise Guizhou’s products. If Sunrise Guizhou successfully passes each of the above validation steps, the potential customer usually starts negotiating a supplier agreement with Sunrise Guizhou.
Customers
For fiscal years 2024, 2023 and 2022, Sunrise Guizhou had 26, 23 and 16 customers, respectively. Sunrise Guizhou’s customers are manufacturers of industrial and consumer energy storage lithium-ion batteries, such as batteries for electric vehicles and electric ships, and smart consumer electronics. The vast majority of Sunrise Guizhou’s customers are Chinese companies, and some of them are large well-known companies, such as BYD Company Limited and Contemporary Amperex Technology Co. Limited.
For the fiscal year ended December 31, 2024, one customer accounted for more than 10% of Sunrise Guizhou’s total sales, accounting for or 67%, of the total sales. For the fiscal year ended December 31, 2023, three customers accounted for more than 10% of Sunrise Guizhou’s total sales, with each accounting for 38%, 25% and 11% of the total sales, respectively. For the fiscal year ended December 31, 2022, four customers accounted for more than 10% of Sunrise Guizhou’s total sales, with each accounting for 28%, 20%, 19% and 19% of the total sales, respectively. See “Risk Factors—Risks Related to Our Business—Sunrise Guizhou depends on a few major customers with whom it does not enter into long-term contracts, the loss of any of which could cause a significant decline in its revenues.”
Raw Materials and Suppliers
Sunrise Guizhou sources raw materials, including asphalt coke, petroleum coke, needle coke, and American petroleum coke, from suppliers in China, Romania, and Indonesia, to diversify its raw material origins and stabilize its supply chain. Sunrise Guizhou selects suppliers based on many criteria including but not limited to: quality, production site, production process, delivery cycle, and price. As there are a variety of options for supplies, and the technical demand of preparing most of the raw materials are relatively low, Sunrise Guizhou does not anticipate difficulties in obtaining raw materials. Sunrise Guizhou purchases raw materials on a per purchase order basis. The prices for these raw materials are nevertheless subject to market forces largely beyond our control, including energy costs, market demand, economy trend, and freight costs. The prices for raw materials have fluctuated in the past, and may fluctuate significantly in the future. See “Risk Factors—Risks Related to Our Business—Sunrise Guizhou faces the risk of fluctuations in the cost, availability, and quality of raw materials, which could adversely affect our results of operations.” The costs of raw materials accounted for 34% of the total costs of production for fiscal year 2024, and no supplier accounted for more than 10% of Sunrise Guizhou’s total costs for raw materials. The costs of raw materials accounted for 29% of the total costs of production for fiscal year 2023, and no supplier accounted for more than 10% of Sunrise Guizhou’s total costs for raw materials. The costs of raw materials accounted for 34% of the total costs of production for fiscal year 2022, and two suppliers accounted for more than 10% of Sunrise Guizhou’s total costs for raw materials.
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Third-party Contract Manufacturers
Sunrise Guizhou entrusts third-party contract manufacturers for the graphitization processes of the manufacturing of its graphite anode products. Sunrise Guizhou implements a rigorous process for selecting third-party contract manufacturers. Sunrise Guizhou strictly evaluates various factors, including the production capacity, quality control management, environmental qualifications, and key customers of its contract manufacturers. Sunrise Guizhou regularly sends its technical team and quality control team to the facilities of the contract manufacturers for on-site supervision, guidance and quality control. Sunrise Guizhou issues a detailed quantitative scoring table for each contract manufacturer every month to evaluate their performance. As of the date of this annual report, Sunrise Guizhou contracts with 34 third-party contract manufacturers in China.
Industry and Competition
At present, lithium batteries are widely used in new energy vehicles, energy storage, electric ships, and smart homes, and the boundaries of use continue to expand, resulting in a trillion-dollar market. According to the “Lithium-ion Battery Market Size, Share & Trends Analysis Report By Product (Lithium Cobalt Oxide, Lithium Iron Phosphate, Lithium Nickel Cobalt Aluminum Oxide), by Application (Automotive, Consumer Electronics), Region, and Segment Forecasts, 2024 - 2030” published by Grand View Research in November 2023, the global lithium-ion battery market size was estimated at USD 54.4 billion in 2023 and is projected to grow at a compound annual growth rate (CAGR) of 20.3% from 2024 to 2030. Global registration of electric vehicles (EVs) is anticipated to increase significantly over the forecast period. We believe that the lithium-ion battery industry is witnessing unprecedented growth, fueled by pivotal roles these batteries play in addressing both environmental concerns and the need for reliable energy storage solutions in automotive sector. This trend is expected to reshape the energy landscape, with lithium-ion batteries at the forefront of powering a cleaner and more sustainable future for transportation. Lithium-ion batteries are also utilized for providing backup power supply for commercial buildings, data centers, and institutions. Also, lithium-ion battery is preferred for energy storage in residential solar PV systems. These factors are expected to boost the growth of energy storage applications over the forecast period. In addition, lithium-ion batteries are used in numerous industrial applications, such as power tools, cordless tools, marine equipment & machinery, agricultural machinery, industrial automation systems, aviation, military & defense, electronics, civil infrastructure, and oil & gas.
As of the date of this annual report. Sunrise Guizhou’s main competitors are lithium-ion battery anode material manufacturers such as BTR New Energy, Hitachi Chem, Shanshan Tech, Mitsubishi Chem, Zichen Tech.
Intellectual Property
Sunrise Guizhou has built a portfolio of intellectual property and plans to continue to invest in research and development. Sunrise Guizhou’s success depends, in part, on its ability to protect its intellectual property. To accomplish this, Sunrise Guizhou relies on a combination of patents, trade secrets, including employee and third-party nondisclosure agreements, trademarks, and other contractual rights to establish and protect proprietary rights in intellectual property. As of the date of this annual report, Sunrise Guizhou has 32 authorized patents and utility models (31 in China and one in Japan), and 34 in the various phases of their applications (32 in China, one in the U.S., and one in South Korea). In addition, Sunrise Guizhou owns 5 registered trademarks. Set forth below is a detailed description of its authorized patents and utility models:
| No. | Country | No. | ame | Publication Date | Type | Validity Period | ||||||
| 1 | PRC | 2022103393295 | A sulfur and phosphorus co-doped hard carbon composite material and its preparation method | April 1, 2022 | Patent | 20 years | ||||||
| 2 | PRC | 2022103862461 | A high initial efficiency hard carbon composite material and its preparation method | April 13, 2022 | Patent | 20 years | ||||||
| 3 | PRC | 2022103961109 | A fast ion conductor coated silicon carbon composite material and its preparation method | April 15, 2022 | Patent | 20 years | ||||||
| 4 | PRC | 2022104007752 | A method for preparing a cathode material for lithium ion battery | April 17, 2022 | Patent | 20 years | ||||||
| 5 | PRC | 2022104007964 | A high energy density fast charging graphite composite material and its preparation method | April 17, 2022 | Patent | 20 years | ||||||
| 6 | PRC | 2022104007748 | A sulfur-containing fast ion conductor coated graphite composite material and its preparation method | April 17, 2022 | Patent | 20 years |
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| 7 | PRC | 202210400788X | A long-life fast charging lithium-ion battery cathode material and its preparation method | April 17, 2022 | Patent | 20 years | ||||||
| 8 | PRC | 2022104013823 | A long life and high initial efficiency hard carbon composite material and its preparation method | April 18, 2022 | Patent | 20 years | ||||||
| 9 | PRC | 2022107414888 | A method for preparing porous silver coated hard carbon composites by magnetron sputtering | June 28, 2022 | Patent | 20 years | ||||||
| 10 | PRC | 2022108518691 | A method for preparing a hard carbon composite material used in a sodium ion battery | July 20, 2022 | Patent | 20 years | ||||||
| 11 | PRC | 2022108516728 | A high initial efficiency and high energy density cathode material and its preparation method | July 20, 2022 | Patent | 20 years | ||||||
| 12 | PRC | 2022108674134 | A method for preparing an intermediate phase carbon microsphere-silicon carbon composite cathode material | July 22, 2022 | Patent | 20 years | ||||||
| 13 | PRC | 2022108796377 | A method for preparing a high energy density fast charging graphite anode material | July 25, 2022 | Patent | 20 years | ||||||
| 14 | PRC | 2022109176278 | A method for preparing a hard carbon composite material co-doped with copper phosphide/phosphorus/carbon nanotubes | August 1, 2022 | Patent | 20 years | ||||||
| 15 | PRC | 202210916309X | A template method for preparing magnesium doped hollow silicon carbon composites and its preparation method | August 1, 2022 | Patent | 20 years | ||||||
| 16 | PRC | 2022112813356 | A method for preparing cathode materials for high energy density fast charging lithium-ion batteries | October 19, 2022 | Patent | 20 years | ||||||
| 17 | PRC | 2022113284608 | A method for preparing a high initial efficiency graphite composite material | October 26, 2022 | Patent | 20 years | ||||||
| 18 | PRC | 202211376694X | A high energy density composite cathode material and its preparation method | November 4, 2022 | Patent | 20 years | ||||||
| 19 | PRC | 2022113845496 | A high energy density graphite composite material and its preparation method | November 7, 2022 | Patent | 20 years | ||||||
| 20 | PRC | 2022114198864 | A method for preparing a composite material of aluminum and rare earth coating graphite anode | November 14, 2022 | Patent | 20 years | ||||||
| 21 | PRC | 2022114380072 | A hard carbon composite material for lithium ion battery and its preparation method | November 16, 2022 | Patent | 20 years |
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| 22 | JPN | 2022-170556 | The invention relates to a preparation method of anode material for lithium-ion battery | October 26, 2022 | Patent | 20 years | ||||||
| 23 | PRC | 2023102635126 | A method for preparing a cathode material for high energy density lithium-ion battery | March 17, 2023 | Patent | 20 years | ||||||
| 24 | PRC | 202310306784X | A method for preparing a nitride tin doped amorphous carbon coated graphite composite material | March 27, 2023 | Patent | 20 years | ||||||
| 25 | PRC | 202322551688X | Lower intake cooling system | September 20, 2023 | Patent | 20 years | ||||||
| 26 | PRC | 2023234054841 | A multi-variable particle size control system for manufacturing graphite micro powder | December 14, 2023 | Utility model | 10 years | ||||||
| 27 | PRC | 2024208463072 | A system for preventing blow-off in a graphitization furnace | April 23, 2024 | Utility model | 10 years | ||||||
| 28 | PRC | 2022114272063 | A method for preparing anode materials for a long cycle lithium-ion battery | November 15, 2022 | Patent | 20 years | ||||||
| 29 | PRC | 2022114271111 | A method for preparing a high energy density fast charging cathode material | November 15, 2022 | Patent | 20 years | ||||||
| 30 | PRC | 2017111552502 | A lithium-ion battery, the silicon carbon negative electrode material used and its preparation method | November 20, 2017 | Patent | 20 years | ||||||
| 31 | PRC | 2017215525393 | A system for intermittent coking production of negative coke | November 20, 2017 | Utility model | 10 years | ||||||
| 32 | PRC | 2018216838031 | Production device for continuous heating and coating granulation of multi-stage series of cathode materials | October 17, 2018 | Utility model | 10 years |
Knowledge Sharing and Enterprise Service Business
The VIE, or SDH, started as a consulting company providing enterprise services to small and medium-sized enterprises in the PRC in December 2014, and launched a knowledge sharing and enterprise service platform in May 2016. Revenue generated from the knowledge sharing and enterprise service business has declined beginning in 2022 when the Company transitioned its core business to graphite anode material manufacturing and sales business. For fiscal years 2024 and 2023, the Company mainly generated revenues from consulting services and other services, which included various miscellaneous ad-hoc services. As of the date of this annual report, the Company operates and maintains a legacy mobile application “Shidonghui App” (the “APP”), mainly for the purpose of enabling access to historical data and legacy user accounts.
Consulting
A team of professional consultants provides enterprise consulting services and develops strategies and solutions for corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. The consulting services are customized to meet each client’s specific needs and requirements. The fees and payment structures are based on the specifics of the services we provide, such as the time and efforts required, the duration of the service, and are usually in the range of RMB20,000 (approximately US$2,740) to RMB80,000 (approximately US$10,960) for a one-time service charge, or monthly fees in the amounts of RMB10,000 (approximately US$1,370) to RMB20,000 (approximately US$2,740) for continued services. For fiscal years 2024, 2023 and 2022, consulting generated $515,383, $471,978 and $9,645 in revenues, respectively.
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Other Services
Other services include various miscellaneous ad-hoc services as follows: 1. health services, such as comprehensive health management consulting solutions for high-net-worth individuals and families, 2. rental services, such as providing its own facilities to customers who require short-term rentals, and 3. study tours and forums services provided to entrepreneurs and small businesses. For fiscal years 2024, 2023 and 2022, the VIE generated fees from other services in the amount of $116,721, $175,812 and $269,699, respectively.
Regulations
This section sets forth a summary of the principal PRC laws and regulations relevant to our business and operations in China.
Regulations Related to Internet Information Services
Among all of the applicable laws and regulations, the Telecommunications Regulations of the PRC, or the Telecom Regulations, promulgated by the PRC State Council on September 25, 2000 and most recently amended on February 6, 2016, is the primary governing law, which sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the Telecom Regulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The Telecom Regulations distinguish “basic telecommunications services” from VATS. VATS are defined as telecommunications and information services provided through public networks. The Telecom Catalogue was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. In February 2003, December 2015, and June 2019, the Telecom Catalogue was updated respectively, categorizing information services provided via fixed network, mobile network among others, as VATS.
The Administrative Measures on Telecommunications Business Operating Licenses was promulgated by the Ministry of Industry and Information Technology on March 1, 2009 and most recently amended on July 3, 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License, from the MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the websites may be ordered to close.
In September 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which was most recently amended on January 8, 2011 and December 6, 2024. Under the Internet Measures, commercial internet content-related services operators shall obtain a VATS License for internet content provision business, or the ICP License, and the non-commercial internet content-related services operators shall complete the filing-for-record procedures from the relevant government authorities before engaging in any internet content-related services operations within China.
In response to the daily consultations received by relevant competent authorities, several competent authorities, such as Zhejiang Communications Administration in April 2021 and March 2024, and Guangdong Communications Administration April 2022, issued the notices regarding the issues on VATS License respectively, which clarified that if an enterprise directly sells its own or other party’s goods or services through its self-operated website, without other parties conducting sales under their own names on the website, such operations shall not constitute VATS and shall not require the acquisition of a VATS License.
The VIE obtained the ICP License on July 2, 2019, which was effective for 5 years and expired on July 2, 2024. We believe that an ICP License is no longer needed for our knowledge sharing and enterprise service platform business, since except the Company itself, there is no other party conducting business through our APP.
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Regulations Related to Foreign Investment
Regulations Related to Foreign Investment in Telecommunications
In June 2018 the MOFCOM and the NDRC promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or the Negative List, which was most recently amended on December 27, 2021 and effective on January 1, 2022. The value-added telecommunications services (except for e-commerce, domestic conferencing, store-and-forward, and call center services), or the VATS, fall within the Negative List.
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises promulgated by the State Council in December 2001 and most recently amended in March 29, 2022, or the FITE Regulations, the ultimate foreign equity ownership in a VATS provider may not exceed 50%. Moreover, for a foreign investor contemplating to acquire any equity interest in a VATS business in China, it must satisfy a number of stringent performance and operational experience requirements, including demonstrating good track records and experience in operating VATS business overseas.
In July 2006, Ministry of Information Industry, or the MII (the predecessor of the MIIT), released the Notice on Strengthening the Administration of Foreign Investment in and the Operation of Value-added Telecommunications Business, or the MII Notice, which requires foreign investors to set up foreign-invested enterprises and obtain a relevant telecommunications business operating license, to conduct any VATS business in China. Furthermore, under the MII Notice, domestic telecommunication enterprises may not rent, transfer or sell a telecommunications business operating license to foreign investors in any form, nor may they provide any resources, premises, facilities and other assistance in any form to foreign investors for their illegal operation of any telecommunications business in China. In addition, under the MII Notice, the relevant trademarks and domain names used by a foreign-invested VATS operator shall be legally owned by that operator (or its shareholders).
The Company previously engaged in business activities that were VATS, and in light of the above restrictions and requirements, the Company relied on contractual arrangements between GIOP BJ and the VIE to operate its business in China. As of the date of this annual report, the Company no longer engages in business activities that are VATS.
Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law of the PRC, or the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law of the PRC, the Sino-foreign Cooperative Joint Venture Enterprise Law of the PRC and the Wholly Foreign-invested Enterprise Law of the PRC, together with their implementation rules and ancillary regulations. The organization form, organization and activities of foreign-invested enterprises shall be governed, among others, by the PRC Company Law and the PRC Partnership Enterprise Law. Foreign-invested enterprises established before the implementation of the Foreign Investment Law may retain the original business organization and so on within five years after the implementation of this Law.
The Foreign Investment Law is formulated to further expand opening-up, vigorously promote foreign investment and protect the legitimate rights and interests of foreign investors. According to the Foreign Investment Law, foreign investments are entitled to pre-entry national treatment and are subject to negative list management system. The pre-entry national treatment means that the treatment given to foreign investors and their investments at the stage of investment access shall not be less favorable than that of domestic investors and their investments. The negative list management system means that the state implements special administrative measures for access of foreign investment in specific fields. The Foreign Investment Law does not mention the relevant concept and regulatory regime of VIE structures. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation. See “Risk Factors—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”
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Foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China shall be protected in accordance with the law, and all national policies on supporting the development of enterprises shall equally apply to foreign-invested enterprises. Among others, the state guarantees that foreign-invested enterprises participate in the formulation of standards in an equal manner and that foreign-invested enterprises participate in government procurement activities through fair competition in accordance with the law. Further, the state shall not expropriate any foreign investment except under special circumstances. In special circumstances, the state may levy or expropriate the investment of foreign investors in accordance with the law for the needs of the public interest. The expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given. In carrying out business activities, foreign-invested enterprises shall comply with relevant provisions on labor protection.
The Implementation Regulations of Foreign Investment Law of the PRC, adopted by the State Council on December 26, 2019 and came into effect on January 1, 2020, provides implementing measures and detailed rules to ensure the effective implementation of the Foreign Investment Law.
Regulations Related to Mobile Internet Applications Information Services
In addition to the telecommunications regulations and other regulations above, mobile Internet applications and application stores are specifically regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the App Provisions, which were promulgated by the Cyberspace Administration of China, or the CAC, on June 14, 2022, and became effective on August 1, 2022. Pursuant to the App Provisions, application information service providers shall obtain the relevant qualifications prescribed by laws and regulations, strictly implement their information security management responsibilities and carry out certain duties, including establishing and completing user information security protection mechanism and information content inspection and management mechanisms, protect users’ right to know and to choose in the process of usage, and to record and preserve users’ daily usage information for at least 60 days. Furthermore, internet application store service providers and internet application information service providers shall sign service agreements to determinate both sides’ rights and obligations.
In addition, on December 16, 2016, the MIIT promulgated the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart Terminals, or the App Interim Measures, which took effect on July 1, 2017. The App Interim Measures requires, among others, that internet information service providers must ensure that a mobile application, as well as its ancillary resource files, configuration files and user data can be uninstalled by a user on a convenient basis, unless it is a basic function software, which refers to a software that supports the normal functioning of hardware and operating system of a mobile smart device.
Neither the App Provisions nor the App Interim Measures, however, has further clarified the scope of “information services,” neither do they specify what “relevant qualification(s)” that an app owner/operator must obtain. In practice, operational activities of a company conducted through an app is currently subject to the supervisions of local departments of the Information Communications Administration, and often, the local departments differentiate the operational activities conducted through websites and through apps.
To comply with these laws and regulations, we have adopted and implemented strict information security policies and measures to protect our cyber security systems and customer information.
Regulations Related to Online Transmission of Audio-Visual Programs
On April 13, 2005, the State Council promulgated the Certain Decisions on the Entry of the Non-state-owned Capital into the Cultural Industry. On July 6, 2005, five PRC governmental authorities, including the Ministry of Culture, or the MOC, the State Administration of Radio, Film and Television, or the SARFT (the predecessor of the National Radio and Television Administration, or NRTA), the General Administration of Press and Publication, or the GAPP, the China Securities Regulatory Commission, or the CSRC and the MOFCOM, jointly adopted the Several Opinions on Canvassing Foreign Investment into the Cultural Sector. Under these provisions, non-state owned capital and foreign investors are prohibited from engaging in the business of distributing audio-visual programs through information networks.
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To further regulate the provision of audio-visual program services to the public via the internet, including through mobile networks, within the territory of the PRC, the SARFT and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program Provisions, on December 20, 2007, which took effect on January 31, 2008 and subsequently amended on August 28, 2015. Pursuant to the Audio-Visual Program Provisions, Internet audio-visual program services refer to activities of making, redacting and integrating audio-visual programs, providing them to the general public via the Internet, and providing platforms for uploading and spreading audio-visual programs. Providers of internet audio-visual program services are required to obtain the Audio-Visual License issued by SARFT, or complete certain registration procedures with SARFT. In general, providers of internet audio-visual program services must be either state-owned or state-controlled entities, and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for internet audio-visual program service determined by SARFT. The VIE is neither state-owned nor state-controlled, therefore it is unlikely that it will be able to obtain the Audio-Visual License if required to do so. Whoever engages in Internet audio-visual program service without the license or registration, the competent authorities shall give it/him an admonition and order it/him to correct, and may impose a fine of not more than RMB30,000 (approximately US$4,110); if the circumstances are serious, a punishment shall be imposed in accordance with the provision of Article 47 of the Radio and Television Administration Regulation.
On May 21, 2008, SARFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, as amended on August 28, 2015, which further set out detailed provisions concerning the application and approval process regarding the Audio-Visual License. Further, on March 31, 2009, SARFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted via the internet, including through mobile networks, where applicable, and prohibits certain types of internet audio-visual programs containing violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements.
On March 17, 2010, the SARFT issued the Internet Audio-visual Program Services Categories (Provisional), or the Provisional Categories, as amended on March 10, 2017. According to the Provisional Categories, there are four categories of internet audio-visual program services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-visual programs concerning, among other things, finance and educational content, and broadcasting such content to the general public online. However, there are still significant uncertainties relating to the interpretation and implementation of the Audio-Visual Program Provisions, in particular, the scope of “internet audio-visual programs”.
On March 16, 2018, the SAPPRFT issued the Notice on Further Regulating the Transmission Order of Internet Audio-Visual Programs, which requires that, among others, audio-visual platforms shall: (i) not produce or transmit programs intended to parody or denigrate classic works, (ii) not re-edit, re-dub, re-caption or otherwise, (iii) not broadcast films or television dramas without proper licenses, online original audio-visual programs that have not been duly filed, or any radio, television, or online audio-visual programs that have been publicly notified or sanctioned by the competent radio and television authorities, including their trailers and previews, and (iv) not engage in any form of cooperation with entities that have not obtained the Information Network Dissemination of Audio-Visual Programs License and are illegally providing online audio-visual program services, including but not limited to live streaming, title sponsorship, advertising, or sponsorship.
On July 22, 2019, in the Beijing Municipal Radio and Television Bureau’s Q&A section of its official website, the Bureau responded to an inquiry submitted by an online education service provider, and confirmed that the offering of online audio and video courses or programs on websites or mobile applications for the purpose of improving the professional qualifications/skills of target audiences, does not fall into the activities regulated by the PRC Administrative Provisions on Internet Audio-Visual Program Services; therefore, the service provider is not required to obtain an Audio-Visual License. Currently, all of our online content on our APP are educational and training video and audio courses targeting specific groups of audiences, such as small and medium enterprise owners and graduate students, who use our online courses and programs to improve their professional qualifications and skills. Accordingly, based on the Bureau’s published interpretation, we believe we are not required to obtain an Audio-Visual License. However, given the significant uncertainties of the interpretation and implementation of Internet related regulations in the PRC, we cannot assure you that the competent PRC authorities will not ultimately take a view contrary to our opinion. See “Risk Factors—Risks Related to Our Business— We may be required to obtain and maintain additional approvals, licenses or permits applicable to our business, including our graphite anode manufacturing and sales business and our knowledge share platform, which could have a material adverse impact on our business, financial conditions and results of operations.”
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Regulations Related to Information Security
Internet content in China is regulated and restricted from a state security standpoint. The Standing Committee of the National People’s Congress, or the SCNPC, enacted the Decisions on the Maintenance of Internet Security on December 28, 2000, which was amended on August 27, 2009, that may subject persons to criminal liabilities in China for any attempt to: (i) gain improper entry to a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information or (v) infringe upon intellectual property rights. In 1997, Ministry of Public Security, or the MPS, issued the Administration Measures on the Security Protection of Computer Information Network with International Connections, which were amended by the State Council on January 8, 2011 and prohibit using the Internet in ways which, among others, result in a leakage of state secrets or a spread of socially destabilizing content. The MPS has supervision and inspection powers in this regard, and relevant local security bureaus may also have jurisdiction. On December 13, 2005, the MPS promulgated Regulations on Technological Measures for Internet Security Protection, or the Internet Protection Measures, which took effect on March 1, 2006 and requires internet service providers to take proper measures including anti-virus, data back-up and other related measures, to keep records of certain information about its users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60 days, and to detect illegal information, stop transmission of such information, and keep relevant records. If an ICP License holder violates these measures, the PRC government may revoke its ICP License and shut down its websites.
In November 2016, the SCNPC promulgated the Cyber Security Law of the PRC, or the Cyber Security Law, which became effective on June 1, 2017 and requires network operators to perform certain functions related to cyber security protection and the strengthening of network information management. For instance, under the Cyber Security Law, network operators of key information infrastructure shall store within the territory of the PRC all the personal information and important data collected and produced within the territory of PRC and their purchase of network products and services that may affect national securities shall be subject to national cybersecurity review. On April 13, 2020, the CAC and other 11 Commissions, Ministries and Administrations, jointly issued the Measures for Cybersecurity Review, which took effect on June 1, 2020, to provide for more detailed rules regarding cybersecurity review requirements.
On March 13, 2019, the SAMR and the CAC jointly promulgated the Announcement on the Implementation of App Security Certification, or the Implementation Announcement, according to which, the China Cyber Security Review Technology and Certification Center shall be responsible for app security certification work, and app operators are encouraged to undergo such security certification voluntarily; search engines, app stores, among others, are encouraged to clearly mark and give priority to recommend certified apps. As an attachment to the Implementation Announcement, the Implementation Rules of App Security Certification, which came into effect on March 15, 2019, stipulated specific certification procedures, post-certification supervision and management of app security certifications.
On June 10, 2021, the SCNPR promulgated the Data Security Law of the PRC, or the Data Security Law, which took effect on September 1, 2021. Under the Data Security Law, data refers to any record of information that is kept electronically or otherwise, and data processing includes the collection, storage, use, processing, transmission, provision, and disclosure of data. Pursuant to the Data Security Law, any individual or entity shall only collect data in a legitimate and proper manner. A data security review mechanism will be established by the State, and any data processing activity that endangers or may endanger national security shall be subject to national security review. The security management for the cross-border transfer of important data collected and produced during operation by CIIOs or other data processors within the territory of the PRC shall be subject to the Cyber Security Law and other regulations and rules that promulgated by the CAC and the State Council. In case of any non-compliance under the Data Security Law, a data processor may be ordered to make corrections, and under certain serious circumstances, such as severe data divulgence, may be subject to penalties, including the revocation of business license or other permits.
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On December 28, 2021, 13 PRC authorities, including the NDRC, the MOFCOM, the MIIT, the CAC, and several other authorities jointly promulgated the revised Cybersecurity Review Measures, which came into effect on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to CIIOs that intend to purchase Internet products and services, online platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries. In addition, the Regulations on the Network Data Security Administration (the “Security Administration Regulation”) was effective on January 1, 2025, which requires that network data processors who carry out network data processing activities that affect or may affect national security shall undergo a national security review in accordance with relevant national regulations.
To comply with these laws and regulations, we have adopted security policies and measures to protect our cyber system and customer information.
Regulations Related to Internet Privacy Protection
Pursuant to the Internet Protection Measures, Internet services providers are prohibited from unauthorized disclosure of users’ information to any third parties unless such disclosure is required by the laws and regulations. They are further required to establish management systems and take technological measures to safeguard the freedom and secrecy of the users’ correspondences.
On December 28, 2012, the SCNPC promulgated the Decision on Strengthening Network Information Protection, which took into effect on the same date, to enhance the legal protection of information security and privacy on the internet. On July 16, 2013, the MIIT promulgated the Provisions on Protection of Personal Information of Telecommunication and Internet Users, which took into effect on September 1, 2013, to regulate the collection and use of users’ personal information in the provision of telecommunication services and internet information services in China and the personal information includes a user’s name, birth date, identification card number, address, phone number, account name, password and other information that can be used independently or in combination with other information for identifying a user.
On December 29, 2011, the MIIT promulgated the Several Provisions on Regulation of the Order of Internet Information Service Market, which took into effect on March 15, 2012. The Provisions stipulate that without the consent of users, internet information service providers shall not collect information relevant to the users that can lead to the recognition of the identity of the users independently or in combination with other information, nor shall they provide the information to others, unless otherwise provided by laws and administrative regulations.
On May 8, 2017, the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases Involving Infringement of Citizens’ Personal Information, or the Interpretations, which took into effect on June 1, 2017. The Interpretations clarify several concepts regarding the crime of “infringement of citizens’ personal information” stipulated by Article 253A of the Criminal Law of the PRC, including “citizen’s personal information”, “provision”, and “unlawful acquisition”. Also, the Interpretations specify the standards for determining “serious circumstances” and “particularly serious circumstances” of this crime.
On January 23, 2019, the CAC, the MIIT, the MPS and the SAMR jointly issued the Notice on Special Governance of Illegal Collection and Use of Personal Information via Apps, which restates the requirement of legal collection and use of personal information, encourages app operators to conduct security certifications, and encourages search engines and app stores to clearly mark and recommend those certified apps.
On November 28, 2019, the CAC, MIIT, MPS and SAMR jointly issued the Measures to Identify Illegal Collection and Usage of Personal Information by APPs, which lists six types of illegal collection and usage of personal information, including “not publishing rules on the collection and usage of personal information” and “not providing privacy rules.”
On May 28, 2020, the NPC adopted the Civil Code of the PRC, or the Civil Code, which became effective on January 1, 2021 and abolished the General Rules of the Civil Law of the PRC. Pursuant to the Civil Code, the collection, storage, use, process, transmission, provision and disclosure of personal information should follow the principles of legitimacy, properness and necessity.
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On March 12, 2021, the CAC, the MIIT, the MPS and the SAMR jointly promulgated the Regulations on the Scope of Necessary Personal Information for Common Types of Mobile Internet Apps, which will become effective on May 1, 2021. According to these regulations, an app may not refuse a user from using its basic functional services if the user disagrees to provide unnecessary personal information. In particular, basic functional services of job hunting and recruitment applications are the “exchange of job hunting and recruitment information,” and the necessary personal information includes mobile phone numbers of registered users and resumes provided by job seekers. Additionally, the regulations also apply to mini programs, which are apps developed and based on open platform interfaces and available to users without installation.
On August 20, 2021, the SCNPC adopted the Personal Information Protection Law of the PRC, or the PIP Law, which took effect on November 1, 2021. The PIP Law includes the basic rules for personal information processing, the rules for cross-border provision of personal information, the rights of individuals in personal information processing activities, the obligations of personal information processors, and the legal responsibilities for illegal collection, processing, and use of personal information. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the PIP Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.
To comply with these laws and regulations, we have required our customers to consent to our collecting and using of their personal information in order to receive our services, and established information security systems to protect customers’ privacy.
Regulations Related to Consumer Rights Protection
The Consumer Rights and Interests Protection Law of the PRC, or the Consumer Protection Law, promulgated by the SCNPC on October 31, 1993 and most recently amended on October 25, 2013 (effective as of March 15, 2014), and the Online Trading Measures issued by the SAIC on January 26, 2014 (effective as of March 15, 2014), set out the obligations of business operators and the rights and interests of the customers. For example, business operators must guarantee the quality, function, usage, term of validity, personal or property safety requirement of the goods and services and provide customers with authentic information about the goods and services. Consumer whose legitimate rights and interests are harmed in the purchase of goods or receipt of services rendered through an online trading platform may seek compensation from the seller or the service provider.
On March 15, 2021, the SAMR promulgated the Measures for the Supervision and Administration of Online Trading, or New Online Trading Measures, which will come into effect on May 1, 2021 and replace the above original Online Trading Measure. The New Online Trading Measures also apply to all online commerce business conducted through information networks in general, with particular emphasis on transactions through online social networking and online live streaming. Under the New Online Trading Measures, online trading operators shall perform relevant compliance obligations, such as registration with the SAMR, protection of customers’ personal information and fair competition.
Additionally, the Civil Code, which became effective on January 1, 2021 and replaced the Tort Liability Law of the PRC, provides that both internet users and internet service providers may be liable for the wrongful acts of users who infringe the lawful rights of other parties. If an internet user utilizes internet services to commit a tortious act, the party whose rights are infringed may request the internet service provider to take measures, such as removing or blocking the content, or disabling the links thereto, to prevent or stop the infringement. If the internet service provider does not take necessary measures after receiving such notice, it shall be jointly liable for any further damages suffered by the rights holder. Furthermore, if an internet service provider fails to take necessary measures when it knows that an internet user utilizes its internet services to infringe the lawful rights and interests of other parties, it shall be jointly liable with the internet user for damages resulting from the infringement.
Regulations Related to Intellectual Property Rights
Copyright
The Copyright Law of the PRC, or the Copyright Law, which took effect on June 1, 1991, was amended in 2001, 2010 and 2020. The latest version will come into effect on June 1, 2021. Under the currently effective Copyright Law and its implementing regulations adopted in 2002 and amended in 2011 and 2013, Chinese citizens, legal persons, or other organizations will, whether published or not, enjoy copyright provides that Chinese citizens, legal persons, or other organizations shall, whether published or not, own copyright in their copyrightable works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. Copyright owners enjoy certain legal rights, including right of publication, right of authorship and right of reproduction. The Copyright Law extends copyright protection to Internet activities, products disseminated over the Internet and software products. In addition, the Copyright Law provides for a voluntary registration system administered by the China Copyright Protection Center, or the CPCC. According to the Copyright Law, an infringer of the copyrights shall be subject to various civil liabilities, which include ceasing infringement activities, apologizing to the copyright owners and compensating the loss of copyright owner. Infringers of copyright may also subject to fines and/or administrative or criminal liabilities in severe situations.
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Pursuant to the Computer Software Copyright Protection Regulations promulgated by the State Council in 1991 and amended in 2001, 2011 and 2013 respectively, Chinese citizens, legal persons and other organizations shall enjoy copyright on software they develop, regardless of whether the software is released publicly. Software copyright commences from the date on which the development of the software is completed. The protection period for software copyright of a legal person or other organizations shall be 50 years, concluding on December 31 of the 50th year after the software’s initial release. The software copyright owner may go through the registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. The software copyright owner may authorize others to exercise that copyright, and is entitled to receive remuneration.
Trademark
Trademarks are protected by the Trademark Law of the PRC, which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019 as well as by the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 1983 and as most recently amended on April 29, 2014. The Trademark Office under the SAIC handles trademark registrations. The Trademark Office grants a 10-year term to registered trademarks and the term may be renewed for another 10-year period upon request by the trademark owner. A trademark registrant may license its registered trademarks to another party by entering into trademark license agreements, which must be filed with the Trademark Office for its record. As with patents, the Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark which has already been registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such trademark application may be rejected. Any person applying for the registration of a trademark may not injure existing trademark rights first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use.
Patent
Patents in the PRC are principally protected under the Patent Law of the PRC (2020 Revision) and its Implementation Rules (2010 Revision), collectively the Patent Laws. According to the Patent Laws, patents in the PRC are classified into three categories, namely, inventions, utility models and designs. The protection period of a patent right is ten (10) years for utility models, fifteen (15) years for designs, and twenty (20) years for inventions upon the date of application. The Patent Administration Office under the State Council is responsible for receiving, reviewing and approving patent applications. After a patent right is granted for an invention or utility model, except otherwise provided for in the Patent Laws, no entity or individual may, without the permission of the patent owner, exploit the patent, that is, manufacture, use, offer to sell, sell or import the patented product, or use the patented method, or use, offer to sell, sell or import any product which is a direct result of the use of the patented method, for production or business purposes. And after a patent right is granted for a design, no entity or individual shall, without the permission of the patent owner, exploit the patent, that is, manufacture, offer to sell, sell, or import any product containing the patented design for production or business purposes.
Domain name
The domain names are protected under the Administrative Measures on the Internet Domain Names, or the Domain Name Measures, which was promulgated by the MIIT and became effective in November 2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names, under supervision of which China Internet Network Information Center, or the CNNIC, is responsible for the daily administration of CN domain names and PRC domain names. Pursuant to the Domain Name Measures, the registration of domain names adopts the “first to file” principle and the registrant shall complete the registration via the domain name registration service institutions. In the event of a domain name dispute, the disputed parties may lodge a complaint to the designated domain name dispute resolution institution to trigger the domain name dispute resolution procedure in accordance with the CNNIC Measures on Resolution of the Domain Name Disputes, file a suit to the People’s Court, or initiate an arbitration procedure.
Regulations Related to Foreign Exchange
The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, promulgated by the State Council in 1996 and most recently amended in 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange or SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, or SAFE Circular 59, which was most recently amended in 2015 and substantially amends and simplifies the current foreign exchange procedures. Pursuant to SAFE Circular 59, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts, and guarantee accounts, the reinvestment of Renminbi proceeds derived by foreign investors in China, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously.
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In February 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, pursuant to which, instead of applying for approval regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.
In March 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19. Pursuant to SAFE Circular 19, a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). In addition, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capital on a discretionary basis. A foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business. Where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.
In June 2016, SAFE promulgated the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, pursuant to which, in addition to foreign currency capital, enterprises registered in China may also convert their foreign debts, as well as repatriated fund raised through overseas listing, from foreign currency to Renminbi on a discretional basis. SAFE Circular 16 also reiterates that the use of capital so converted shall follow “the principle of authenticity and self-use” within the business scope of the enterprise. According to SAFE Circular 16, the Renminbi funds so converted shall not be used for the purposes of, whether directly or indirectly, (i) paying expenditures beyond the business scope of the enterprises or prohibited by laws and regulations; (ii) making securities investment or other investments (except for banks’ principal-secured products); (iii) granting loans to non-affiliated enterprises, except as expressly permitted in the business license; and (iv) purchasing non-self-used real estate (except for the foreign-invested real estate enterprises).
In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records, and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Further, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.
On October 23, 2019, SAFE issued the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation of Cross-border Trade and Investment, or SAFE Circular 28, which allows non-investment foreign-invested enterprises to make domestic equity investment with their capital funds in accordance with the law under the premise that such investment does not violate the existing special administrative measures (negative list) for foreign investment and the project invested in China is authentic and compliant. Pursuant to SAFE Circular 28, upon receiving the payment of consideration from a foreign investor for the equity transfer under foreign direct investment, the domestic transferor, with relevant registration certificates, can process the formalities for account opening, fund receipt, and foreign exchange settlement and use directly at the bank. The foreign investor’s deposit remitted from overseas or transferred from domestic accounts can be directly used for its lawful domestic capital contribution as well as domestic and overseas payment after the transaction is concluded.
On April 10, 2020, SAFE issued the Circular on Optimizing Administration of Foreign Exchange to Support the Development of Foreign-related Business, or SAFE Circular 8, pursuant to which, eligible enterprises are allowed to use the income under capital account, from such sources as capital funds, foreign debt and overseas listing, for domestic payment without having to provide supporting authentication materials to the banks for every transaction in advance, but the use of funds shall be true and compliant as well as conform to the existing administration regulations regarding use of income under capital account. The concerned bank shall conduct spot checking in accordance with the relevant requirements.
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Regulations Related to Dividend Distribution
The principal regulations governing the distribution of dividends paid by the wholly foreign owned subsidiaries of the Company (the “WFOEs”) include the Company Law of PRC, which applies to both PRC domestic companies and foreign-invested companies, and the Foreign Investment Law and its implementing rules, which apply to foreign-invested companies. Under these regulations, WFOEs in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, WFOEs in China are required to set aside at least 10% of its after-tax profits based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reaches 50% of its registered capital. These reserve funds, however, may not be distributed as cash dividends.
Regulations Related to Foreign Exchange Registration of Offshore Investment by PRC Residents
In July 2014, SAFE issued the Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or SAFE Circular 37 which was most recently amended on June 15, 2018 and has replaced the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles (known as Circular 75). SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or “SPVs,” by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, an SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch.
In February 2015, SAFE promulgated the SAFE Circular 13. SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks instead of SAFE or its local branch in connection with their establishment of an SPV.
In addition, pursuant to SAFE Circular 37, an amendment to registration or subsequent filing with qualified banks by such PRC resident is also required if there is a material change with respect to the capital of the offshore company, such as any change of basic information (including change of such PRC residents, change of name and operation term of the SPV), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration requirements as set forth in SAFE Circular 37 and SAFE Circular 13, misrepresent on or failure to disclose controllers of foreign-invested enterprises that are established by round-trip investment may result in bans on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and may also subject relevant PRC residents to penalties under the Foreign Exchange Administration Regulations of the PRC.
Regulations Related to Foreign Debt
As an offshore holding company, we may make additional capital contributions to WFOEs subject to approval from the local department of commerce and the SAFE, with no limitation on the amount of capital contributions. We may also make loans to WFOEs subject to the approval from SAFE or its local office and the limitation on the amount of loans.
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By means of making loans, WFOEs are subject to the relevant PRC laws and regulation relating to foreign debts. On January 8, 2003, the State Development Planning Commission, SAFE, and Ministry of Finance, or MOF, jointly promulgated the Circular on the Interim Provisions on the Management of Foreign Debts, or the Foreign Debts Provisions, which became effective on March 1, 2003, and was partially abolished on May 10, 2015. Pursuant to Foreign Debts Provisions, the total amount of foreign loans received by a foreign-invested company shall not exceed the difference between the total investment in projects as approved by the MOFCOM or its local counterpart and the amount of registered capital of such foreign-invested company. In addition, on January 12, 2017, the People’s Bank of China, or PBOC, issued the Circular on Full-Coverage Macro-Prudent Management of Cross-Border Financing, or the PBOC Circular 9, which sets out the statutory upper limit on the foreign debts for PRC non-financial entities, including both foreign-invested companies and domestic-invested companies, and the macro-prudential adjustment parameter is 1. Pursuant to the PBOC Circular 9, the foreign debt upper limit for both foreign-invested companies and domestic-invested companies is calculated as twice the net asset of such companies. As to net assets, the companies shall take the net assets value stated in their latest audited financial statement. On March 11, 2020, the PBOC and SAFE promulgated the Circular of the People’s Bank of China and the State Administration of Foreign Exchange on Adjusting the Macro-prudential Regulation Parameter for Full-covered Cross-border Financing, which provides that based on the current macro economy and international balance of payments, the macro-prudential regulation parameter as set forth in the PBOC Circular 9 is updated from 1 to 1.25.
The PBOC Circular 9 does not supersede the Foreign Debts Provisions. It provides a one-year transitional period from January 11, 2017, for foreign-invested companies, during which foreign-invested companies, such as WFOEs, could adopt their calculation method of foreign debt upper limit based on either the Foreign Debts Provisions or the PBOC Circular 9. The transitional period ended on January 11, 2018. Upon its expiry, pursuant to the PBOC Circular 9, PBOC and SAFE shall reevaluate the calculation method for foreign-invested companies and determine what the applicable calculation method would be. As of the date of this annual report, neither the PBOC nor SAFE has promulgated and made public any further rules, regulations, notices, or circulars in this regard.
Regulations Related to Tax
Enterprise Income Tax
On March 16, 2007, the SCNPC promulgated the EIT Law, which was recently amended on December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which was last amended on December 6, 2024, and was effective on January 1, 2025. Under the EIT Law and relevant implementation regulations, both resident enterprises and non-resident enterprises are subject to the enterprise income tax so long as their income is generated within the territory of PRC. “Resident enterprises” are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. “Non-resident enterprises” are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. If non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, however, enterprise income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.
The EIT Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate.
According to the Administrative Rules for the Certification of High Tech Enterprises, effective on January 1, 2008 and amended on January 29, 2016 (effective as of January 1, 2016), for each entity accredited as High Tech Enterprise, such status is valid for three years if it meets the qualifications for High Tech Enterprise on a continuing basis during such period.
Value-Added Tax (“VAT”)
The Provisional Regulations of the PRC on Value-added Tax was promulgated by the State Council on December 13, 1993, and most recently amended on November 19, 2017. The Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were promulgated by the MOF on December 25, 1993, and were recently amended on October 28, 2011 (collectively with the VAT Regulations, the VAT Law). On April 4, 2018, MOF and SAT jointly promulgated the Circular on Adjustment of Value-Added Tax Rates, or MOF and SAT Circular 32. On March 20, 2019, MOF, SAT and General Administration of Customs, or GAC, jointly issued a Circular on Relevant Polices for Deepening Value-added Tax Reform, or MOF, SAT and GAC Circular 39, which became effective from April 1, 2019. According to the abovementioned laws and circulars, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 13%, 9%, 6% and 0%, and the VAT tax rate applicable to the small-scale taxpayers is 3%.
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Withholding Tax
The Enterprise Income Tax Law of the PRC provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the Double Tax Avoidance Arrangement, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. Based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties, or the SAT Circular 81, issued on February 20, 2009, by the SAT, however, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. According to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018, by the SAT and took effect on April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in 12 months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases. This circular further provides that applicants who intend to prove his or her status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.
Tax on Indirect Transfer
On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or SAT Circular 7. Pursuant to SAT Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure. According to SAT Circular 7, where the transferee fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. SAT Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of SAT Circular 7. SAT Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.
Regulations Related to Employment and Social Welfare
Employment
The Labor Law of the PRC, which was promulgated on July 5, 1994, effective since January 1, 1995, and most recently amended on December 29, 2018, the Labor Contract Law of the PRC, which was promulgated on June 29, 2007, and amended on December 28, 2012, and the Implementation Regulations of the Labor Contract Law of the PRC, which was promulgated on September 18, 2008, are the principal regulations that govern employment and labor matters in the PRC. Under the above regulations, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, wages may not be lower than the local minimum wage. Employers must establish a system for labor safety and sanitation, strictly abide by state standards, and provide relevant education to its employees. Employees are also required to work in safe and sanitary conditions.
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Social Insurance and Housing Fund
Under the Social Insurance Law of the PRC that was promulgated by the SCNPC on October 28, 2010, and came into force as of July 1, 2011, and was most recently amended on December 29, 2018 (also the effective date), together with other laws and regulations, employers are required to pay basic pension insurance, unemployment insurance, basic medical insurance, employment injury insurance, maternity insurance, and other social insurance for its employees at specified percentages of the salaries of the employees, up to a maximum amount specified by the local government regulations from time to time. When an employer fails to fully pay social insurance premiums, relevant social insurance collection agency shall order it to make up for any shortfall within a prescribed time limit, and may impose a late payment fee at the rate of 0.05% per day of the outstanding amount from the due date. If such employer still fails to make up for the shortfalls within the prescribed time limit, the relevant administrative authorities shall impose a fine of one to three times the outstanding amount upon such employer.
In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and most recently amended in March 2019 (which became effective as of March 24th 2019), employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.
Regulations Related to Mergers and Acquisitions and Overseas Listings
On August 8, 2006, six PRC governmental and regulatory agencies, including MOFCOM and the China Securities Regulatory Commission, or the CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, governing the mergers and acquisitions of domestic enterprises by foreign investors that became effective on September 8, 2006, and was amended on June 22, 2009. The M&A Rules, among other things, requires that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interest held by such PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
Our PRC counsel has advised us that, based on its understanding of current PRC laws, rules, and regulations, and the M&A Rules, the CSRC approval is not required in the context of this offering because: (i) our PRC subsidiaries were established by means of direct investment rather than by mergers with or acquisitions of any PRC domestic companies as defined under the M&A Rules, and (ii) no explicit provision in the M&A Rules classifies the respective contractual arrangements among GIOP BJ, SDH and its shareholders as a type of acquisition transaction falling under the M&A Rules. Notwithstanding the above opinion, our PRC counsel has further advised us that uncertainties still exist as to how the M&A Rules will be interpreted and implemented and its opinions summarized above are subject to any new laws, rules, and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. If the CSRC or other PRC regulatory agencies subsequently determine that prior CSRC approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. See “Risk Factors—Risks Related to Doing Business in China—The failure to comply with PRC regulations relating to mergers and acquisitions of domestic entities by offshore special purpose vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure.”
On February 17, 2023, the CSRC released the Trial Measures and five supporting guidelines, which took effect on March 31, 2023. Pursuant to the Trial Measures, PRC domestic companies that seek to offer or list securities overseas, both directly and indirectly, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of relevant applications or its completion of subsequent offerings. If a domestic company fails to complete required filing procedures or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as an order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines.
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The Trial Measures outline the circumstances where domestic companies are prohibited from offering and listing securities overseas, if such overseas offering and listing made by domestic companies (i) are explicitly prohibited by laws; (ii) may endanger national security as determined by relevant competent departments under the State Council; (iii) involve criminal offenses that disrupting PRC economy such as corruption, bribery, embezzlement, or misappropriation of property by such domestic company, the controlling shareholder, and/or actual controller in the recent three years; (iv) involve such domestic company in investigations for suspicion of criminal offenses or major violations of laws and regulations; or (v) involve material ownership disputes over the shares held by the controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller. We believe that our listing on Nasdaq does not fall under the circumstance that such overseas listing is prohibited by the Trial Measures.
On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the CSRC Notice, which, among others, clarifies that PRC domestic companies that have already been listed overseas before the effective date of the Trial Measures, which is March 31, 2023, shall be deemed as Existing Issuers, and Existing Issuers are not required to complete the filing procedures with the CSRC immediately, and they shall be required to file with the CSRC for any subsequent offerings. We are an Existing Issuer, based on the foregoing, we are not required to complete the filing procedures with the CSRC immediately, and shall be required to file with the CSRC for any subsequent offerings.
On February 24, 2023, the CSRC, together with the MOF, the National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions, which were issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023, together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (i) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (ii) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. Any failure or perceived failure by our Company, our subsidiaries or the VIE and its subsidiaries to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.
The Trial Measures and the revised Provisions that recently issued by the PRC authorities may subject us to additional compliance requirements in the future. See “Risk Factors — Risks Related to Doing Business in China — The Trial Measures and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.”
The following section sets forth a summary of the principal PRC laws and regulations relevant to graphite anode material manufacturing and sales business operations in China.
Industrial Polices
Foreign investors and foreign-invested enterprises investing in the PRC shall comply with the Catalog of Industries for Encouraging Foreign Investment (2022 edition), which was promulgated by the National Development and Reform Commission (the “NDRC”) and the Ministry of Commerce (the “MOFCOM”) on October 26, 2022 and took effect on January 1, 2023. Pursuant to the Catalog, the development and production of lithium-ion batteries falls within the scope of industries in which foreign investment is encouraged.
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According to the Guiding Catalog for Industrial Restructuring, which was promulgated by the NDRC on December 2, 2005, with the latest amendment on December 1, 2023, and was effective on February 1, 2024, new batteries such as lithium-ion batteries, and lithium-ion batteries use intermediate phase Anode materials such as carbon microspheres and silicon carbon fall into the state-encouraged industries.
According to the Guiding Catalog for Key Products and Services for Strategic Emerging Industries promulgated by the NDRC on January 25, 2017, high-power graphite electrodes, graphite for negative electrodes of lithium-ion batteries, mesocarbon microspheres, Synthetic diamond etc. are key products and services for strategic emerging industries.
According to the Guiding Opinions on Accelerating the Development of New Energy Storage jointly promulgated by the NDRC and the National Energy Administration on July 15, 2021, the PRC will strive to build a clean, low-carbon, safe and efficient energy system, and seek to drive down the cost and advance the commercial-scale application of more mature new energy storage technologies such as lithium-ion batteries, in an effort to achieve carbon peak and carbon neutrality.
In order to encourage and guide the technological progress and normative development of lithium-ion battery industry, the Ministry of Industry and Information Technology (the “MIIT”) enacted the Conditions on the Standardization of Lithium Battery Industry (the “Standardization Conditions”) on August 31, 2015, which was latest amended onJune 18, 2024, and was effective on June 20, 2024, and provides guidance for all types of upstream and downstream manufacturers in the lithium-ion battery industry, including negative electrode materials, on their production scale and process technology, product quality and performance, comprehensive utilization of resources and environmental protection and safety management, etc. However, the Standardization Conditions is not pre-emptive and mandatory for administrative approval.
The MIIT further enacted the Management Measures of Standardization Announcement of Lithium Battery Industry according to the Standardization Conditions on January 16, 2019, which was latest amended on June 18, 2024, and was effective on June 20, 2024, and provides that the responsible departments of industry and information technology in each province, autonomous region and municipality directly under the central government are responsible for the acceptance, verification and submission of announcement applications for lithium battery industry enterprise in the region, and for supervising and checking the implementation of the Standardization Conditions.
Regulations Related to Production Safety
According to the Production Safety Law of the PRC (the “Production Safety Law”)latest amended by the Standing Committee of the National People’s Congress (the “SCNPC”) on June 10, 2021 and came into effect on September 1, 2021, an enterprise shall (i) provide production safety conditions as stipulated in the Production Safety Law and other relevant laws, administrative regulations, national and industry standards, (ii) establish a comprehensive production safety accountability system and production safety rules, and (iii) develop production safety standards to ensure production safety. Any entity that fails to provide required production safety conditions is prohibited from engaging in production activities. The person-in-charge of an enterprise shall be fully responsible for the safety of production of the enterprise. An enterprise having more than 100 employees shall establish a production safety management institution or be equipped with dedicated production safety management personnel.
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According to the Measures for the Supervision and Administration of “Three Simultaneities” for the Safety Facilities of Construction Projects promulgated by the former State Administration of Work Safety (currently known as the Ministry of Emergency Management) on December 14, 2010 and amended on April 2, 2015, the safety facilities in a newly built, reconstructed or expanded construction project must be designed, constructed and put into use in production simultaneously with the main body of the project. The enterprises shall demonstrate and pre-assess the safety conditions of its construction projects, make a safety design chapter, submit to the relevant work safety administrative department for examination or filing, and apply to the work safety administrative department for the completion and acceptance or the filing of its projects. If an enterprise violates the relevant requirements, it may be warned and be ordered to make corrections within a specified time limit. Failure to make correction within the specified time limit may result in the enterprise being ordered to discontinue the construction process or suspend its production and business operation for rectification, and being imposed a fine.
On July 5, 2022, Sunrise Guizhou completed the filing-for-record procedures with local work safety administrative department for its construction of the first phase of the manufacturing plant.
Regulations Related to Product Quality
According to the Product Quality Law of the PRC (the “Product Quality Law”), promulgated on February 22, 1993 and last amended on December 29, 2018 by the SCNPC, producers and sellers shall establish a sound internal product quality control system and strictly adhere to a job responsibility system in relation to quality standards and quality liabilities together with implementing corresponding examination and inspection measures. The counterfeiting or imitation of quality marks such as certification marks is prohibited; falsifying the place of origin of product, and falsifying or imitating the name or address of another factory is prohibited; adulteration of, or mixing of improper elements with products under manufacturing or on sale, passing off the sham as the genuine or passing off the inferior as the superior is prohibited. Any manufacturer or seller who violates the Product Quality Law may be subject to (i) administrative penalties including suspension of production or sale, ordered correction of illegal activities, confiscation of products subject to illegal production or sale, imposition of fines, confiscation of illegal gains and, in severe cases, revocation of business license; and (ii) criminal liabilities if the illegal activity constitutes crime.
As of the date of this annual report, Sunrise Guizhou has passed the ISO14001, ISO45001, ISO9001, ISO27001, GB/T 29490-2023 and IATF16949 quality management system certification for its development and manufacturing of graphite anode materials for lithium-ion batteries.
Regulations Related to Real Properties
Land
Pursuant to the Land Administration Law of the PRC, which became effective from 1 January 1987 and was last amended on 26 August 2019, and the Regulation on the Implementation of the Land Administration Law of the PRC, which became effective from 1 February1991 and was last amended on 2 July 2021, issues related to the ownership of land, land use right, the overall planning of land use, the protection of cultivated land and the construction land in the PRC are all subject to the supervision of the above laws and regulations.
Property Rights
Pursuant to the Civil Code of the PRC, civil relationships arising from the possession and the use of property (including ownership, usufructuary right, security rights to the property and possession) are subject to the law, of which a holder of the land use right of the construction land enjoys the rights to possess, use and seek proceeds from the state-owned land as prescribed by the laws and the rights to build buildings, structures and their accessory facilities on such land. A mortgage can be set up on the land use right of the construction land, buildings and other land affiliated items as prescribed by the laws.
Construction Under Progress
Pursuant to the Law of Urban and Rural Planning of the PRC, which became effective from 1 January 2008 and was last amended on 23 April 2019, Construction Law of the PRC, which became effective from 1 March 1998 and was last amended on 23 April 2019, Administrative Measures for Construction Permits of Construction Projects, which became effective on 25 October 2014 and was last amended on 30 March 2021 and the Regulations on the Administration of Construction Project Quality, which became effective from 30 January 2000 and was last amended on 23 April 2019, construction activities carried out in the preoccupied areas of cities, towns and villages and in areas subject to planning control due to the needs of urban and rural construction and development shall comply with the relevant requirements of the Law of Urban and Rural Planning of the PRC, under which the construction enterprises shall obtain the Construction Land Use Planning Permit and Construction Works Planning Permit from the competent urban and rural planning department of the City and County People’s Government and apply for the Construction Permit with the competent housing and urban-rural department of the People’s Government above county level at places where the construction projects are located before construction commences as prescribed by the laws. Upon receiving the completion report of the construction project, the construction enterprise shall organize the acceptance inspection by the relevant design, construction and supervision enterprises.
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Sunrise Guizhou obtained the Construction Land Use Planning Permit for construction projects in March 2022 and December 2023, Construction Works Planning Permit from local urban and rural planning department for construction projects in March 2022, June 2023 and November 2023, and obtained Construction Permit from local housing and urban-rural department for construction projects in March and April 2022 .
Regulations Related to Environmental Protection
According to the Environmental Protection Law of the PRC (the “Environmental Protection Law”) promulgated by the SCNPC on December 26, 1989 and last amended on April 24, 2014, any entity that discharges or will discharge pollutants in the course of operation or other activities must implement effective environmental protection measures to control and properly handle of hazardous substances such as waste gas, waste water, waste residues, dust, malodorous gases, radioactive substances, noise, vibration and electromagnetic radiation generated in the course of such activities. The State implements a pollutant discharge permit management system in accordance with the law. According to the Environmental Protection Law and the Regulations on the Administration of Pollutant Discharge Licensing, which was promulgated by the State Council on January 24, 2021 and came into effect on March 1, 2021, enterprises, business units and other producers and operators that implement the pollutant discharge licensing management shall discharge pollutants according to the requirements of the pollutant discharge license, and shall not discharge pollutants without obtaining the pollutant discharge license. The competent environmental protection authorities impose various administrative penalties on individuals or enterprises in violation of the Environmental Protection Law, for example, if an entity discharges pollutant in violation of the pollutant discharge standards or volume control requirement, the entity would be subject to administrative penalties, including order to suspend business for rectification, and even order to terminate or close down business under severe circumstances.
Pursuant to the Regulations on the Administration of Environmental Protection of Construction Projects promulgated by the State Council on November 29, 1998 and amended on July 16, 2017 and the Interim Measures for Environmental Protection Acceptance Examination Upon Completion of Construction Projects promulgated by the former Ministry of Environmental Protection on November 20, 2017, the PRC implements a system to appraise the environmental impact of construction projects. The construction entity shall submit an environmental impact report or an environmental impact statement for approval prior to the commencement of the construction project, or an environmental impact registration form as required by the environmental protection administrative department of the State Council for record. In addition, after the completion of a construction project for which an environmental impact report or an environmental impact statement has been prepared, the construction entity shall, in accordance with the standards and procedures prescribed by the competent administrative department of environmental protection under the State Council, conduct acceptance checks on the supporting environmental protection facilities and prepare an acceptance report. For construction projects that are constructed in phases or put into production or use in phases, the corresponding environmental protection facilities shall be inspected and accepted in phases. The construction project can only be put into production or use after the completed supporting environmental protection facilities have passed the acceptance inspection. Facilities that have not been carried out or have not passed the acceptance examination shall not be put into production or use.
According to the Environmental Protection Tax Law of the PRC promulgated by the SCNPC on December 25, 2016, amended on October 26, 2018 and implemented on the same day, and the Regulations for the Implementation of the Environmental Protection Tax Law of the PRC came into effective on January 1, 2018, (i) enterprises, public institutions and other producers and operators that directly discharge pollutants to the environment within the territory of the PRC and other sea areas under the jurisdiction of the PRC are taxpayers of environmental pollution tax, and shall pay environmental pollution tax in accordance with the aforementioned laws and regulations, (ii) the Administrative Regulations on the Collection and Use of Pollutant Discharge Fees was repealed and no more pollutant discharge fees shall be collected.
On February 25, 2022 and December 12, 2023, Sunrise Guizhou obtained the approval for the Environmental Impact Report for its construction of the first phase of the manufacturing plant. On April 25, 2022, Sunrise Guizhou obtained the Pollutant Discharge License, which will remain effective for 5 years. On January 5, 2024, Sunrise Guizhou submitted the Filing for Environmental Protection Acceptance upon Completion of the Construction Project.
Regulations Related to Fire Control
According to the Fire Control Law of the PRC promulgated by the SCNPC on April 29, 1998 and last amended on April 29, 2021, the fire control design and construction of a construction project shall comply with the national fire control technical standards for construction projects. Upon completion of construction of a development project which is required to apply for fire safety inspection and acceptance as stipulated by the housing and urban-rural development authority of the State Council, the developer shall apply to the housing and urban-rural development authority for fire safety inspection and acceptance. For development projects other than those stipulated in the preceding paragraph, the developer shall complete filing formalities with the housing and urban-rural development authority following the inspection and acceptance, the housing and urban-rural development department shall conduct spot check. Where a development project which is required by law to undergo fire safety inspection and acceptance does not undergo fire safety inspection and acceptance, or does not pass fire safety inspection and acceptance, the project shall not be put into use; the use of other development projects which do not pass inspection in spot checks carried out pursuant to the law shall be suspended.
On March 16, 2023, Sunrise Guizhou obtained the Filing Certificate for Fire Safety Inspection and Acceptance of Construction Project from local urban and rural development authority for its construction of the first phase of the manufacturing plant.
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C. Organizational Structure
The following diagram illustrates our current corporate structure, which includes our significant subsidiaries as of the date of this annual report:
Contractual Arrangements among GIOP BJ, the VIE and Its Shareholders
Neither we nor our subsidiaries own any equity interest in the VIE. GIOP BJ, the VIE and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, in June 2019. Pursuant to the VIE Agreements, for accounting purposes only, we are the primary beneficiary of the VIE to the extent that we consolidate the financial results of the VIE in our consolidated statements under U.S. GAAP.
Each of the VIE Agreements is described in detail below:
Exclusive Technical and Consulting Services Agreement
Pursuant to the Exclusive Technical and Consulting Services Agreement between the VIE and GIOP BJ (the “Exclusive Service Agreement”), GIOP BJ provides the VIE with technical support, consulting services, business support and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to the VIE by GIOP BJ under the Exclusive Service Agreement, GIOP BJ is entitled to collect a service fee approximately equal to the VIE’s earnings before corporate income tax, i.e., the VIE’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and the VIE’s operation needs.
This agreement became effective on June 10, 2019 and will remain effective unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities. Nevertheless, this agreement shall be terminated after all the equity interest in the VIE held by its shareholders and/or all the assets of the VIE have been legally transferred to GIOP BJ and/or its designee in accordance with the Exclusive Option Agreement.
The CEO of GIOP BJ, Mr. Haiping Hu, is currently managing the VIE pursuant to the terms of the Exclusive Service Agreement. The Exclusive Service Agreement does not prohibit related party transactions. The Company’s audit committee is required to review and approve in advance any related party transactions, including transactions involving GIOP BJ or the VIE.
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Equity Pledge Agreement
Under the Equity Pledge Agreement between GIOP BJ, and shareholders of the VIE, together holding 100% of the shares of the VIE (the “VIE Shareholders”), the VIE Shareholders pledged all of their equity interests in the VIE to GIOP BJ to guarantee the performance of the VIE’s obligations under the Exclusive Service Agreement. Under the terms of the Equity Pledge Agreement, in the event that the VIE or the VIE Shareholders breach their respective contractual obligations under the Exclusive Service Agreement, GIOP BJ, as pledgee, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. The VIE Shareholders also agreed that upon occurrence of any event of default, as set forth in the Equity Pledge Agreement, GIOP BJ is entitled to dispose of the pledged equity interests in accordance with applicable PRC laws. The VIE Shareholders further agreed not to dispose of the pledged equity interests or take any actions that would prejudice GIOP BJ’s interests without the prior written consent of GIOP BJ.
The Equity Pledge Agreement is effective until: (1) the secured debt in the scope of pledge is cleared off; and (2) Pledgers transfer all the pledged equity interests to Pledgees according to the Exclusive Option Agreement, or other entity or individual designated by it.
The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of the VIE’s obligations under the Exclusive Service Agreement; (2) make sure the VIE Shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice GIOP BJ’s interests without GIOP BJ’s prior written consent. In the event the VIE breaches its contractual obligations under the Exclusive Service Agreement, GIOP BJ will be entitled to dispose of the pledged equity interests.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the VIE Shareholders irrevocably granted GIOP BJ (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once or at multiple times, at any time, part or all of their equity interests in the VIE or the assets of the VIE. The option price to be paid by GIOP BJ to each shareholder of the VIE is RMB10 (approximately US$1.47) or the minimum amount to the extent permitted under PRC law at the time when such transfer occurs.
Under the Exclusive Option Agreement, GIOP BJ may at any time under any circumstances, purchase, or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the VIE Shareholders’ equity interests in the VIE or the assets of the VIE. The Exclusive Option Agreement, together with the Equity Pledge Agreement, the Exclusive Service Agreement, and Powers of Attorney, enable GIOP BJ to exercise effective control over the VIE.
The Exclusive Option Agreement remains effective until all the equity or assets of the VIE is legally transferred under the name of GIOP BJ and/or other entity or individual designated by it, or unilaterally terminated by GIOP BJ with a 30-day written notice.
Powers of Attorney
Under each of the Powers of Attorney, the VIE Shareholders authorized GIOP BJ to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including, but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including, but not limited to, the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of the VIE.
The Powers of Attorney are irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the VIE Shareholders own the equity interests of the VIE.
Spousal Consent
Pursuant to the Spousal Consent, each spouse of the individual shareholders of the VIE irrevocably agreed that the equity interest in the VIE held by their respective spouses would be disposed of pursuant to the Equity Pledge Agreement, the Exclusive Option Agreement, and the Powers of Attorney. Each spouse of the shareholders agreed not to assert any rights over the equity interest in the VIE held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in the VIE through the respective shareholder for any reason, he or she agreed to be bound by the contractual arrangements.
D. Property, Plants and Equipment
I. The VIE currently maintains offices in Beijing and Shanghai in the PRC. The total office space is 1,205 square meters including both leased and owned properties. The VIE leases 567 square meters of office space under a non-cancelable operating lease agreement with expiration dates through December 31, 2024. Operating lease expense amounted to $21,495, $17,653 and $270,254 for the fiscal years ended December 31, 2024, 2023 and 2022, respectively.
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II. Sunrise Guizhou maintains the below corporate office space and manufacturing properties in China.
The following table sets forth the location, approximate size, primary use and lease term of major facilities:
| Location | Approximate Gross Land Area in Square Meters | Primary Use (Gross Floor Area in Square Meters) | Lease or Own | |||
| Yilong New Area, Qianxinan Prefecture, Guizhou Province,China | 294,453 | Office (3,434), Manufacturing (24,879) staff dormitory (4,919) | own |
Future minimum lease payments under non-cancellable operating leases as of December 31, 2024 was $nil.
ITEM 4.A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of the Company’s financial condition and results of operations is based upon and should be read in conjunction with the Company’s consolidated financial statements and their related notes included elsewhere in this annual report. This annual report contains forward-looking statements. See “Forward-Looking Information” in this annual report. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. The Company cautions you that its businesses and financial performance are subject to substantial risks and uncertainties.
Overview
The VIE, or SDH, started operating as a consulting company providing enterprise services to small and medium-sized enterprises in the PRC in December 2014, and launched its knowledge sharing and enterprise service platform in May 2016.
Beginning in fiscal year 2022, the Company commenced the transition of its core business from knowledge sharing and enterprise services to sales of graphite anode material products. In April 2022, the Company entered into the graphite anode material manufacturing and sales business through a joint venture, Sunrise Guizhou, of which the Company currently owns 39.35% through Zhuhai Zibo, the Company’s wholly owned subsidiary. The Company consolidates Sunrise Guizhou’s financial statement because it owns a majority of seats on its board of directors and controls its financial and operating policies pursuant to an agreement among its funding shareholders. Sunrise Guizhou is located at Yilong New District, Xingyi City, Qian Southwest State, Guizhou Province, China. The land use of Sunrise Guizhou’s graphite anode manufacturing site is approximately 294,453 square meters. Sunrise Guizhou began construction of the manufacturing plant in April 2022, and the first and second phase construction of (30,000 tons annual manufacturing capacity) of the manufacturing plant has been completed. The third phase of construction of the manufacturing plant (20,000 tons annual manufacturing capacity) was approved by the board of the directors of the Company in March 2023, and is under construction.
Impact from COVID-19
In early January of 2020, a novel coronavirus (“COVID-19”) outbreak took place in Wuhan, China. Subsequently, it spread rapidly to Asia and other parts of the world. The COVID-19 outbreak resulted in widespread economic disruptions in China, as well as stringent government measures by the Chinese government to contain its transmissions including quarantines, travel restrictions, and temporary closures of non-essential businesses in China and elsewhere from 2020 to 2022.
Essentially all the Company’s revenues are generated in China. Consequently, the Company’s results of operations and financial performances, particularly, the knowledge sharing and enterprise services business were affected materially for the year ended December 31, 2022. Due to the government restrictions, the VIE was prevented from arranging offline activities, resulting in cancellations or postponements of study tours, forums and sponsorship advertising events. On the other hand, Sunrise Guizhou’s graphite anode material manufacturing and sales business in Guizhou Province were not severely impacted by the COVID-19, primarily due to its relatively remote location.
On May 5, 2023, the World Health Organization declared that COVID-19 an established and ongoing health issue which no longer constituted a public health emergency of international concern. Going forward, we do not expect that COVID-19 will impact our results of operation materially. However, the VIE’s knowledge sharing and enterprise services business had declined substantially due to the overall impact of COVID-19 on the market and economy, and we do not expect this business to fully recover.
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Results of Operations
The following table summarizes the results of the Company’s operations during the years ended December 31, 2024, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or decrease during such periods.
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| REVENUES, NET | ||||||||||||
| Products | $ | 64,365,362 | $ | 44,384,004 | $ | 37,583,844 | ||||||
| Service | 632,379 | 666,401 | 541,824 | |||||||||
| Total revenues | 64,997,741 | 45,050,405 | 38,125,668 | |||||||||
| COSTS OF REVENUES | ||||||||||||
| Products | 70,782,649 | 57,172,626 | 38,299,090 | |||||||||
| Service | 12,672 | 281,030 | 1,176,956 | |||||||||
| Total cost of revenues | 70,795,321 | 57,453,656 | 39,476,046 | |||||||||
| GROSS LOSS | (5,797,580 | ) | (12,403,251 | ) | (1,350,378 | ) | ||||||
| OPERATING EXPENSES | ||||||||||||
| Selling expenses | 899,760 | 742,167 | 1,075,980 | |||||||||
| General and administrative expenses | 7,391,664 | 13,040,038 | 12,678,873 | |||||||||
| Research and development expenses | 2,507,324 | 1,193,082 | 1,053,882 | |||||||||
| Impairment of intangible assets | - | 3,151,467 | 2,650,020 | |||||||||
| Total operating expenses | 10,798,748 | 18,126,754 | 17,458,755 | |||||||||
| LOSS FROM OPERATIONS | (16,596,328 | ) | (30,530,005 | ) | (18,809,133 | ) | ||||||
| OTHER (EXPENSES) INCOME | ||||||||||||
| Investment income (losses) | 198,176 | (1,170,974 | ) | (3,566,561 | ) | |||||||
| Interest expense, net | (2,018,680 | ) | (2,162,109 | ) | (27,128 | ) | ||||||
| Other income, net | 441,231 | 942,138 | 87,390 | |||||||||
| Total other expenses | (1,379,273 | ) | (2,390,945 | ) | (3,506,299 | ) | ||||||
| LOSS BEFORE INCOME TAXES | (17,975,601 | ) | (32,920,950 | ) | (22,315,432 | ) | ||||||
| Income taxes provision (benefit) | 5,563 | (226 | ) | 808,970 | ||||||||
| NET LOSS | (17,981,164 | ) | (32,920,724 | ) | (23,124,402 | ) | ||||||
| Less: net loss attributable to non-controlling interests | (6,204,728 | ) | (8,688,144 | ) | (487,780 | ) | ||||||
| NET LOSS ATTRIBUTABLE TO SUNRISE NEW ENERGY CO., LTD. ORDINARY SHAREHOLDERS | $ | (11,776,436 | ) | $ | (24,232,580 | ) | (22,636,622 | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||
| Foreign currency translation adjustment | (962,919 | ) | (1,165,807 | ) | (5,123,964 | ) | ||||||
| TOTAL COMPREHENSIVE LOSS | (18,944,083 | ) | (34,086,531 | ) | (28,248,366 | ) | ||||||
| Less: comprehensive loss attributable to non-controlling interests | (6,579,590 | ) | (9,220,222 | ) | (2,107,480 | ) | ||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO ORIDNARY SHAREHOLDERS OF SUNRISE NEW ENERGY CO., LTD. | $ | (12,364,493 | ) | $ | (24,866,309 | ) | (26,140,886 | ) | ||||
| LOSS PER SHARE | ||||||||||||
| Basic and diluted - Class A and Class B ordinary shares | $ | (0.48 | ) | $ | (1.08 | ) | $ | (0.98 | ) | |||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||
| Basic and diluted - Class A and Class B ordinary shares | 26,404,589 | 25,622,195 | 24,820,313 | |||||||||
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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Revenues, net
Revenues for the years ended December 31, 2024 and 2023 were derived from the following sources:
| For the years ended December 31, | ||||||||||||||||||||||||
| 2024 | % | 2023 | % | Change | % | |||||||||||||||||||
| Graphite anode material business | $ | 64,365,362 | 99.03 | % | $ | 44,384,004 | 98.52 | % | $ | 19,981,358 | 45.02 | % | ||||||||||||
| Knowledge sharing and enterprise business | 632,379 | 0.97 | % | 666,401 | 1.48 | % | (34,022 | ) | (5.11 | )% | ||||||||||||||
| Revenues, net | $ | 64,997,741 | 100.00 | % | $ | 45,050,405 | 100.00 | % | $ | 19,947,336 | 44.28 | % | ||||||||||||
Revenues increased by $19,947,336, or 44.28%, from $45,050,405 for the year ended December 31, 2023, to $64,997,741 for the year ended December 31, 2024. Revenues from graphite anode material sales business accounted for 99.03% and 98.52% of net revenues for the year ended December 31, 2024 and 2023, respectively. Revenue from knowledge sharing and enterprise business accounted for 0.97% and 1.48% of net revenues for the years ended December 31, 2024 and 2023, respectively.
Revenues from graphite anode material sales
The Company’s products include various artificial graphite anode material products. Artificial graphite is made of petroleum coke, needle coke and pitch coke as the main material, and formed after crushing, shaping, granulation and graphitization. The Company markets its graphite anode products through a direct sales channel, through its sales department consists of five experienced employees, who report directly to the CEO. The Company’s customers were manufacturers of industrial and consumer energy storage lithium-ion batteries, such as batteries for electric vehicles and electric ships, and smart consumer electronics.
Revenues increased by $19,981,358, or 45.02%, from $44,384,004 for the year ended December 31, 2023, to $64,365,362 for the year ended December 31, 2024. For the year ended December 31, 2024, we had supplied 28,221 tons of products to 26 customers , as compared to 12,513 tons to 23 customers for the year ended December 31, 2023. However, the average selling price of the graphite anode materials decreased by RMB 8,588 per ton, or 34.35% from RMB 25,000 per ton for the year ended December 31, 2023, to RMB 16,412 per ton for the year ended December 31, 2024.
Revenues from knowledge sharing and enterprise business
Revenues from knowledge sharing and enterprise business decreased by $34,022, or 5.11%, from $666,401 for the year ended December 31, 2023, to $632,379 for the year ended December 31, 2024.
The revenue decrease of knowledge sharing and enterprise business for the year ended December 31, 2024 was brought by the decrease in the revenue of other services, which included health services and rental services. Revenues from other services decreased by $59,091, or 33.61% from $175,812 for the year ended December 31, 2023, to $116,721 for the year ended December 31, 2024, primarily due to decreased demand for such services.
Costs of revenues
The following table sets forth the breakdown of the cost of revenues for the years ended December 31, 2024 and 2023:
| For the years ended December 31, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| Cost of goods sold | $ | 70,782,649 | 99.98 | % | $ | 57,172,626 | 99.51 | % | $ | 13,610,023 | 23.81 | % | ||||||||||||
| Service costs | 12,672 | 0.02 | % | 281,030 | 0.49 | % | (268,358 | ) | (95.49 | )% | ||||||||||||||
| Total costs of revenues | $ | 70,795,321 | 100.00 | % | $ | 57,453,656 | 100.00 | % | $ | 13,341,665 | 23.22 | % | ||||||||||||
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Cost of goods sold
The cost of goods sold increased by $13,610,023, or 23.81%, from $57,172,626 for the year ended December 31, 2023, to $70,782,649 for the year ended December 31, 2024. The increase of the cost of goods sold was mainly due to the increased sale of the graphite anode materials. In the meantime, the average cost per ton of the graphite anode materials decreased by $1,623 per ton, or 40.67% from $3,991 per ton for the year ended December 31, 2023 to $2,368 per ton for the year ended December 31, 2024. Moreover, the impairment of inventory decreased by $3,279,515, or 45.30%, from $7,238,819 for the year ended December 31, 2023, to $3,959,304 for the year ended December 31, 2024.
Service costs
The service costs for knowledge sharing and enterprise business primarily included (1) labor costs; (2) depreciation; and (3) professional and consulting fees paid to third parties for the consulting services. Service costs decreased by $268,358, or 95.49% for the year ended December 31, 2024 compared to the same period in 2023, mainly due to the decrease in staff headcounts and associated expenditure.
Gross loss
As a result of the foregoing, we reported a gross loss of $5,797,580 for the year ended December 31, 2024 and a negative gross margin. The negative gross margin was due to the $6,417,287 gross loss of the graphite anode material sales business mainly due to the decrease in the sales price of our products, attributing to manufacturing overcapacity and a high level of competition in the industry. Furthermore, the raw material costs and graphitization outsourcing cost did not decrease proportionately to the decrease in the sales prices of graphite anode material. Additionally, a $3,959,304 impairment of inventory of graphite anode material was recorded due to decreasing sales prices. The gross loss was partially offset by a gross profit of $619,707 from the knowledge sharing and enterprise business.
Operating expenses
The following table sets forth the breakdown of the operating expenses for the years ended December 31, 2024 and 2023:
| For the years ended December 31, | Change | |||||||||||||||||||||||
| 2024 | % | 2023 | % | Amount | % | |||||||||||||||||||
| Selling expenses | $ | 899,760 | 8.33 | % | $ | 742,167 | 4.09 | % | $ | 157,593 | 21.23 | % | ||||||||||||
| General and administrative expenses | 7,391,664 | 68.45 | % | 13,040,038 | 71.94 | % | (5,648,374 | ) | (43.32 | )% | ||||||||||||||
| Research and development expenses | 2,507,324 | 23.22 | % | 1,193,082 | 6.58 | % | 1,314,242 | 110.16 | % | |||||||||||||||
| Impairment of intangible assets | - | - | 3,151,467 | 17.39 | % | (3,151,467 | ) | (100.00 | )% | |||||||||||||||
| Total costs and operating expenses | $ | 10,798,748 | 100.00 | % | $ | 18,126,754 | 100.00 | % | $ | (7,328,006 | ) | (40.43 | )% | |||||||||||
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Selling expenses
The selling expenses increased by $157,593 or 21.23%, $742,167 for the year ended December 31, 2023, to $899,760 for the year ended December 31, 2024. The increase was primarily due to the expansion of graphite anode material business.
General and administrative expenses
The general and administrative expenses decreased by $5,648,374, or 43.32%, from $13,040,038 for the year ended December 31, 2023 to $7,391,664 for the year ended December 31, 2024. Such decrease was primarily due to (1) an decrease in credit loss of $3,314,179, which was mainly due to lower provision on credit loss in the knowledge sharing and enterprise service business for the year ended December 31, 2024; (2) a decrease in share-based compensation of $1,170,868 as more share-based compensation expenses were recorded in the earlier vesting periods in a cliff vesting schedule in 2023; (3) a decrease in salary and welfare expenses of $1,061,790 as the Company reduced staff number in knowledge sharing and enterprise service business.
Research and development expenses
Research and development expenses increased by $1,314,242 or 110.16%, from $1,193,082 for the year ended December 31, 2023 to $2,507,324 for the year ended December 31, 2024. Research and development expenses for the year ended December 31, 2024 and 2023 were mainly associated with the research development activities of graphite anode material business, including technology service, technical service, purchasing laboratory chemical material collaterals. The increase was primarily due to (1) an increase in technology development service fee of $972,803; (2) an increase in salary and welfare of $141,500 for research and development personnels; and (3) an increase of $238,891 in office miscellaneous expenses and depreciation expense of plant, property and equipment associated with research and development.
Impairment of intangible assets
Impairment of intangible assets decreased by $3,151,467, or 100%, from $3,151,467 for the year ended December 31, 2023 to $nil for the year ended December 31, 2024. The impaired intangible assets for the year ended December 31, 2023 was associated with certain copyrights of graphite anode material business. The Company reviewed its copyright of graphite anode material business for impairment as the copyrights became obsolete, which indicated that the carrying amount of copyrights might no longer be recoverable as of December 31, 2023.
Other expenses, net
The total net other expenses were $1,379,273 for the year ended December 31, 2024. Such expenses for the year ended December 31, 2024 primarily consisted of interest expense of $2,018,680, which was partially offset by investment income of $198,176 and the other income of $441,231. Interest expense was mainly attributable to various debt financings of the graphite anode material sales business; investment income of $198,176 was attributed to the equity pickup of equity method investment; the other income of $441,231 was mainly $542,001 for inventory count surplus and $326,338 from wasted residual sales, offset by $467,194 of fine and late payment fee on social security and land use right and property tax.
The total net other expenses were $2,390,945 for the year ended December 31, 2023. Such expenses for the year ended December 31, 2023 primarily consisted of investment loss of $1,170,974 and interest expense of $2,162,109, which was partially offset by the other income of $942,138. Investment loss of $1,170,974 was mainly attributed to the impairment loss of $1,450,381 on long-term investments that do not have readily determinable fair values. Interest expense was mainly attributable to various means of debt financing on the graphite anode material sales business. Other income of $942,138 was mainly $380,164 for government subsidy and $390,714 for wasted residual sales.
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Income taxes provision
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares, as the case may be, nor will gains derived from the disposal of our ordinary shares be subject to Cayman Islands income or corporation tax.
Hong Kong
In accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. From year of assessment of 2019/2020 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000. However, the Company’s HK subsidiary did not generate any assessable profits arising in or derived from Hong Kong for the fiscal years ended December 31, 2024, 2023 and 2022, and accordingly no provision for Hong Kong profits tax has been made in these periods.
China
The Company’s subsidiaries are incorporated in Mainland China, and are subject to the Mainland China Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25% with the following exceptions.
In accordance with the implementation rules of EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate when the prior certificate expires. SDH is eligible to enjoy a preferential tax rate of 15% from 2021 to 2023 to the extent it has taxable income under the EIT Law. Sunrise Guizhou is eligible to enjoy a preferential tax rate of 15% from 2024 to 2026 to the extent it has taxable income under the EIT Law.
For qualified small and low-profit enterprises, from January 1, 2022 to December 31, 2022, 12.5% of the first RMB 1.0 million of the assessable profit before tax is subject to a preferential tax rate of 20% and the 25% of the assessable profit before tax exceeding RMB 1.0 million but not exceeding RMB 3.0 million is subject to a preferential tax rate of 20%. From January 1, 2023 to December 31, 2027, 25% of the first RMB 3.0 million of the assessable profit before tax is subject to the tax rate of 20%. For the years ended December 31, 2024, 2023 and 2022, some PRC subsidiaries are qualified small and low-profit enterprises as defined, and thus are eligible for the above preferential tax rates for small and low-profit enterprises.
Net loss
As a result of the foregoing, the Company reported a net loss of $17,981,164 for the year ended December 31, 2024, compared to $32,920,724 for the year ended December 31, 2023.
Net loss attributable to non-controlling interest
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. As of December 31, 2024, for the Company’s consolidated subsidiaries, the VIE and VIE’ s subsidiaries, non-controlling interests represent: a) a non-controlling shareholder’s 49% ownership interest in GMB (Beijing), GMB Consulting and Shidong Yike; b) a non-controlling shareholder’s 59.20% ownership interest in Sunrise Guizhou; c) a non-controlling shareholder’s 49% ownership interest in GMB Culture, which has a subsidiary called GMB Technology; and d) a non-controlling shareholder’s 25% ownership interest in Shidong Cloud, and 40% ownership interest in Shidong Trading.
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Net loss attributable to ordinary shareholders
Net loss attributable to shareholders was $11,776,436 for the year ended December 31, 2024, compared to $24,232,580 for the year ended December 31, 2023.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Revenues, net
Revenues for the years ended December 31, 2023 and 2022 were derived from the following sources:
| For the year ended December 31, | ||||||||||||||||||||||||
| 2023 | % | 2022 | % | Change | % | |||||||||||||||||||
| Graphite anode material business | $ | 44,384,004 | 98.52 | % | $ | 37,580,677 | 98.57 | % | $ | 6,803,327 | 18.10 | % | ||||||||||||
| Knowledge sharing and enterprise business | 666,401 | 1.48 | % | 544,991 | 1.43 | % | 121,410 | 22.28 | % | |||||||||||||||
| Revenues, net | $ | 45,050,405 | 100.00 | % | $ | 38,125,668 | 100.00 | % | $ | 6,924,737 | 18.16 | % | ||||||||||||
Revenues increased by $6,924,737, or 18.16%, from $38,125,668 for the year ended December 31, 2022, to $45,050,405 for the year ended December 31, 2023. Revenues from graphite anode material sales business accounted for 98.52% of net revenues for year ended December 31, 2023, as compared to 98.57% for the year ended December 31, 2022. Revenue from knowledge sharing and enterprise business accounted for 1.48% and 1.43% of net revenues for the years ended December 31, 2023 and 2022, respectively.
Revenues from graphite anode material sales
The Company’s products include various artificial graphite anode material products. Artificial graphite is made of petroleum coke, needle coke and pitch coke as the main material, and formed after crushing, shaping, granulation and graphitization. The Company markets its graphite anode products through a direct sales channel, through its sales department consists of five experienced employees, who report directly to the CEO of the Company. The Company’s customers were manufacturers of industrial and consumer energy storage lithium-ion batteries, such as batteries for electric vehicles and electric ships, and smart consumer electronics.
Revenues increased by $6,803,327, or 18.10%, from $37,580,677 for the year ended December 31, 2022, to $44,384,004 for the year ended December 31, 2023. For the year ended December 31, 2023, the Company had supplied products to 23 customers for 12,513 tons, as compared to 16 customers for 6,225 tons for year ended December 31, 2022. In the meantime, the average selling price of the graphite anode materials decreased by RMB 16,000 per ton, or 39% from RMB 41,000 per ton for the year ended December 31, 2022 to RMB 25,000 per ton for the year ended December 31, 2023.
Revenues from knowledge sharing and enterprise business
Revenues from knowledge sharing and enterprise business increased by $121,410, or 22.28%, from $544,991 for the year ended December 31, 2022, to $666,401 for the year ended December 31, 2023. During the outbreak of the COVID-19, SDH was not able to offer offline activities.
The revenue increase of knowledge sharing and enterprise business for the year ended December 31, 2023 was brought by consulting services. SDH provides consulting services to small and medium-sized enterprises to develop strategies and solutions for the following: corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. Revenues from consulting services increased by $462,333, or 4,793.50% from $9,645 for the year ended December 31, 2022, to $471,978 for the year ended December 31, 2023, primarily due to the fact that SDH provided more consultation services associated with initial public offering. The increase was offset by $346,650 revenue decrease in member services, comprehensive tailored services and other services as the Chinese economy and capital markets did not recovered from the impact of COVID-19.
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Costs of revenues
The following table sets forth the breakdown of the cost of revenues for the years ended December 31, 2023 and 2022:
| For the years ended December 31, | Change | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Service costs | $ | 281,030 | 0.49 | % | $ | 1,176,956 | 2.98 | % | $ | (895,926 | ) | (76.12 | )% | |||||||||||
| Cost of goods sold | 57,172,626 | 99.51 | % | 38,299,090 | 97.02 | % | 18,873,536 | 49.28 | % | |||||||||||||||
| Total costs of revenues | 57,453,656 | 100.00 | % | 39,476,046 | 100.00 | % | 17,977,610 | 45.54 | % | |||||||||||||||
Service costs
The service costs of the knowledge sharing and enterprise business primarily included (1) the cost of holding activities, such as venue rental fees, conference equipment fees, (2) professional and consulting fees paid to third parties for the activities; (3) labor costs; and (4) amortization cost of copyright. Service costs decreased by $895,926, or 76.12% for the year ended December 31, 2023 compared to same period in 2022, mainly due to the decrease of $757,675 in amortization of copyright that had been fully impaired as of December 31, 2022.
Cost of goods sold
The cost of goods sold increased by $18,873,536, or 49.28%, from $38,299,090 for the year ended December 31, 2022, to $57,172,626 for the year ended December 31, 2023. The increase of the cost of goods sold was mainly due to the expansion of the graphite anode materials sales business. In the meantime, the average cost per ton of the graphite anode materials decreased by $2,162 per ton, or 35.14% from $6,152 per ton for the year ended December 31, 2022 to $3,991 per ton for the year ended December 31, 2023, which offset the volume increase. Moreover, a $7,238,819 impairment of inventory of graphite anode material was recorded at the lower of cost and net realizable value due to decreasing sales prices.
Gross loss
As a result of the foregoing, the Company reported a gross loss of $12,403,251 for the year ended December 31, 2023 and a negative gross margin. The negative gross margin was due to the $12,788,622 gross loss of the graphite anode material sales business due to the manufacturing overcapacity and high level of competition. As a result, the raw material costs and graphitization outsourcing cost did not decrease proportionately to the decrease in the sales prices of graphite anode material. In the meantime, a $7,238,819 impairment of inventory of graphite anode material was recorded at the lower of cost and net realizable value due to decreasing sales prices. The gross loss was partially set off by a gross profit of $385,371 from the knowledge sharing and enterprise business.
Operating expenses
The following table sets forth the breakdown of the operating expenses for the years ended December 31, 2023 and 2022:
| For the years ended December 31, | Change | |||||||||||||||||||||||
| 2023 | % | 2022 | % | Amount | % | |||||||||||||||||||
| Selling expenses | $ | 742,167 | 4.09 | % | 1,075,980 | 6.16 | % | (333,813 | ) | (31.02 | )% | |||||||||||||
| General and administrative expenses | 13,040,038 | 71.94 | % | 12,678,873 | 72.62 | % | 361,165 | 2.85 | % | |||||||||||||||
| Research and development expenses | 1,193,082 | 6.58 | % | 1,053,882 | 6.04 | % | 139,200 | 13.21 | % | |||||||||||||||
| Impairment of intangible assets | 3,151,467 | 17.39 | % | 2,650,020 | 15.18 | % | 501,447 | 18.92 | % | |||||||||||||||
| Total costs and operating expenses | 18,126,754 | 100.00 | % | 17,458,755 | 100.00 | % | 667,999 | 3.83 | % | |||||||||||||||
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Selling expenses
The selling expenses decreased by $333,813 or 31.02%, from $1,075,980 for the year ended December 31, 2022 to $742,167 for the year ended December 31, 2023. Such decrease was primarily due to a decrease in labor costs of $184,992 and in consulting fees of $116,877, stemming from the decreased operation of the knowledge sharing and enterprise business.
General and administrative expenses
The general and administrative expenses increased by $361,165, or 2.85%, from $12,678,873 for the year ended December 31, 2022 to $13,040,038 for the year ended December 31, 2023. Such increase was primarily due to (1) an increase in bad debt expenses of $1,297,639, which was mainly due to the negative impact of COVID-19 on the financial condition of the debtors in the knowledge sharing and enterprise service business; and (2) an increase of $475,910 in tax on property and land use rights on Company’s warehouses for manufacturing graphite anode materials, which were offset by (1) a decrease in professional fee of $193,499; (2) a decrease in insurance fee of $445,757 due to the fact that the Company did not renew the insurance policy for its management; (3) a decrease in rental fee of $283,345 for the knowledge sharing and enterprise business; and (4) a decrease in share-based compensation of $560,314 as 25% of the restricted shares vested on the grant day August 26, 2022 and the remaining 75% would vested within three years with equal yearly installments from 2022 to 2025.
Research and development expenses
Research and development expenses increased by $139,200 or 13.21%, from $1,053,882 for the year ended December 31, 2022 to $1,193,082 for the year ended December 31, 2023. Research and development expenses for the year ended December 31, 2023 and 2022 were mainly associated with the research development activities of graphite anode material business, including technology service, technical service, purchasing laboratory chemical material collaterals.
Impairment of intangible assets
Impairment of intangible assets increased by $501,447, or 18.92%, from $2,650,020 for the year ended December 31, 2022 to $3,151,467 for the year ended December 31, 2023. The impaired intangible assets for the year ended December 31, 2023 were associated with the copyrights of graphite anode material business. The Company reviewed its copyright of graphite anode material business for impairment as the copyrights became obsolete for manufacturing. It indicated that the carrying amount of copyrights might no longer be recoverable as of December 31, 2023. The impaired intangible assets for the year ended December 31, 2022 were associated with the copyrights of course videos purchased from a third party. The knowledge sharing and enterprise service business was adversely affected by COVID-19 for the year ended December 31, 2022. The Company reviewed its copyright of course videos for impairment in the event of the adverse change to market conditions that would impact the future use of such copyright. Such review indicated that the carrying amount of an asset might no longer be recoverable as of December 31, 2022.
Other expenses, net
The total net other expenses were $2,390,945 for the year ended December 31, 2023. Such expenses for the year ended December 31, 2023 primarily consisted of investment loss of $1,170,974 and interest expense of $2,162,109, which was partially offset by the other income of $942,138. Investment loss of $1,170,974 was mainly attributed to the impairment loss of $1,450,381 on long-term investments that do not have readily determinable fair values. Interest expense was mainly attributable to various means of debt financing on the graphite anode material sales business. Other income of $942,138 was mainly $380,164 for government subsidy and $390,714 for wasted residual sales.
The total net of other expenses was $3,506,299 for the year ended December 31, 2022 primarily consisted of the investment loss of $3,618,847 which was mainly attributed by the investment loss in a trust fund of $2,625,349 and impairment loss of $979,426 on long-term investment.
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Income taxes provision
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our Ordinary Shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Ordinary Shares be subject to Cayman Islands income or corporation tax.
Hong Kong
In accordance with the relevant tax laws and regulations of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income. From year of assessment of 2019/2020 onwards, Hong Kong profit tax rates are 8.25% on assessable profits up to HK$2,000,000, and 16.5% on any part of assessable profits over HK$2,000,000. However, the Company’s HK subsidiary did not generate any assessable profits arising in or derived from Hong Kong for the fiscal years ended December 31, 2023, 2022 and 2021, and accordingly no provision for Hong Kong profits tax has been made for these periods.
China
The Company’s subsidiaries are incorporated in the PRC, and are subject to the PRC Enterprise Income Tax Laws (“EIT Laws”) with the statutory income tax rate of 25% with the following exceptions.
In accordance with the implementation rules of EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years. An entity could re-apply for the HNTE certificate when the prior certificate expires. SDH is eligible to enjoy a preferential tax rate of 15% from 2021 to 2023 to the extent it has taxable income under the EIT Law.
For qualified small and low-profit enterprises, from January 1, 2021 to December 31, 2021, 12.5% of the first RMB 1.0 million of the assessable profit before tax is subject to preferential tax rate of 20% and the 50% of the assessable profit before tax exceeding RMB 1.0 million but not exceeding RMB 3.0 million is subject to preferential tax rate of 20%. From January 1, 2022 to December 31, 2022, 12.5% of the first RMB 1.0 million of the assessable profit before tax is subject to preferential tax rate of 20% and the 25% of the assessable profit before tax exceeding RMB 1.0 million but not exceeding RMB 3.0 million is subject to preferential tax rate of 20%. From January 1, 2023 to December 31, 2027, 25% of the first RMB 3.0 million of the assessable profit before tax is subject to the tax rate of 20%. For the years ended December 31, 2021, 2022 and 2023, some PRC subsidiaries are qualified small and low-profit enterprises as defined, and thus are eligible for the above preferential tax rates for small and low-profit enterprises.
Net loss
As a result of the foregoing, the Company reported a net loss of $32,920,724 for the year ended December 31, 2023, compared to $23,124,402 for the year ended December 31, 2022.
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Net loss attributable to non-controlling interest
Non-controlling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. As of December 31, 2023, for the Company’s consolidated subsidiaries, the VIE and VIE’ s subsidiaries, non-controlling interests represent: a) a non-controlling shareholder’s 49% ownership interest in GMB (Beijing), GMB Consulting and Shidong Yike; b) a non-controlling shareholder’s 37.81% ownership interest in Sunrise Guizhou; c) a non-controlling shareholder’s 49% ownership interest in GMB Culture, which has a subsidiary called GMB Technology; and d) a non-controlling shareholder’s 25% ownership interest in Shidong Cloud, and 40% ownership interest in Shidong Trading.
Net loss attributable to shareholders
Net loss attributable to shareholders was $24,232,580 for the year ended December 31, 2023, compared to $22,636,622 for the year ended December 31, 2022.
Liquidity and Capital Resources
As reflected in the consolidated financial statements, the Company incurred net losses of $17,981,164 for the year ended December 31 2024. Net cash used in operating activities was $5,352,157 for the year ended December 31, 2024. The working capital deficit was $23,745,736 as of December 31, 2024.
As of December 31, 2024, the Company was in default under a short-term loan agreement for $958,996 between Industrial Bank Co., Ltd. (“Industrial Bank”) and GIOP BJ. The term of the loan is from August 29, 2024 to August 28, 2025. Specifically, the financial covenants of the loan agreement require GIOP BJ to keep: (1) current assets of no less than RMB 25,000,000, approximately $3,424,986; (2) net assets of no less than RMB 8,000,000, approximately $1,095,996; (3) asset liability ratio of no more than 80%; and (4) current ratio of no less than 1. As of December 31, 2024, GIOP BJ was not in compliance with the above financial covenants. Industrial Bank had not requested accelerated principal repayment as of the date of this consolidated financial statement.
In addition, as of December 31, 2024, the Company was in default under two long-term loan agreements with China Construction Bank (“CCB”) Qianxinan Branch for $13,383,407 and $13,425,945, respectively. The terms of the loans are from March 8, 2024 to March 8, 2026 and June 28, 2024 to June 28, 2026, respectively. Specifically, the financial covenants of the loans require Sunrise Guizhou to maintain asset liability ratio of no more than 70% and continuous profitability during the loan period. The Company obtained written consent for a waiver of default on September 30, 2024. CCB notified the Company that the non-compliance would not result in accelerated principal repayment or the application of a default interest rate.
These adverse conditions and events raised substantial doubt about the Company’s ability to continue as a going concern. For the next 12 months from the issuance date of this report, the Company plans to continue implementing various measures to boost revenue and control cost and expenses. In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources and ability to obtain additional financial support in the future, and its operating and capital expenditure commitments. The Company intends to finance its future working capital requirements and capital expenditures from financing activities for the cash shortfalls and the negative operating cash flows. The Company expects continued capital financing through debt or equity issuances to support its working capital requirements.
As of December 31, 2024, the Company had cash, cash equivalents and restricted cash of $9,360,584. The management believes that it would be able to continue to borrow from banks based on past experiences and the Company’s good credit history when necessary.
Currently, the Company is working to improve its liquidity and capital sources primarily through cash flows from operation, debt financing, and financial support from its principal shareholder. In order to fully implement its business plans and sustain continued growth, the Company may also seek equity financing from outside investors when necessary.
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On January 9, 2025, Sunrise Guizhou obtained a bank loan of RMB 300,000,000, approximately $41,099,831, from CCB Qianxinan Branch with an interest rate of loan prime rate of 3.6% plus 0.7% for a term from January 9, 2025 to January 9, 2039. The loan was for the infrastructure construction of an additional 50,000-ton manufacturing capacity of Sunrise Guizhou.
On March 31, 2025, Sunrise Guizhou obtained bank loan of RMB 29,000,000, approximately $3,972,984, from Everbright Bank with an interest rate of 4.0% for a term from March 31, 2025 to March 30, 2026. The loan was for the expenditure on raw material and electricity.
On December 31, 2024, the shareholders of Sunrise Guizhou entered into a capital increase agreement with Jieshou Xinyang Equity Investment Fund Partnership Enterprise (Limited Partnership) (“Xinyang Partnership”), pursuant to which, Xinyang Partnership agreed to subscribe to 10% of the equity shares of Sunrise Guizhou for a total cash consideration of RMB 200,000,000, approximately $27,399,888. The payment is to be made in four installments, contingent upon the fulfillment of certain prerequisite conditions for the capital increase, as determined by Xinyang Partnership. On January 17, 2025, Sunrise Guizhou received the first installment of the subscription proceeds of RMB 50,000,000, approximately $6,826,032.
The Company can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable to the Company, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial and liquidity shortfall, there would likely be a material adverse effect on the Company and its consolidated financial statements.
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
If the Company experiences an adverse operating environment or incurred unanticipated capital expenditure requirements, or if the Company accelerates its growth, then additional financing may be required. No assurance can be given, however, that additional financing, if required, would be on favorable terms or available at all. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilutions to the existing shareholders.
Substantially all of the Company’s operations are conducted in the PRC and all of the revenues and the vast majority of expenses, cash and cash equivalents are denominated in RMB. As of December 31, 2024, 94.93% of cash, cash equivalents and restricted cash were held in China, and held by its subsidiaries, VIE and VIE’s subsidiaries and denominated in Renminbi, while 5.07% of cash, cash equivalents and restricted cash were held in Hong Kong by EPOW, SDH New Energy and GMB HK in US dollars. Although the Company consolidates the results of the VIE and its subsidiaries, the Company only has access to the assets or earnings of the VIE and their subsidiaries through the contractual arrangements with the VIE and its shareholders. See “Business — Contractual Arrangements between GIOP BJ, SDH and Its Shareholders.”
A majority of the future revenues are likely to continue to be in the form of Renminbi. Under existing PRC foreign exchange regulations, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, PRC subsidiaries are allowed to pay dividends in foreign currencies to the Company without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.
As of December 31, 2024, the followings were outstanding balances of cash, cash equivalents and restricted cash in each jurisdiction:
| Cash and cash equivalents | Restricted cash | Total | ||||||||||
| PRC | $ | 789,737 | $ | 8,096,121 | $ | 8,885,858 | ||||||
| Hong Kong | 474,687 | - | 474,687 | |||||||||
| Cayman Islands | 39 | - | 39 | |||||||||
| Total | $ | 1,264,463 | $ | 8,096,121 | $ | 9,360,584 | ||||||
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Cash Flows
The following table sets forth a summary of cash flows for the periods indicated:
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net cash used in operating activities | $ | (5,352,157 | ) | $ | (7,282,995 | ) | $ | (9,573,401 | ) | |||
| Net cash provided by (used in) investing activities | 632,461 | (7,003,035 | ) | (45,609,072 | ) | |||||||
| Net cash provided by financing activities | 10,631,669 | 13,679,267 | 45,760,061 | |||||||||
| Effect of foreign exchange rate on cash, cash equivalents and restricted cash | (172,056 | ) | (66,587 | ) | (899,786 | ) | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 5,739,917 | $ | (673,350 | ) | $ | (10,322,198 | ) | ||||
Operating Activities
Net cash used in operating activities amounted to $5,352,157 for the year ended December 31, 2024. It was primarily due to the following: a) net loss of $17,981,164, adjusted by depreciation and amortization of $5,096,445, share-based compensation of $972,743, interest expenses of $166,999, impairment of inventory of $3,959,304, and amortization of finance lease right-of-use asset of $622,203; increased by b) accounts payable of $17,837,613 for raw materials of graphite anode business; c) notes payable of $12,230,606 for raw materials of graphite anode business; and d) deferred revenue of $1,154,441 for the consideration received prior to the goods sold; offset by e) accounts receivable of $20,706,075 due to the expansion on sales of graphite anode products; f) inventories of $6,241,347 for more inventory purchase on raw materials, work in progress and finished goods due to expansion of graphite anode business; and g) prepaid expenses and other current assets of $1,309,420 due to increase on advance to supplier of $1,624,412.
Net cash used in operating activities amounted to $7,282,995 for the year ended December 31, 2023. It was primarily due to the following: a) net loss of $32,920,724, adjusted by depreciation and amortization of $3,953,328, share-based compensation of $2,145,801, interest expenses of $575,075, investment losses of $1,170,974, bad debt expense of $3,428,033, impairment of inventory of $7,238,819, impairment of intangible assets of $3,151,467, and amortization of finance lease right-of-use asset of $338,627; increased by b) prepaid expenses and other current assets of $6,157,166 due to decrease on tax prepayment of $2,495,656 and advance to supplier of $2,314,788; c) accounts payable of $6,133,132 for finished goods and raw materials of graphite anode business; offset by d) accounts receivable of $4,074,715 due to sales of graphite anode products; and e) inventories of $5,095,430 for raw materials, work in progress and finished goods of the graphite anode sales business.
Net cash used in operating activities amounted to $9,573,401 for the year ended December 31, 2022. It was primarily due to the following: a) a net loss of $23,124,402, adjusted by depreciation and amortization of $2,062,499, share-based compensation of $2,729,969, deferred tax expenses of $807,412, interest expenses of $213,823, investment losses of $3,618,847, bad debt expense of $2,887,754, impairment on inventory of $2,711,158, impairment on intangible assets of $2,650,020, amortization of land use rights of $126,042 and amortization of operating lease right-of-use asset of $213,063; decreased by b) account receivable of $1,734,486, notes receivable of $899,481 due to sales of graphite anode products; c) inventories of $18,747,772 finished goods and purchased raw materials of graphite anode; d) prepaid expenses and other current assets of $2,894,690 due to increase on tax prepayment of $4,345,304 offset by decrease on prepaid expenses of 2,251,169; increased by d) account payable of $12,661,801 and notes payable of $ 4,014,213 for payables to vendors of graphite business; and e) deferred government subsidy of $2,973,491 due to relocation bonus received from the government of Zibo City, Shandong Province, PRC.
Investing Activities
Net cash provided by investing activities amounted to $632,461 for the year ended December 31, 2024. It was primarily due to the following: a) redemption of the short-term investment in the Viner Total Investment Fund for a cash collection of $2,371,942; and b) redemption of the prepayment for investment in the Zhejiang Wangxin Health Technology Co., Ltd. for a cash collection of $708,757; partially offset by c) purchase of plant, property and equipment of $2,464,915;
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Net cash used in investing activities amounted to $7,003,035 for the year ended December 31, 2023. It was primarily due to the following: a) purchase of plant, property and equipment of $5,472,778; b) consideration installment paid for the prior year’s asset acquisition of $706,125, and c) prepayment for finance lease right-of-use assets of $1,029,195 and deposit paid for finance lease of $655,990, both of which were associated with a finance lease contract for graphite anode material manufacturing facilities; offset by d) redemption of the short-term investment Viner Total Investment Fund for a cash collection of $878,000.
Net cash used in investing activities amounted to $45,609,072 for the year ended December 31, 2022. It was primarily due to the following: a) purchase of plant, property and equipment of $43,714,195; and b) consideration paid for an asset acquisition of $1,486,746.
Financing Activities
Net cash provided by financing activities amounted to $10,631,669 for the year ended December 31, 2024, representing: a) proceeds from short-term and long-term loan of $1,667,663 and $27,876,982, respectively; and b) loans from related parties of $9,145,337; partially offset by c) repayment on short-term and long-term loan of $6,948,594 and $4,526,391, respectively; d) prepayment on acquisition cost of long-term loans from CCB for $1,255,027; e) repayment on the debt financing from sale and leaseback contracts of $4,692,271; f) repayment on loans from related parties of $8,797,497; and g) repayment on finance lease liabilities of $2,571,592 associated with finance lease contracts for graphite anode material manufacturing facilities.
Net cash provided by financing activities amounted to $13,679,267 for the year ended December 31, 2023, representing proceeds from a) proceeds from short-term and long-term loan for $7,061,249 and $4,236,750, respectively; b) proceeds from the debt financing from sale and leaseback contracts, net of issuance cost, of $4,825,658 and c) loans from related parties of 3,867,883; offset by d) repayment on the debt financing from sale and leaseback contracts of $4,782,564; e) repayment on finance lease liabilities of $1,282,358 associated with a finance lease contract for graphite anode material manufacturing facilities.
Net cash provided by financing activities amounted to $45,760,061 for the year ended December 31, 2022, representing proceeds from the debt financing from sale and leaseback contracts, net of issuance cost, of $8,827,701 and capital contributions from the non-controlling shareholders of $ 37,024,594.
Trend Information
Other than as disclosed elsewhere in this annual report, the Company is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on net revenues, incomes from operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
Off-Balance Sheet Arrangements
The Company did not have any off-balance sheet arrangements as of December 31, 2024.
Contingencies
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of December 31, 2024, the Company did not have material litigations or lawsuits against them.
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Inflation
Inflation does not materially affect the Company’s business or the results of its operations.
Seasonality
The nature of the Company’s business does not appear to be affected by seasonal variations.
Critical Accounting Estimates
The Company prepares the consolidated financial statements in accordance with U.S. GAAP. These accounting principles require the Company to make judgments, estimates and assumptions on the reported amounts of assets and liabilities at the end of each fiscal period, and the reported amounts of revenues and expenses during each fiscal period. The Company continually evaluate these judgments and estimates based on the own historical experience, knowledge and assessment of current business and other conditions, the expectations regarding the future based on available information and assumptions that the Company believe to be reasonable.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing the Company’s financial statements. Our critical accounting policies and practices include the following: (i) revenue recognition, (ii) lease, (iii) asset acquisition, (iv) income taxes, (v) the accretion to the redemption value of redeemable non-controlling interests and (vi) extinguishment of the redeemable non-controlling interests. For further information on these accounting policies, see Note 2 to our consolidated financial statements included elsewhere in this annual report.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Such critical estimates are discussed below.
Allowance for credit loss
Accounts receivables mainly represent amounts due from clients in the ordinary course of business and are recorded net of allowance for doubtful accounts.
On January 1, 2023, the Company adopted ASC 326 Financial Instruments – Credit Losses (“ASC 326”) using the modified retrospective approach through a cumulative-effect adjustment to the accumulated deficit. Upon adoption, the Company changed its impairment model to utilize a current expected credit losses model in place of the incurred loss methodology for financial instruments measured at amortized cost. The Company had not recorded an adjustment to the opening accumulated deficit as of January 1, 2023 due to immaterial cumulative impact of adopting ASC 326.
The Company used an expected credit loss model for the impairment of financial instruments mentioned above as of period ends. For the allowance of the accounts receivable, the Company believes the aging of accounts receivable is a reasonable parameter to estimate expected credit loss, and determines expected credit losses for accounts receivables using an aging schedule as of period ends. The expected credit loss rates under each aging schedule were developed on the basis of the average historical loss rates from previous years, and adjusted to reflect the effects of those differences in current conditions and forecasted changes. The Company measured the expected credit losses of accounts receivable on a collective basis. When an accounts receivable does not share risk characteristics with other accounts receivables, management will evaluate such accounts receivable for expected credit loss on an individual basis. Doubtful accounts balances are written off and deducted from allowance for credit loss, when receivables are deemed uncollectible, after all collection efforts have been exhausted and the potential for recovery is considered remote. The allowance for credit loss was $7,909,571 and $8,016,322 as of December 31, 2024 and 2023, respectively.
Impairment of inventories
The cost of inventories is calculated using the weighted average method. Inventory shall be measured at the lower of cost and net realizable value. Net realizable value is estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. The impairment of inventories provided for lower of cost and net realizable value was $3,959,304, $7,238,819 and $2,711,158 for the years ended December 31, 2024, 2023 and 2022, respectively.
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Impairment of long-term investments
For other equity investments that do not have readily determinable fair values and over which the Company has neither significant influence nor control through investments in common stock or in-substance common stock, the Company accounts for these investments at cost minus any impairment, if necessary.
The Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the Company’s carrying value; the financial condition, operating performance and the prospects of the equity investee. If the decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value. Impairment charges for long-term investments were $nil, $1,450,381, and $979,426 recorded in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2024, 2023 and 2022, respectively.
Impairment of long-lived assets
Long-lived assets, including plant, property and equipment, intangible asset, land use rights and finance lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets or assets group to the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets or assets group, the Company would recognize an impairment loss based on the fair value of the assets or assets group, which is the excess of carrying amount over the fair value of the assets, using the expected future discounted cash flows. Impairments charges for long-lived assets were $nil, $3,151,467, and $2,650,020 recorded in the Company’s consolidated statements of operations and comprehensive loss for the years ended December 31, 2024, 2023 and 2022, respectively.
Valuation allowance on deferred tax assets
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 tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Valuation allowance on deferred tax assets were $10,693,306 and $10,605,326 as of December 31, 2024 and 2023, respectively.
Accretion to the redemption value of redeemable non-controlling interests
On June 13, 2022, New Kinetic Partnership subscribed 22.8395% of the preferred shares of Sunrise Guizhou, at total cash consideration of RMB200,000,000, approximately $29,467,667. The preferred shares held by the non-controlling shareholder of Sunrise Guizhou could be redeemed by the non-controlling shareholder upon the occurrence of certain events that are not solely within the control of the Company, Due to the probability of being redeemed, the Company adjusts the carrying amount of the mezzanine equity to equal the redemption value at the end of each reporting period as if it was the redemption date for the redeemable non-controlling interest. These shares are accounted for as redeemable non-controlling interests. The redeemable non-controlling interests will be recorded at redemption value. The Company accounts for the changes in accretion to the redemption value in accordance with ASC 480, Distinguishing Liabilities from Equity. Accretion on redeemable non-controlling interest were $983,927, $3,314,857, and $1,760,662 for the years ended December 31, 2024, 2023 and 2022, respectively.
Extinguishment of redeemable non-controlling interests
The Company assesses whether an amendment to the terms of its redeemable non-controlling interests is an extinguishment or a modification based on a qualitative evaluation of the amendment. If the amendment adds, removes, significantly changes to a substantive contractual term or to the nature of the overall instrument, the amendment results in an extinguishment of the redeemable non-controlling interests. The Company also assesses if the change in terms results in value transfer between redeemable non-controlling interests and ordinary shareholders. When redeemable non-controlling interests are extinguished, the difference between the carrying amount and the fair value of the redeemable non-controlling interests is recorded against equity.
On June 18, 2024, the New Kinetic Partnership amended the terms of the investment agreement to waive their preferential rights in dividend and liquidation, and remove the redemption events related to completion of an IPO and meeting performance commitment. In addition, the Company, including Zhuhai Zibo, the controlling shareholder of Sunrise Guizhou, is excluded from the redemption obligor and certain shareholders of Sunrise Guizhou become the sole obligor of the redemption. As a result of the amendments, the Group reclassified the equity interest held by New Kinect Partnership from mezzanine equity to non-controlling interests.
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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Executive Officers
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
| Directors and Executive Officers | Age | Position/Title | ||
| Haiping Hu | 57 | Chief Executive Officer (“CEO”), Chairman of the Board of Director | ||
| Chao Liu | 44 | Chief Financial Officer (“CFO”), Director | ||
| Xiang Luo | 54 | Independent Director | ||
| Jian Pei | 57 | Independent Director | ||
| Xin Zhang | 36 | Independent Director |
Mr. Haiping Hu has been our CEO and Chairman since February 2019, and he has served as CEO and Chairman of the VIE since December 2014. From August 2004 to January 2018, he was CEO and Vice Chairman of Shanshan Holdings Co., Ltd, which is mainly engaged in the production of lithium-ion battery parts, such as lithium-ion capacitors, battery pack, and charging pile, and providing new energy services such as new energy vehicle operation and energy management services, etc. From January 1996 to July 2004, he served as Vice President of Shanshan Group Co., Ltd. Since 2002, Shanshan Holdings Co., Ltd. has ranked among the top 500 Chinese companies in successive years. Mr. Hu holds a bachelor’s degree in Chemical Automation and a master’s degree in Chemical Engineering from Zhejiang University. Nicknamed “General Hu Haiping on Horseback,” Mr. Hu has more than 20 years of experience as founder and executive, and is a well-known entrepreneur in China.
Ms. Chao Liu has served as our CFO since February 2019, and as the CFO of the VIE since January 2016. She has also served as our director since June 8, 2023. From June 2012 to June 2015, she was the head of the accounting department of Beijing Meanfang Institute of Physics and Technology, which is engaged in manufacturing gas instruments that are widely used in petrochemical, cement, chemical fertilizer, agriculture, military, medical, environmental protection, scientific research and other fields, Beijing Meanfang Spectrum Technology Co., Ltd., which is engaged in manufacturing and selling spectrum instruments, and Beijing Zhongchuang Technology Co., Ltd., which is engaged in providing interactive marketing technology solutions for brand customers and advertising agents. From May 2008 to December 2015, she was the comptroller of Beijing Hongri Dongsheng Decoration Co., Ltd., which provides decoration services to customers and Beijing Sunshine Season Network Technology Company, which provides network maintenance services to its customers. From November 2003 to November 2014, she served as supervisor of the accounting department of Beijing Haixinyuan Food Co., Ltd. which is engaged in the manufacture and sale of cold candies, pastries and cold drinks and Beijing Haixinyuan Guest House Co., Ltd., which provides hoteling services to its customers. Ms. Liu studied finance at Beijing Language and Culture University and graduated in January 2016. She has a strong understanding of international accounting and tax policies.
Mr. Xiang Luo was appointed as our director on March 11, 2022. Mr. Luo holds a PhD in Business Administration from Bulacan State University in Philippines, and has over twenty years of experience working at various senior positions at the United Nations and other international organizations, including the International Economic Development Council. Since June 2020, Mr. Luo has served as the co-chair of Global Steering Committee of Carbon Neutral Action (GSCCNA), an international non-governmental organization that provides strategic advice on special purpose financing, green technical and systematic solutions to achieving the Sustainable Development Goals (SDG) under the United Nations’ sustainable development agenda and climate change planning. From November 2014 to December 2019, Mr. Lou served as the head of the China Office of the United Nations Office for Project Services (UNOPS), responsible for the overall coordination of strategic planning, project financing and management, team capacity building, public advocacy, risk management and performance evaluation, of various projects.
Dr. Jian Pei was appointed as our director on May 30, 2022. He has served as a professor at the College of Chemistry and Molecular Engineering of Peking University, China, since April 2001. Dr. Pei received his undergraduate degree in 1989 and Ph.D. degree in 1995, majoring in Chemistry, from Peking University in 1995. After the completion of his postdoctoral work at the National University of Singapore in July 1997, he joined the Institute of Materials Research and Engineering in Singapore and served as a research associate from November 1997 to August 2001. From June 1998 to January 2000, Dr. Pei was a visiting scholar at the Institute of Polymer and Organic Solids, University of California at Santa Barbra. Dr. Pei is a receiver of the Changjiang Scholar award, an academic award given to an individual in higher education by the Ministry of Education of the People’s Republic of China. Dr. Pei’s research focuses on the development of organic semiconducting materials for application in optoelectronics.
Mr. Xin Zhang has served as our director since February 8, 2024. He has served as the Director of Risk Control at Albamen Capital Partners since June 2020. Mr. Xin Zhang served as the Risk Control Manager at CPE Capital Partners (London/ Paris) from March 2017 to May 2020, and served as the Head of Investment Team (UK) at CGN Europe Energy (London/Paris) from January 2013 to January 2017. Mr. Xin Zhang holds a Bachelor of Science from Zhejiang University in PRC, an MBA from the Freeman School of Business, Tulane University in USA, and a Master in Finance from the London Business School in London, UK.
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Board Diversity
The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
| Board Diversity Matrix | ||
| Country of Principal Executive Offices | China | |
| Foreign Private Issuer | Yes | |
| Disclosure Prohibited under Home Country Law | No | |
| Total Number of Directors | 5 | |
| Female | Male | Non- Binary | Did Not Disclose Gender | |||||
| Part I: Gender Identity | ||||||||
| Directors | 1 | 4 | - | - | ||||
| Part II: Demographic Background | ||||||||
| Underrepresented Individual in Home Country Jurisdiction | - | - | - | - | ||||
| LGBTQ+ | - | - | - | - | ||||
| Did Not Disclose Demographic Background | - | - | - | - |
Family Relationships
None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
B. Compensation of Directors and Executive Officers
The following table sets forth certain information with respect to compensation for the fiscal year ended December 31, 2024, earned by or paid to our chief executive officers.
Summary Compensation Table
| Name and Principal Position | Year | Salary (US$) | Bonus (US$) | Stock Awards | Option Awards (US$) | Non-Equity Incentive Plan Compensation | Deferred Compensation Earnings | Other | Total (US$) | |||||||||||||||||||||||||||
| Haiping Hu | 2024 | 35,582 | - | 639,478 | - | - | - | - | 675,060 | |||||||||||||||||||||||||||
| CEO of the Company and the VIE | ||||||||||||||||||||||||||||||||||||
| Chao Liu | 2024 | 28,655 | - | 66,089 | - | - | - | - | 94,744 | |||||||||||||||||||||||||||
| CFO and Director of the Company and the VIE | ||||||||||||||||||||||||||||||||||||
| Jian Pei | 2024 | - | - | 16,522 | - | - | - | - | 16,522 | |||||||||||||||||||||||||||
| Independent Director of the Company | ||||||||||||||||||||||||||||||||||||
| Xiang Luo | 2024 | - | - | 16,522 | - | - | - | - | 16,522 | |||||||||||||||||||||||||||
| Independent Director of the Company | ||||||||||||||||||||||||||||||||||||
| Xin Zhang (1) | 2024 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Independent Director of the Company | ||||||||||||||||||||||||||||||||||||
| (1) | Mr. Xin Zhang was appointed as our director on February 8, 2024. |
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2022 Share Incentive Plan
Our board of directors adopted the 2022 Stock Incentive Plan (the “2022 Plan”) in July 2022, effective as of July 11, 2022, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. Under the 2022 Plan, the maximum aggregate number of shares that may be issued pursuant to all awards shall be 3,679,200 Class A Ordinary Shares.
As of the date of this annual report, we issued 2,355,650 Class A Ordinary Shares to qualified persons under the 2022 Plan.
The following describes the principal terms of the 2022 Plan.
Types of awards
The 2022 Plan permits the awards of cash, restricted stock units, share options, or any similar securities with a value derived from the value of or related to the Class A Ordinary Shares and/or returns thereon.
Plan Administration
Our board of directors or a committee of one or more members of the board of directors administers the 2022 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.
Award Agreement
Each awards granted under the 2022 Plan is evidenced by an award agreement that sets forth terms, conditions and limitations, which may include the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility
We may grant awards to our employees, directors and consultants of our Company, and other individuals, as determined by the plan administrator.
Vesting Schedule
In general, the plan administrator determines the vesting schedule, which is specified in the award agreement.
Exercise of Options
The plan administrator determines the exercise price for each award, which is stated in the award agreement.
2024 Share Incentive Plan
Our board of directors and shareholders adopted the 2024 Stock Incentive Plan (the “2024 Plan”) in February 2024, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. Under the 2024 Plan, the maximum aggregate number of shares that may be issued pursuant to all awards shall be 2,613,000 Class A Ordinary Shares.
As of the date of this annual report, we have not issued any awards under the 2024 Plan.
The following describes the principal terms of the 2024 Plan.
Types of awards
The 2024 Plan permits the awards of cash, restricted stock units, share options, or any similar securities with a value derived from the value of or related to the Class A Ordinary Shares and/or returns thereon.
Plan Administration
Our board of directors or a committee of one or more members of the board of directors administers the 2024 Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant.
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Award Agreement
Each award granted under the 2024 Plan is evidenced by an award agreement that sets forth terms, conditions and limitations, which may include the provisions applicable in the event of the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility
We may grant awards to our employees, directors and consultants of our Company, and other individuals, as determined by the plan administrator.
Vesting Schedule
In general, the plan administrator determines the vesting schedule, which is specified in the award agreement.
Exercise of Options
The plan administrator determines the exercise price for each award, which is stated in the award agreement.
Agreements with Named Executive Officers
We enter into employment agreements with our executive officers. Pursuant to employment agreements, we agree to employ each of our executive officers for a specified time period, which will be renewed upon both parties’ agreement thirty days before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a two-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.
C. Board Practices
Board of Directors
Our board of directors consists of five directors.
Duties of Directors
As a matter of Cayman Islands law, a director owes three types of duties to the company: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Companies Act (Revised) of the Cayman Islands (the “Companies Act”) imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our amended articles of association, as amended and restated from time to time. We have the right to seek damages where certain duties owed by any of our directors are breached.
Terms of Directors and Executive Officers
The Company may by ordinary resolution elect any person to be a director either to fill a casual vacancy or as an addition to the existing board of directors. Any director so appointed shall hold office until his death, resignation or removal. All of our executive officers are appointed by and serve at the discretion of our board of directors.
Qualification
There is currently no shareholding qualification for directors.
Insider Participation Concerning Executive Compensation
Our board of directors, which was comprised of five directors, with the assistance of the Compensation Committee, makes all determinations regarding executive officer compensation.
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Committees of the Board of Directors
We have established three committees under the board of directors: the audit committee, the compensation committee and the corporate governance and nominating committee, and adopt a charter for each of the committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee, formed upon the closing of our IPO, consists of Mr. Xin Zhang, Mr. Xiang Luo and Mr. Jian Pei, with Mr. Xin Zhang serving as the chairman of our audit committee. We have determined that Mr. Xin Zhang, Mr. Xiang Luo and Mr. Jian Pei satisfy the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act. Prior to our IPO, our board also determined that Xin Zhang qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq Listing Rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
| ● | selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; |
| ● | reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| ● | discussing the annual audited financial statements with management and the independent auditors; |
| ● | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| ● | annually reviewing and reassessing the adequacy of our audit committee charter; |
| ● | such other matters that are specifically delegated to our audit committee by our board of directors from time to time; |
| ● | meeting separately and periodically with management and the independent auditors; and |
| ● | reporting regularly to the full board of directors. |
Compensation Committee. Our compensation committee, formed upon the closing of our IPO, consists of Mr. Xiang Luo, Mr. Xin Zhang and Mr. Jian Pei. Mr. Xin Zhang is the chairman of our compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
| ● | reviewing and recommending to the board with respect to the total compensation package for our chief executive officer; |
| ● | approving and overseeing the total compensation package for our executives other than the chief executive officer; |
| ● | reviewing and making recommendations to the board with respect to the compensation of our directors; and |
| ● | reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. |
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Corporate Governance and Nominating Committee. Our corporate governance and nominating committee, formed upon the closing of our IPO, consists of Mr. Xin Zhang and Mr. Jian Pei. Mr. Xiang Luo is the chairman of our corporate governance and nominating committee. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy; |
| ● | reviewing annually with the board the current composition of the board in light of the characteristics of independence, skills, experience and availability of service to us; |
| ● | identifying and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as the corporate governance and nominating committee itself; |
| ● | advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any corrective action to be taken; and |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
D. Employees
SDH had 48, 25 and 17 full-time employees as of December 31, 2022, 2023 and 2024, respectively. As of April 30, 2025, SDH had 17 full-time employees. SDH had 7 and 10 employees located in Zibo and Beijing, respectively. The following table sets forth the numbers of our employees by areas of business as of April 30, 2025:
| Department | Number of Employees | |||
| Senior Management | 5 | |||
| Human Resources & Administration | 4 | |||
| Business & Consulting | 1 | |||
| Customer Service | 1 | |||
| Information Technology | 1 | |||
| Research & Development | 1 | |||
| Finance | 4 | |||
| Total | 17 | |||
Sunrise Guizhou had 229, 273 and 270 employees as of December 31, 2022, 2023 and 2024 respectively. As of April 30, 2025, Sunrise Guizhou had 300 full-time employees. The following table sets forth the numbers of Sunrise Guizhou’s employees by areas of business as of April 30, 2025.
| Department | Number of Employees | |||
| Senior Management | 6 | |||
| Human Resources & Administration | 17 | |||
| Research Development & Analysis | 42 | |||
| Manufacturing & Equipment | 140 | |||
| Quality Control | 26 | |||
| Warehouse & Operation | 44 | |||
| Engineering & Construction | 12 | |||
| Supply Chain | 5 | |||
| Information Technology | 4 | |||
| Sales & Marketing | 4 | |||
| Total | 300 | |||
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Generally, we enter into standard employment contracts with our officers, managers, and other employees. According to these contracts, all of our employees are prohibited from engaging in any other employment during the period of their employment with us. None of our employees is a member of a labor union and we consider our relationship with our employees to be good.
E. Share Ownership
Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our Ordinary Shares as of the date of this annual report by:
| ● | each of our directors and executive officers; and |
| ● | each of our principal shareholders who beneficially own more than 5% of our total outstanding Ordinary Shares. |
The calculations in the table below are based on 26,986,950 Ordinary Shares outstanding as of the date of this annual report, including 20,419,678 Class A Ordinary Shares and 6,567,272 Class B Ordinary Shares.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.
| Name and Address of Beneficial Owner* | Class A Ordinary Shares Beneficially Owned* | Class B Ordinary Shares Beneficially Owned* | Total Ordinary Shares Beneficially Owned* | % of Total Ordinary Shares | % of Aggregate Voting Power | |||||||||||||||
| Director and Executive Officers: | ||||||||||||||||||||
| Haiping Hu (1) | 2,056,989 | 6,567,272 | 8,624,261 | 31.96 | 87.90 | |||||||||||||||
| Chao Liu | 222,176 | - | 222,176 | 0.82 | 0.15 | |||||||||||||||
| Jian Pei | 37,500 | - | 37,500 | 0.14 | 0.02 | |||||||||||||||
| Xiang Luo | 37,500 | - | 37,500 | 0.14 | 0.02 | |||||||||||||||
| Xin Zhang | - | - | - | - | - | |||||||||||||||
| Directors and Executive Officers as a group (5 persons) | 2,354,165 | 6,567,272 | 8,921,437 | 33.06 | 88.09 | |||||||||||||||
| 5% Beneficial Owners** | ||||||||||||||||||||
| Haiping Hu, GMB Wisdom Sharing Platform Co., Ltd. (1) | 2,056,989 | 6,567,272 | 8,624,261 | 31.96 | 87.90 | |||||||||||||||
| GMB Culture Communication Co., Ltd. (2) | 2,213,988 | - | 2,213,988 | 8.20 | 1.46 | |||||||||||||||
| GMB Resource Services Co., Ltd (3) | 2,018,586 | - | 2,018,586 | 7.48 | 1.33 | |||||||||||||||
| * | Unless otherwise indicated, the business address of each of the individuals is Room 703, West Zone, R&D Building, Zibo Science and Technology Industrial Entrepreneurship Park, No. 69, Sanying Road, Zhangdian District, Zibo City, Shandong Province, The PRC. |
| ** | The principal office of each of the 5% beneficial owners are located at Start Chambers, Wickham’s Cay II, P.O. Box 2221, Road Town, Tortola, British Virgin Islands. |
| (1) | Haiping Hu, our CEO and chairman of the Board, beneficially owns 8,624,261 Ordinary Shares, including 2,056,989 Class A Ordinary Shares and 6,567,272 Class B Ordinary Shares. 1,451,400 Class A Ordinary shares are directly held by Mr. Hu, while 605,589 Class A Ordinary Shares and 6,567,272 Class B Ordinary Shares are held through his 100% ownership of GMB Wisdom Sharing Platform Co., Ltd. |
| (2) | Representing 2,213,988 Class A Ordinary Shares held by GMB Culture Communication Co., Ltd, a British Virgin Islands company. Ertao Zhao, Yidong Zhang, Xiaoli Chen serve as the directors of GMB Culture Communication Co., Ltd. and share the dispositive and voting power of the shares held by GMB Culture. |
| (3) | Representing 2,018,586 Class A Ordinary Shares Held by GMB Resource Services Co., Ltd., a British Virgin Islands company. Chenming Qi and Cunyou Li, Jinhai Ying, Gesheng Fei, each of whom serves as a director of GMB Resource Services Co., share the dispositive and voting power of the shares held by GMB Resources. |
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
| A. | Major Shareholders |
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
| B. | Related Party Transactions |
Contractual Arrangements between GIOP BJ and SDH
See “Item 4. Information on the Company—C. Organizational Structure.”
Material Transactions with Related Parties
Our jurisdiction of organization prescribes certain procedures for related party transactions with directors, and our articles of association mandate that directors with a direct or indirect personal interest in any transaction that conflicts with the Company’s interest shall make that interest known and recorded in the board minutes and shall not participate in discussing or voting on such transaction
The following is a list of related parties which the Company had transactions with:
| (a) | Ningbo Zhuhai Investment Co., Ltd. (“Zhuhai Investment”), a company controlled by Mr. Haiping Hu. | |
| (b) | Bally Corp. (“Bally”), a company controlled by Mr. Haiping Hu. | |
| (c) | Zhongna Times (Shenzhen) New Energy Technology Co., Ltd. (“Zhongna Times”), a company controlled by Mr. Haiping Hu. | |
| (d) | Shanghai Huiyang Investment Co., (“Shanghai Huiyang”) 5.4012% shareholder of Sunrise Guizhou and controlled by immediate family members of Mr. Haiping Hu. | |
| (e) | Shidong (Suzhou) Investment Co., Ltd., (Shidong Suizhou) a company of which Mr. Haiping Hu is the CEO. | |
| (f) | Mr. Shousheng Guo, Director, 3.00% shareholder of GMB (Beijing). | |
| (g) | Mr. Wenwu Zhang, Director of Sunrise Guizhou. | |
| (h) | Mr. Chenming Qi, General Manager, Director and 3.00% shareholder of GIOP BJ; Director of GMB (Hangzhou). | |
| (i) | Ms. Jing Ji, CEO of and 46% shareholder of GMB Technology. | |
| (j) | Haicheng Shenhe, 9.6451% shareholder of Sunrise Guizhou. | |
| (k) | Ms. Chao Liu, Chief Financial Officer of the Company. | |
| (l) | GMB Internet Technology Co., Ltd., one of the shareholders of the Company. | |
| (m) | GMB Business Communication Co., Ltd. one of the shareholders of the Company. | |
| (n) | GMB Enterprise Cooperation Development Co., Ltd., one of the shareholders of the Company. | |
| (o) | GMB Information Technology Co., Ltd., one of the shareholders of the Company. | |
| (p) | GMB Wisdom Sharing Platform Co., Ltd., one of the shareholders of the Company. | |
| (q) | GMB Technology Co., Ltd., one of the shareholders of the Company. | |
| (r) | GMB Project Incubation Services Co., Ltd., one of the shareholders of the Company. | |
| (s) | Guizhou Yilong New Area Industrial Development and Investment Co., Ltd., 3.0864% shareholder of Sunrise Guizhou. | |
| (t) | Ms. Fangfei Liu, spouse of Mr. Haiping Hu. | |
| (u) | Mr. Huiyu Du, the former legal representative of Sunrise Guizhou. | |
| (v) | Beijing Huatai Zhonghe Venture Capital Center (Limited Partnership) (“Huatai Zhonghe”), controlled by Mr. Shousheng Guo. | |
| (w) | Ningbo Meishan Bonded Port Zone Zhihai Yuncheng Investment Management Partnership Enterprise (Limited Partnership) (“Zhihai Yuncheng”), a limited partnership controlled by Mr. Haiping Hu. | |
| (x) | Shenzhen Zhuhai New Energy Co., Ltd. (“Shenzhen Zhuhai”), a company ultimately controlled by Mr. Haiping Hu. |
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| a. | Due from related parties |
As of December 31, 2024, 2023 and 2022, the balances of amount due from related parties were as follows:
| As of December 31, | ||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||
| Due from related parties | ||||||||||||||
| Bally | $ | 5,172 | $ | 5,172 | $ | 5,168 | ||||||||
| Mr. Xuanming Wang | - | - | 20,102 | |||||||||||
| Mr. Shousheng Guo | (2) | - | 100,000 | - | ||||||||||
| Mr. Wenwu Zhang | (1) | 321,949 | 330,991 | 337,420 | ||||||||||
| Ms. Chao Liu | (2) | - | 141,024 | - | ||||||||||
| Shidong Suzhou | - | 39,437 | 37,332 | |||||||||||
| Shenzhen Zhuhai | (4) | 150,699 | - | - | ||||||||||
| Zhihai Yuncheng | (3) | 63,588 | - | - | ||||||||||
| Others | 700 | 700 | - | |||||||||||
| Total | $ | 542,108 | $ | 617,324 | $ | 400,022 | ||||||||
| (1) | The balance as of December 31, 2024, 2023 and 2022 represented the prepaid acquisition consideration to purchase Mr. Wenwu Zhang’s equity in Haicheng Shenhe. |
| (2) | The staff advance balances as of December 31, 2024 had been repaid by May 15, 2024. |
| (3) | The balance as of December 31, 2024 represented the prepaid service fee. |
| (4) | The balance from Shenzhen Zhuhai as of December 31, 2024 had been repaid on May 15, 2025. |
| b. | Due to related parties |
As of December 31, 2024, 2023 and 2022, the balances of amounts due to related parties were as follows:
| As of December 31, | ||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||
| Due to related parties | ||||||||||||||
| Mr. Haiping Hu | $ | - | $ | 903,789 | $ | 2,872 | ||||||||
| Mr. Chenming Qi | - | 5,476 | 9,189 | |||||||||||
| Ms. Jing Ji | 19,009 | 19,543 | 19,923 | |||||||||||
| Shanghai Huiyang | (1) | 235,001 | 800,785 | 738,128 | ||||||||||
| Haicheng Shenhe | 1,029 | 451,871 | 50,395 | |||||||||||
| Zhuhai Investment | (2) | 3,442,663 | 2,183,911 | 64,643 | ||||||||||
| Zhongna Times | 493,198 | - | - | |||||||||||
| Huatai Zhonghe | - | 98,593 | - | |||||||||||
| Others | 5,905 | 197 | - | |||||||||||
| Total | $ | 4,196,805 | $ | 4,464,165 | $ | 885,150 | ||||||||
| (1) | The balance as of December 31, 2024 mainly represented the loans from Shanghai Huiyang with the annual interest rate of 4% due on December 31, 2025. |
| (2) | The balance as of December 31, 2024 represented the loans from Zhuhai Investment, with the annual interest rate of 4% and due on December 31, 2025. |
| c. | Deferred revenue -related parties |
As of December 31, 2024, 2023 and 2022, the balances of deferred revenue of related parties were as follows:
| As of December 31, | ||||||||||||||
| 2024 | 2023 | 2022 | ||||||||||||
| Deferred revenue of related parties | ||||||||||||||
| Shanghai Huiyang | (1) | $ | - | $ | 340,850 | $ | 347,471 | |||||||
| Total | $ | - | $ | 340,850 | $ | 347,471 | ||||||||
| (1) | The balance as of December 31, 2023 and 2022 represented the advance from the related party for tailored services. |
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| d. | Related party transactions |
Related party purchase
The Company purchased consulting services for knowledge sharing and enterprise business from Zhuhai Investment. For the years ended December 31, 2024, 2023 and 2022, consulting fee to Zhuhai Investment were $ 12,376, $nil and $nil, respectively.
The Company rented office spaces from Zhuhai Investment. For the fiscal years ended December 31, 2024, 2023 and 2022, total rental fee to Zhuhai Investment were $nil, $nil and $118,475, respectively.
The Company purchased maintenance services for the Company’s APP on knowledge sharing and enterprise business from Zhihai Yuncheng. For the years ended December 31, 2024, 2023 and 2022, maintenance fee to Zhihai Yuncheng were $32,776, $nil and $nil, respectively.
The Company purchased raw materials for graphite anode material manufacturing from Haicheng Shenhe. For the years ended December 31, 2024, 2023 and 2022, total purchases were $nil, $221,207 and $1,031,043, respectively.
Related party sales
The Company sold titanium for $205 to Mr. Shousheng Guo for the year ended December 31, 2022.
| e. | Related party guarantee |
On August 4, 2022, Sunrise Guizhou entered into a line of credit financing contract with Bank of Guizhou for revolving credit of RMB 20,000,000, approximately $2,739,989, for a term from August 4, 2022 to August 3, 2023. The line of credit was in various means including bank loans, commercial note and letter of credit. As of December 31, 2024 and 2023, the undue commercial notes issued to the vendors were RMB nil and RMB 26,532,265, approximately $nil and $3,736,991, respectively. The Company deposited RMB nil and RMB 14,034,196, approximately $nil and $1,976,675, as restricted cash in the designated bank accounts in Bank of Guizhou to secure the commercial notes as of December 31, 2024 and 2023, respectively. Pursuant to the contract, Mr. Haiping Hu and Guizhou Yilong New Area Industrial Development and Investment Co., Ltd., the non-controlling shareholder of Sunrise Guizhou, were the guarantor of the unsecured commercial notes for RMB nil and RMB 12,498,069, approximately $nil and $1,760,316 as of December 31, 2024 and 2023, respectively.
In July 2022, Sunrise Guizhou entered into purchase agreements with original shareholders of Sunrise to acquire 100% of Sunrise Tech’s assets and equity ownership for a gross consideration of RMB 40,000,000, among of which RMB 10,000,000 and RMB 5,000,000 were paid in July 2022 and August 2023, respectively. For the year ended December 31, 2024, the Company and the original shareholder agreed that RMB 5,000,000 (approximately $684,997) consideration due on August 20, 2024 would be offset by the unpaid RMB 8,960,000 (approximately $1,227,515) land use right and property taxes and their associated fines and late payment fee prior to the asset acquisition. The unpaid consideration RMB 16,040,000 (approximately $2,197,471) will be paid in installments from 2025 to 2026. The consideration payable is guaranteed by Mr. Haiping Hu.
On September 22, 2022, Sunrise Guizhou entered into a financing contract into an eighteen-month loan with Far East to obtain a loan of RMB 20,000,000, approximately $2,739,989, for a term from September 22, 2022 to March 21, 2024; On November 4, 2022, Sunrise Guizhou entered a sales and leaseback financing contract into a three-year financing with Ronghe to obtain an amount of RMB 40,000,000, approximately $5,479,978, for a term from November 10, 2022 to November 9, 2025; On February 7, 2023, Sunrise Guizhou entered a sales and leaseback financing contract into a two-year financing with Zhongguancun to obtain an amount of RMB 20,000,000, approximately $2,739,989, for a term from February 7, 2023 to February 6, 2025; On October 27, 2023, Sunrise Guizhou entered into a sales and leaseback financing contract for a two-year financing with Guomao for RMB 15,000,000, approximately $2,054,992, for a term from October 27, 2023 to October 26, 2025. On October 14, 2024, Sunrise Guizhou entered into a sales and leaseback financing contract for a thirty two-month financing with Risheng for RMB 6,000,000, approximately $821,997, for a term from October 14, 2024 to June 15, 2027. Pursuant to these financing contracts, Mr. Haiping Hu, CEO and Chairman of the Board of Director, was the guarantor for the debts.
On May 16, 2023, Sunrise Guizhou entered into a credit facility agreement with Everbright Bank to obtain revolving fund up to RMB 100,000,000, approximately $13,699,944, for a term from June 1, 2023 to May 31, 2024. As of December 31, 2023, the Company had been able to utilize the line of credit for RMB 50,000,000, or $7,042,353, with interest rates from 2% to 4.5% which had matured from June 4, 2024 to September 25, 2024, collateralized by the pledge of land use right of Sunrise Tech for RMB 50,000,000. This credit loan was guaranteed by Mr. Haiping Hu, Ms. Fangfei Liu and Ms. Huiyu Du.
On January 18, 2023, Sunrise Guizhou entered into a credit facility agreement with Post Bank to obtain revolving fund up to RMB 30,000,000, approximately $4,109,983, for a term from January 19, 2023 to January 18, 2031. As of December 31, 2023, the Company utilized the line of credit with Post Bank for RMB 28,300,000, or $3,985,972, which had matured from July 2023 to April 2024. In March 2024, the Company early repaid the long-term loan. This credit loan was guaranteed by Mr. Haiping Hu.
On June 13, 2023, Sunrise Guizhou entered into a finance lease agreement with Chongqing Xingyu Finance Lease Co., Ltd. to lease graphite anode materials production facilities. The principal of the contract was RMB 29,257,844, approximately $4,008,308, with a nominal interest rate of 5.8%. This finance lease payment was guaranteed by Mr. Haiping Hu and Ms. Fangfei Liu.
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On October 26, 2023, Sunrise Guizhou entered into a three-year debt arrangement with SPD Bank to obtain line of credit up to RMB 50,000,000, approximately $6,849,972, for a term from November 17, 2023 to November 17, 2026. The Company pledged its intellectual property and patent for the line of credit. Sunrise Guizhou utilized the line of credit by issuing banker’s acceptance note up to RMB 20,000,000, approximately $2,739,989 from SPD. Pursuant to the banker’s acceptance note contract, the Company was obliged to deposit fifty percent of the note payable amount issued as restricted cash in the designated bank account in SPD Bank. Therefore, the line of credit for issuance of acceptance note was RMB 10,000,000, approximately $1,369,994 . As of December 31, 2023, the banker’s acceptance note was RMB 2,920,000, approximately $411,273 and the deposit for commercial note issuance was RMB 1,460,000, approximately $205,637. Other than the pledge of the Company’s intellectual property and patents, the unsecured amount of banker’s acceptance note, which was RMB 1,460,000 was also guaranteed by Mr. Haiping Hu.
On March 8, 2024, Sunrise Guizhou obtained bank loan of RMB 100,000,000, approximately $13,699,944 from CCB Qianxinan Branch with an interest rate of 9.504% for a term from March 8, 2024 to March 8, 2026; On June 28, 2024, Sunrise Guizhou obtained bank loan of RMB 100,000,000, approximately $$13,699,944, from CCB Qianxinan Branch for a term from June 28, 2024 to June 28, 2026. This loan was guaranteed by Mr. Haiping Hu.
On April 26, 2024, the Company obtained a loan for RMB 900,000 (approximately $123,299) from WeBank with an interest rate of 9.504% for a term from April 26, 2024 to April 26, 2026. This credit loan was guaranteed by Ms. Huiyu Du, the former legal representative of Sunrise Guizhou.
On June 19, 2024, GIOP BJ entered into a line of credit facility agreement with Industrial Bank to obtain revolving fund up to RMB 7,000,000, approximately $958,996. On July 23, 2024, GIOP BJ obtained a loan for RMB 7,000,000 with an interest rate of one-year loan prime rate plus 0.05% for a term from August 29, 2024 to August 28, 2025. This loan was guaranteed by Mr. Haiping Hu and Ms. Fangfei Liu. See Note 17.
On July 31, 2024, Sunrise Guizhou entered into a banker’s acceptance note contract with Everbright Bank for issuing banker’s acceptance note to the suppliers of Sunrise Guizhou. Pursuant to the contract, the Company was obliged to deposit fifty percent of the note payable amount issued as restricted cash in the designated bank account in Everbright Bank. As of December 31, 2024 and 2023, the deposit for note issuance was $6,853,541 and $nil, respectively. Pursuant to the contract, Mr. Haiping Hu and Ms. Fangfei Liu were the guarantor of the unsecured commercial notes for $6,853,541 as of December 31, 2024.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 18 for our audited consolidated financial statements.
Legal Proceedings
We are not currently involved in any material legal or administrative proceedings. From time to time, we may be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Such legal or administrative claims and proceedings, even if without merit, could result in the expenditure of financial and management resources and potentially result in civil liability for damages.
Dividend Policy
We do not have any present plan to pay any cash dividends on our Ordinary Shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiaries for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us.
Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our board of directors may deem relevant.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
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ITEM 9. THE OFFER AND LISTING
A. Offering and Listing Details
Our Class A Ordinary Shares are listed on the Nasdaq Capital Market.
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A Ordinary Shares are listed on the NASDAQ Capital Market under the new ticker symbol “EPOW”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not Applicable.
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B. Memorandum and Articles of Association
We are a Cayman Islands exempted company with limited liability and our affairs are governed by our amended and restated memorandum and articles of association (the “Memorandum and Articles”), the Companies Act, the common law of the Cayman Islands, our corporate governance documents and rules and regulations of the stock exchange on which our shares are traded. The Memorandum and Articles is filed herein as Exhibit 1.1 to this annual report and is hereby incorporated by reference into this annual report. You may refer to Exhibit 2.3 for a detailed disclosure of description of our securities registered under Section 12 of the Exchange Act of 1934, as amended, of the Memorandum and Articles.
As of the date of this annual report, our authorized share capital is US$500,000 divided into 3,500,000,000 Class A Ordinary Share of par value US$0.0001 each and 1,500,000,000 Class B Ordinary Share of par value US$0.0001 each. All of our issued and outstanding Ordinary Shares are fully paid and non-assessable. Our Ordinary Shares are issued in registered form, and are issued when registered in our register of members. Unless the board of directors determine otherwise, each holder of our Ordinary Shares will not receive a certificate in respect of such Ordinary Shares. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their Ordinary Shares. We may not issue shares or warrants to bearer.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” or elsewhere in this annual report.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulation— Regulations Relating to Foreign Exchange.”
E. Taxation
The following summary of the Cayman Islands, PRC and U.S. federal income tax considerations of an investment in the Ordinary Shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax considerations relating to an investment in the Ordinary Shares, such as the tax considerations under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us or holders of our Ordinary Shares levied by the government of the Cayman Islands, except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of Ordinary Shares will not be subject to taxation in the Cayman Islands and no Cayman Islands withholding will be required on the payment of a dividend or capital to any holder of Ordinary Shares, nor will gains derived from the disposal of Ordinary Shares be subject to Cayman Islands income or corporation tax.
As an exempted company, the Company has received a tax exemption certificate from the Financial Secretary of the Cayman Islands pursuant to the Tax Concessions Law (Revised) of the Cayman Islands, containing an undertaking that in the event of any change to the foregoing, the Company, for a period of twenty years from the date of the grant of the undertaking (such date of grant being 1 August 2019), will not be chargeable to tax in the Cayman Islands on its income or its capital gains arising in the Cayman Islands or elsewhere.
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People’s Republic of China Taxation
Enterprise Income Tax and Withholding Tax
We are a holding company incorporated in the Cayman Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.
Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Circular 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises.
According to SAT Circular 82 (the Circular on Issues Concerning the Identification of Chinese-Controlled Overseas Registered Enterprises as Resident Enterprises in Accordance With the Actual Standards of Organizational Management), a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are made or need to be made by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
We believe that Sunrise New Energy is not a resident enterprise for PRC tax purpose. Sunrise New Energy is not controlled by a PRC enterprise or PRC enterprise group and we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of Sunrise New Energy, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
If the PRC tax authorities determine that Sunrise New Energy is a PRC resident enterprise for enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that Sunrise New Energy is treated as a PRC resident enterprise.
See “Risk Factors — Risks Related to Doing Business in China — Under the PRC Enterprise Income Tax Law, or the EIT Law, we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.”
Value-added Tax
According to the VAT Laws, MOF and SAT Circular 32 (the Circular of the Ministry of Finance and the State Administration of Taxation on Adjustment of Value-Added Tax Rates), and MOF, SAT and GAC Circular 39 (the Announcement on Policies for Deepening the VAT Reform), all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property and the importation of goods within the territory of the PRC are the taxpayers of VAT. The VAT tax rates generally applicable are simplified as 13%, 9%, 6% and 0%, and the VAT tax rate of 3% is applicable to small-scale taxpayers. The VAT tax rates applicable to our PRC subsidiaries and consolidated affiliates are as follows: 13% on graphite anode material sales for Sunrise Guizhou, Zibo Shidong and Sunrise Chenhui; 6% on services for Shidong Cloud and the VIE and its subsidiaries, including Zibo Shidong and GMB (Hangzhou); 3% for small-scale taxpayers including and GIOP BJ.
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United States Federal Income Tax Considerations
The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:
| ● | banks; | |
| ● | financial institutions; | |
| ● | insurance companies; | |
| ● | regulated investment companies; | |
| ● | real estate investment trusts; | |
| ● | broker-dealers; | |
| ● | persons that elect to mark their securities to market; | |
| ● | U.S. expatriates or former long-term residents of the U.S.; | |
| ● | governments or agencies or instrumentalities thereof; | |
| ● | tax-exempt entities; | |
| ● | persons liable for alternative minimum tax; | |
| ● | persons holding our Ordinary Shares as part of a straddle, hedging, conversion or integrated transaction; | |
| ● | persons that actually or constructively own 10% or more of our voting power or value (including by reason of owning our Ordinary Shares); | |
| ● | persons who acquired our Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation; | |
| ● | persons holding our Ordinary Shares through partnerships or other pass-through entities; | |
| ● | beneficiaries of a Trust holding our Ordinary Shares; or | |
| ● | persons holding our Ordinary Shares through a Trust. |
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Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares
The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our Ordinary Shares. This description does not deal with all possible tax consequences relating to ownership and disposition of our Ordinary Shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.
The following brief description applies only to U.S. Holders (defined below) that hold Ordinary Shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of Ordinary Shares and you are, for U.S. federal income tax purposes,
| ● | an individual who is a citizen or resident of the United States; | |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; | |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or | |
| ● | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership (or other entities treated as a partnership for United States federal income tax purposes) is a beneficial owner of our Ordinary Shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our Ordinary Shares are urged to consult their tax advisors regarding an investment in our Ordinary Shares.
An individual is considered a resident of the U.S. for federal income tax purposes if he or she meets either the “Green Card Test” or the “Substantial Presence Test” described as follows:
The Green Card Test: You are a lawful permanent resident of the United States, at any time, if you have been given the privilege, according to the immigration laws of the United States, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services issued you an alien registration card, Form I-551, also known as a “green card.”
The Substantial Presence Test: If an alien is present in the United States on at least 31 days of the current calendar year, he or she will (absent an applicable exception) be classified as a resident alien if the sum of the following equals 183 days or more (See §7701(b)(3)(A) of the Internal Revenue Code and related Treasury Regulations):
| 1. | The actual days in the United States in the current year; plus |
| 2. | One-third of his or her days in the United States in the immediately preceding year; plus |
| 3. | One-sixth of his or her days in the United States in the second preceding year. |
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Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the passive foreign investment company (PFIC) rules (defined below) discussed below, the gross amount of distributions made by us to you with respect to the Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the Ordinary Shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a PFIC (defined below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the Ordinary Shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, Ordinary Shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on certain exchanges, which presently include the Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Ordinary Shares, including the effects of any change in law after the date of this annual report.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our Ordinary Shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Ordinary Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Ordinary Shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the Ordinary Shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreign tax credits.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year if, applying applicable look-through rules, either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income (the “asset test”). For this purpose, cash and assets readily convertible into cash are categorized as passive assets and the company’s goodwill and other unbooked intangibles not reflected on its balance sheet are taken into account. Passive income generally includes, among other things, dividends, interest, income equivalent to interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
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Based upon our current and projected income and assets, including the proceeds we received from our initial public offering and the value of our Ordinary Shares, we do not expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC for any taxable year is a factual determination made annually that will depend, in part, upon the composition and classification of our income and assets. Furthermore, fluctuations in the market price of our Ordinary Shares may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market price of our Ordinary Shares from time to time (which may be volatile). In addition, the composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in our initial public offering. Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.
If we are a PFIC for any year during which a U.S. Holder holds our Ordinary Shares, we generally will continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our Ordinary Shares, unless we were to cease to be a PFIC and the U.S. Holder were to make a “deemed sale” election with respect to the Ordinary Shares.
Information Reporting and Backup Withholding
Dividend payments with respect to our Ordinary Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the US Internal Revenue Code with at a current flat rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our Ordinary Shares, subject to certain exceptions (including an exception for Ordinary Shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Ordinary Shares. Failure to report such information could result in substantial penalties.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We previously filed with the SEC registration statement on Form F-1 (File Number 333-233745), as amended, to register our Class A Ordinary Shares in relation to our initial public offering, which was completed on February 11, 2021.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov or inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4C. Organizational Structure” for a chart of our current structure.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk while we have short-term and long-term bank loans outstanding. Although interest rates for our short-term loans are typically fixed for the terms of the loans, the terms are typically twelve months and interest rates are subject to change upon renewal. Interest rate on long-terms loans is subject to the change of loan prime rate designated by the People’s Bank of China.
Credit Risk
Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. We manage credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. We identify credit risk collectively based on industry, geography and customer type. In measuring the credit risk of our sales to our customers, we mainly reflect the “probability of default” by the customer on its contractual obligations and consider the current financial position of the customer and the current and likely future exposures to the customer.
Liquidity Risk
We are also exposed to liquidity risk which is risk that we will be unable to provide sufficient capital resources and liquidity to meet our commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions and related parties to obtain short-term and long-term funding to cover any liquidity shortage.
Foreign Exchange Risk
While our reporting currency is the U.S. dollar, almost all of our consolidated revenues, costs and expenses are denominated in RMB. Almost all of our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
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PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Material Modifications to the Rights of Security Holders
On February 8, 2024, our shareholders approved the re-designation and re-classification of the Ordinary Shares into Class A Ordinary Shares and Class B Ordinary Shares. For further information, please refer to our current reports on Form 6-K dated January 5, 2024 and February 12, 2024, which are incorporated herein by reference.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number: 333-233745) in relation to the initial public offering of 6,720,000 Ordinary Shares at an initial public offering price of $4.00 per Ordinary Share. Our initial public offering closed on February 11, 2021. The registration statement was declared effective by the SEC on February 5, 2021. ViewTrade Securities, Inc. was the representative of the underwriters for our initial public offering. On February 19, 2021, Network 1 Financial Securities, Inc. exercised the over-allotment option in full to purchase an additional 1,008,000 Ordinary Shares.
We received net proceeds of approximately $24.61 million, after deducting underwriting discounts and estimated offering expenses payable by us. The total expense incurred for our Company’s account in connection with our initial public offering was approximately $2.28 million, which included approximately $2.02 million in underwriting discounts for the initial public offering and approximately $0.26 million in other costs and expenses for our initial public offering. None of the transaction expenses included payments to directors or officers of our Company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates. As of the date of this annual report, we have used $10.76 million from our initial public offering as the registered capital for our newly established JV, Sunrise Guizhou. We intend to use the remaining proceeds from our initial public offering as disclosed in our registration statement on Form F-1. Our management, however, will have significant flexibility and discretion to apply the net proceeds from our initial public offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as disclosed previously.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2024, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any disclosure controls and procedures system, including the possibility of human error and circumventing or overriding them. Even if effective, disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2024 and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, failed to provide reasonable assurance that the information we are required to disclose in the reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management to allow timely decisions regarding required disclosures.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In the course of preparing our consolidated financial statements for the year ended December 31, 2024, we identified material weaknesses and other control deficiencies in our internal control over financial reporting as of December 31, 2024. The material weaknesses identified included: (1) a lack of formal internal controls policies over financial closing and reporting processes, which may increase risk of error, fraud, misstatement of financial reporting, or even non-compliance with related regulations for a U.S. listed Group; (2) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements, and accounting policies and procedures manual that covers U.S. GAAP and SEC financial reporting requirements to complete relate US GAAP and SEC reporting; and (3) a lack of appropriately restricted to privileged level access to employees. Based on this evaluation, our management has concluded that our internal control over financial reporting was not effective as of December 31, 2024.
We are taking a number of measures to tackle the control deficiencies identified, including: (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel; (iii) preparing a comprehensive accounting policies and procedures manual that covers financial closing and reporting processes, U.S. GAAP and SEC financial reporting requirements, and ensuring that accounting personnel are familiar with and follow the manual; and (iv) Reinforcing the implementation of IT authorization limits matrix and segregation of duties systems to ensure the appropriateness of all approvals, authorizations, and confirmations granted.
However, we cannot assure you that we will remediate our control deficiencies in a timely manner. The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligation. See “Item 3. Key Information—D. Risk Factors—We have identified several control deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.” Additionally, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses.
Attestation Report of the Registered Public Accounting Firm
As a company with less than $1.235 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, in the assessment of the emerging growth company’s internal control over financial reporting. This annual report on Form 20-F does not include an attestation report of our registered public accounting firm because we are an emerging growth company.
Changes in Internal Control
Other than as described above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [RESERVED]
Not applicable.
ITEM 16.A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors determined that Mr. Xin Zhang, chairman of our audit committee and an independent director (under the standards set forth in Nasdaq Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act), is an audit committee financial expert.
ITEM 16.B. CODE OF ETHICS
Our board of directors adopted a code of business conduct and ethics that applies to all of our directors, officers, employees, including certain provisions that specifically apply to our principal executive officer, principal financial officer or controller and any other persons who perform similar functions for us. A copy of our code of business conduct and ethics can be accessed at http:// sunrisenewenergy.com/IR/.
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ITEM 16.C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our independent registered public accounting firm, for the periods indicated.
| Year Ended December 31, | ||||||||
| Services | 2024 | 2023 | ||||||
| US$ | US$ | |||||||
| Audit fees(1) | 322,700 | 381,100 | ||||||
| Total | 322,700 | 381,100 | ||||||
Note:
| (1) | “Audit fees” means the aggregate fees billed for professional services rendered by our principal accounting firm for the audit of our annual financial statements and the review of our comparative interim financial statements. |
The policy of our audit committee is to pre-approve all audit services provided by WW and MarcumAsia, our independent registered public accounting firm as described above.
ITEM 16.D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16.E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16.F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On March 3, 2025, the Company appointed WW as its independent registered public accounting firm, effective immediately. WW replaced MarcumAsia, the former independent registered public accounting firm, which the Company dismissed on the same day. For further information, please see our current report on Form 6-K dated March 5, 2025, which is incorporated herein by reference.
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ITEM 16.G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq Capital Market corporate governance listing standards. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Capital Market corporate governance listing standards. NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private issuers like us to follow their home country practice in lieu of the requirements of Listing Rule 5600 Series with the exception of those Listing Rules which are required to be followed pursuant to the provisions of Listing Rule 5615(a)(3).
NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on the NASDAQ prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power in connection with the acquisition of the stock or assets of another company or for less than the greater of market or book value in transactions other than public offerings, (ii) resulting in a change of control of the company, or (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. The laws of Cayman Islands do not require shareholder approval prior to any of the foregoing types of issuances.
NASDAQ Listing Rule 5640 provides rules relating to voting rights of companies listed on NASDAQ, and specifies that a company cannot create a new class of security that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities. The laws of Cayman Islands do not prohibit the creation of a new class of securities that votes at a higher rate than an existing class of securities or take any other action that has the effect of restricting or reducing the voting rights of an existing class of securities.
Listing Rule 5620(a), pursuant to which companies listing common stock or voting preferred stock, and their equivalents on NASDAQ are required to hold an annual shareholder meeting no later than one year after the end of the company's fiscal year-end, unless such company is a limited partnership that meets certain requirements. The laws of Cayman Islands do not require companies to hold annual shareholder meetings.
The Board of Directors of the Company elected to follow the Company’s home country rules in lieu of NASDAQ Listing Rule 5635, 5640, and 5620(a). The Company, therefore, (1) is not required to obtain shareholder approval prior to entering into a transaction with the potential to issue securities, (2)is not subject to the voting rights rules under NASDAQ Listing Rule 5640, and (3) is not required to hold annual shareholder meetings.
Other than those described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq Capital Market corporate governance listing standards.
ITEM 16.H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16.I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16.J. INSIDER TRADING POLICIES
Our
board of directors has
ITEM 16.K. CYBERSECURITY
We
have established cybersecurity risk management to identify, assess, and mitigate cybersecurity risks alongside other business risks.
The process is in alignment with our strategic objectives and risk appetite.
103
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
The consolidated financial statements of Sunrise New Energy Co., Ltd. are included at the end of this annual report.
ITEM 19. EXHIBITS
104
| * | Filed herewith. |
| ** | Furnished herewith. |
105
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Sunrise New Energy Co., Ltd. | ||
| By: | /s/ Haiping Hu | |
| Name: | Haiping Hu | |
| Title: | Chairman, Chief Executive Officer, and Director | |
| Date: | May 15, 2025 | |
106
SUNRISE NEW ENERGY CO., LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Sunrise New Energy Co., Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sunrise New Energy Co., Ltd., and its subsidiaries (the “Company”) as of December 31, 2024, and the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3, the Company has a significant working capital deficiency, has incurred significant recurring operating losses and negative cash flows from operating activities and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Wei, Wei & Co., LLP
We have served as the Company’s auditor since 2025.
Flushing, New York
May 15, 2025
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sunrise New Energy Co., Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Sunrise New Energy Co., Ltd. and its subsidiaries (collectively, the “Company”) as of December 31, 2023, the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for each of the two years ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for each of the two years ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting due to the adoption of ASU No. 2023-07, Segment Reporting discussed in Note 24 to the financial statements, and accordingly, we do not express an opinion or any form of assurance about whether such adjustments is appropriate or properly applied. The adjustments were audited by other auditors.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3, the Company has a significant working capital deficiency, has incurred significant recurring operating losses and negative cash flows from operating activities and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
Marcum Asia CPAs LLP
We served as the Company’s auditor from 2018 (such date takes into account the acquisition of certain assets of Friedman LLP by Marcum Asia CPAs LLP effective September 1, 2022) to 2025.
May 15, 2024
F-3
SUNRISE NEW ENERGY CO., LTD.
CONSOLIDATED BALANCE SHEETS
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Notes receivable | ||||||||
| Inventories, net | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Long-term prepayments and other non-current assets | ||||||||
| Plant, property and equipment, net | ||||||||
| Land use rights, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments, net | ||||||||
| Finance lease right-of-use assets | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Note payable | ||||||||
| Short-term loan | ||||||||
| Deferred revenue | ||||||||
| Deferred revenue - related parties | ||||||||
| Deferred government subsidy | ||||||||
| Due to related parties | ||||||||
| Income taxes payable | ||||||||
| Finance lease liabilities, current | ||||||||
| Long-term loan, current | ||||||||
| Long-term payable, current | ||||||||
| Consideration payable, current | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Long-term loan, non-current | ||||||||
| Finance lease liabilities, non-current | ||||||||
| Long term payable, non-current | ||||||||
| Consideration payable, non-current | ||||||||
| Deferred tax liabilities, net | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 23) | ||||||||
| MEZZANINE EQUITY | ||||||||
| Redeemable non-controlling interests | ||||||||
| EQUITY | ||||||||
| Class A ordinary shares* ( | ||||||||
| Class B ordinary shares* ( | ||||||||
| Subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ (DEFICIT) EQUITY ATTRIBUTABLE TO SUNRISE NEW ENERGY CO., LTD. ORDINARY SHAREHOLDERS | ( | ) | ||||||
| Non-controlling interests | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES, MEZZANINE EQUITY AND TOTAL EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SUNRISE NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| REVENUES, NET | ||||||||||||
| Products | $ | $ | $ | |||||||||
| Service | ||||||||||||
| Total revenues | ||||||||||||
| COSTS OF REVENUES | ||||||||||||
| Products | ||||||||||||
| Service | ||||||||||||
| Total cost of revenues | ||||||||||||
| GROSS LOSS | ( | ) | ( | ) | ( | ) | ||||||
| OPERATING EXPENSES | ||||||||||||
| Selling expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Impairment of intangible assets | ||||||||||||
| Total operating expenses | ||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||
| OTHER (EXPENSES) INCOME | ||||||||||||
| Investment income (losses) | ( | ) | ( | ) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||
| Income taxes provision (benefit) | ( | ) | ||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ||||||
| Less: net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO SUNRISE NEW ENERGY CO., LTD. ORDINARY SHAREHOLDERS | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||
| TOTAL COMPREHENSIVE LOSS | ( | ) | ( | ) | ( | ) | ||||||
| Less: comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO ORIDNARY SHAREHOLDERS OF SUNRISE NEW ENERGY CO., LTD. | $ | ( | ) | $ | ( | ) | ( | ) | ||||
| LOSS PER SHARE | ||||||||||||
| Basic and diluted - Class A and Class B ordinary shares | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||
| Basic and diluted - Class A and Class B ordinary shares | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SUNRISE NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
| Ordinary shares* | Retained | Accumulated | Total equity (deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Class
A ordinary shares | Class
B ordinary shares | Subscription | Additional paid-in | Statutory | earnings (Accumulated | other comprehensive | attributable to ordinary | Non- controlling | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | receivable | capital | reserves | deficits) | income (loss) | shareholders | interests | equity | |||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Capital contributions from non-controlling interests | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion to the redemption value of redeemable non-controlling interests | - | - | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Statutory reserves | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
| Settlement for vested shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Capital contributions from non-controlling interests | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion to the redemption value of redeemable non-controlling interests | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Settlement for vested shares | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Issuance of ordinary shares | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||
| Accretion to the redemption value of redeemable non-controlling interests | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Acquisition of non-controlling interests | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Derecognition of redeemable non-controlling interests | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Settlement for vested shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | ( |
) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SUNRISE NEW ENERGY CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Adjusted to reconcile net loss to cash used in operating activities | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Amortization of land use right | ||||||||||||
| Share-based compensation | ||||||||||||
| Deferred tax (benefits) expenses | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||
| Investment (income) losses | ( | ) | ||||||||||
| Provision for credit loss | ||||||||||||
| Impairment of inventory | ||||||||||||
| Impairment of intangible assets | ||||||||||||
| Amortization of finance lease right-of-use assets | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | ( | ) | ( | ) | ( | ) | ||||||
| Note receivable | ( | ) | ( | ) | ||||||||
| Due from related parties | ( | ) | ( | ) | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ||||||||||
| Inventories | ( | ) | ( | ) | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||||||
| Accounts payable | ||||||||||||
| Notes payable | ||||||||||||
| Income taxes payable | ||||||||||||
| Deferred revenue | ||||||||||||
| Due to related parties | ( | ) | ( | ) | ||||||||
| Deferred government subsidy | ||||||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from investing activities | ||||||||||||
| Purchase of plant, property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Prepayment for finance lease right-of-use assets | ( | ) | ||||||||||
| Deposit paid for finance lease | ( | ) | ||||||||||
| Purchase of land use right | ( | ) | ||||||||||
| Purchase of intangible assets | ( | ) | ||||||||||
| Loans to third parties | ( | ) | ( | ) | ||||||||
| Loans repayment by third party | ||||||||||||
| Redemption of prepayment for investment | ||||||||||||
| Redemption of short-term investment | ||||||||||||
| Consideration paid for asset acquisition | ( | ) | ( | ) | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ( | ) | ||||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from short-term loan | ||||||||||||
| Repayment on short-term loan | ( | ) | ||||||||||
| Proceeds from long-term loan | ||||||||||||
| Repayment on long-term loan | ( | ) | ( | ) | ||||||||
| Prepayment of acquisition cost of long-term borrowings | ( | ) | ||||||||||
| Proceeds from long term payable, net of issuance cost | ||||||||||||
| Repayment on long term payable | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from short-term borrowings from third parties | ||||||||||||
| Repayments on short-term borrowings to third parties | ( | ) | ||||||||||
| Loans from related parties | ||||||||||||
| Repayment on loans from related parties | ( | ) | ( | ) | ||||||||
| Repayment on finance lease liabilities | ( | ) | ( | ) | ||||||||
| Acquisition of non-controlling interests | ( | ) | ||||||||||
| Proceeds from capital contributions by non-controlling shareholders | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of foreign exchange rate on cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | $ | |||||||||
| Cash, cash equivalents and restricted cash, end of year | ||||||||||||
| Less: restricted cash | ||||||||||||
| Cash and cash equivalents, end of year | ||||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||
| Cash paid for income tax | $ | $ | ||||||||||
| Cash paid for interest | $ | $ | ||||||||||
| Supplemental non cash transactions | ||||||||||||
| Finance lease right-of-use assets obtained in exchange of finance lease liabilities | $ | |||||||||||
| Plant, property and equipment obtained from account payable | $ | $ | ||||||||||
| Plant, property and equipment obtained from capital contribution by non-controlling shareholders | $ | |||||||||||
| Intangible assets obtained from capital contribution by non-controlling shareholders | $ | |||||||||||
| Consideration payable offset by land use right and property tax payable by Sunrise Tech original shareholder before the asset acquisition (Note 13) | $ | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
SUNRISE NEW ENERGY CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND BUSINESS DESCRIPTION
Sunrise New Energy Co., Ltd. (“EPOW”), previously known as Global Internet of People, Inc., or GIOP, is an exempted company with limited liability incorporated under the laws of the Cayman Islands on February 22, 2019. It is a holding company with no business operation.
On March 22, 2019, EPOW incorporated Global Mentor Board Information Technology Limited (“GMB HK”), a limited liability company formed in accordance with laws and regulations of Hong Kong. GMB HK is currently not engaging in any active business and is merely acting as a holding company of Beijing Mentor Board Union Information Technology Co, Ltd. (“GIOP BJ”). GIOP BJ was incorporated by GMB HK as a Foreign Enterprise in China on June 3, 2019.
GIOP BJ incorporated Global Mentor Board (Zibo) Information Technology Co., Ltd. (“SDH”, formerly known as Global Mentor Board (Beijing) Information Technology Co., Ltd.) and Shidong Cloud (Beijing) Education Technology Co., Ltd. (“Shidong Cloud”) on December 5, 2014 and December 22, 2021, respectively.
SDH is a limited liability company incorporated on December 5, 2014 under the laws of China. Since 2017, SDH established several subsidiaries in China, including Global Mentor Board (Hangzhou) Technology Co., Ltd. (“GMB (Hangzhou)”) and its major owned subsidiary Guizhou Yuanneng Zhihui Enterprise Management Partnership Enterprise (Limited Partnership) (“Guizhou Yuanneng”), Global Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. (“GMB Consulting”), Shanghai Voice of Seedling Cultural Media Co., Ltd. (“GMB Culture”), which has a majority owned subsidiary, Mentor Board Voice of Seedling (Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”), Shidong (Beijing) Information Technology Co., Ltd. (“GMB (Beijing)”), and, Beijing Mentor Board Health Technology Co., Ltd. (“GMB Health”) and its major owned subsidiary Shidong Yike (Beijing) Technology Co., Ltd. (“Shidong Yike”), Zibo Shidong Digital Technology Co., Ltd. (“Zibo Shidong”) and its major owned subsidiaries, Shidong Trading Service (Zhejiang) Co., Ltd (“Shidong Trading”, deregistered in November 2022), Shanghai Jiagui Haifeng Technology Co., Ltd. (“Jiagui Haifeng”, disposal in March 2023), Shanghai Nanyu Culture Communication Co., Ltd. (“Nanyu Culture”, deregistered in July 2023) and Shanghai Yuantai Fengdeng Agricultural Technology Co., Ltd. (“Yuantai Fengdeng”, deregistered in April 2023). SDH and its subsidiaries are primarily engaged in providing pknowledge sharing and enterprise services to clients in the People’s Republic of China (“PRC”).
On October 8, 2021, EPOW incorporated SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”), a limited liability company formed in accordance with laws and regulations of Hong Kong. SDH New Energy is acting as a holding company of Zhuhai (Zibo) Investment Co., Ltd (“Zhuhai Zibo”) and Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai Guizhou”). Zhuhai Zibo and Zhuhai Guizhou were incorporated by SDH New Energy as Foreign Enterprises in China on October 15, 2021 and November 23, 2021, respectively.
On August 26, 2022, GMB HK transferred its equity interest in GIOP BJ to Zhuhai Zibo. GIOP BJ eventually became the wholly owned subsidiary of Zhuhai Zibo.
On November 8, 2021, Zhuhai Zibo incorporated
Sunrise (Guizhou) New Energy Materials Co., Ltd. (“Sunrise Guizhou”). Sunrise Guizhou incorporated Sunrise (Guxian) New Energy
Materials Co., Ltd. (“Sunrise Guxian”) and Guizhou Sunrise Technology Innovation Research Co., Ltd. (“Innovation Research”)
on April 26, 2022 and December 13, 2022, respectively. On July 2, 2022, Sunrise Guizhou entered into purchase agreements with original
shareholders of Guizhou Sunrise Technology Co., Ltd. (“Sunrise Tech”, formerly as Anlong Hengrui Graphite Material Co., Ltd.)
to acquire
As described below, EPOW, through a restructuring which was accounted for as a reorganization of entities under common control (the “Reorganization”), became the ultimate parent entity of its subsidiaries, and the primary beneficiary of the variable interest entity (the “VIE”), SDH, and the VIE’s subsidiaries for accounting purposes under accounting principles generally accepted in the United States of America (“U.S. GAAP”) to the extent that SDH’s the financials results of is consolidated to the consolidated statements under U.S. GAAP. EPOW, its subsidiaries, the VIE and the VIE’s subsidiaries, are collectively hereinafter referred as the “Company”.
On June 10, 2019, GIOP BJ entered into a series of contractual arrangements with SDH and shareholders of SDH. These agreements include an Exclusive Technical and Consulting Service Agreement, an Exclusive Service Agreement, an Exclusive Option Agreement and Powers of Attorney (collectively “VIE Agreements”). Pursuant to the above VIE Agreements, GIOP BJ has the exclusive right to provide SDH with comprehensive technical support, consulting services and other services in relation to the principal business during the term the VIE Agreement. All the above contractual arrangements obligate GIOP BJ to absorb a majority of the risk of loss from business activities of SDH and entitle GIOP BJ to receive a majority of their residual returns. In essence, GIOP BJ is the primary beneficiary of SDH for accounting purpose under U.S. GAAP. EPOW, together with its wholly owned subsidiaries, GIOP BJ, VIE and VIE’s subsidiaries were effectively under common control by the same shareholders before and after the Reorganization. Therefore, SDH is considered as a VIE under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation”.
F-8
The consolidated financial statements reflect the activities of the Company and each of the following entities:
| Name | Date of Incorporation | Place of incorporation | Percentage of effective ownership | Principal Activities | ||||
| Subsidiaries | ||||||||
| Global Mentor Board Information Technology Limited (“GMB HK”) | ||||||||
| Beijing Mentor Board Union Information Technology Co, Ltd. (“GIOP BJ”) | ||||||||
| Shidong Cloud (Beijing) Education Technology Co., Ltd (“Shidong Cloud”) | ||||||||
| SDH (HK) New Energy Tech Co., Ltd. (“SDH New Energy”) | ||||||||
| Zhuhai (Zibo) Investment Co., Ltd. (“Zhuhai Zibo”) | ||||||||
| Zhuhai (Guizhou) New Energy Investment Co., Ltd. (“Zhuhai Guizhou”) | ||||||||
| Sunrise (Guizhou) New Energy Materials Co., Ltd. (“Sunrise Guizhou”) | ||||||||
| Guizhou Sunrise Technology Co., Ltd. (“Sunrise Tech”) | ||||||||
| Sunrise (Guxian) New Energy Materials Co., Ltd. (“Sunrise Guxian”) | ||||||||
| Guizhou Sunrise Technology Innovation Research Co., Ltd. (“Innovation Research”) | ||||||||
| Shenzhen Sunrise Yitan New Energy Technology Co., Ltd. (“Sunrise Yitan”) | ||||||||
| Shenzhen Sunrise Suiyuan New Materials Technology Co., Ltd. (“Sunrise Suiyuan”) | ||||||||
| Guizhou Chenhui Trading Co., Ltd. (“Sunrise Chenhui”) | ||||||||
| Guizhou Yihui New Energy Co., Ltd. | ||||||||
| Variable Interest Entity (“VIE”) and subsidiaries of VIE | ||||||||
| Global Mentor Board (Zibo) Information Technology Co., Ltd. (“SDH” or “VIE”) | | |||||||
| Global Mentor Board (Hangzhou) Technology Co., Ltd. (“GMB (Hangzhou)”) | ||||||||
| Global Mentor Board (Shanghai) Enterprise Management Consulting Co., Ltd. (“GMB Consulting”) | ||||||||
| Shanghai Voice of Seedling Cultural Media Co., Ltd. (“GMB Culture”) | ||||||||
| Shidong (Beijing) Information Technology Co., LTD. (“GMB (Beijing)”) | ||||||||
| Mentor Board Voice of Seeding (Shanghai) Cultural Technology Co., Ltd. (“GMB Technology”) | ||||||||
| Shidong Zibo Digital Technology Co., Ltd. (“Zibo Shidong”) | ||||||||
| Shidong Trading Service (Zhejiang) Co., Ltd. (“Shidong Trading”) | ||||||||
| Shanghai Jiagui Haifeng Technology Co., Ltd. (“Jiagui Haifeng”) | ||||||||
| Shanghai Nanyu Culture Communication Co., Ltd. (“Nanyu Culture”) | ||||||||
| Beijing Mentor Board Health Technology Co., Ltd (“GMB Health”) | ||||||||
| Shidong Yike (Beijing) Technology Co., Ltd. (“Shidong Yike”) | ||||||||
| Shanghai Yuantai Fengdeng Agricultural Technology Co., Ltd. (“Yuantai Fengdeng”) | ||||||||
| Guizhou Yuanneng Zhihui Enterprise Management Partnership Enterprise (Limited Partnership) (“Guizhou Yuanneng”) |
The VIE contractual arrangements
Neither the Company nor the Company’s subsidiaries own any equity interest in SDH. Instead, The Company directs the activities and receives the economic benefits of SDH’s business operation through a series of contractual arrangements. GIOP BJ, SDH and its shareholders entered into a series of contractual arrangements, also known as VIE Agreements, in June 2019.
F-9
Each of the VIE Agreements is described in detail below:
Exclusive Technical and Consulting Services Agreement
Pursuant to the Exclusive Technical and Consulting Services Agreement between SDH and GIOP BJ (the “Exclusive Service Agreement”), GIOP BJ provides SDH with technical support, consulting services, business support and other management services relating to its day-to-day business operations and management, on an exclusive basis, utilizing its advantages in technology, human resources, and information. For services rendered to SDH by GIOP BJ under the Exclusive Service Agreement, GIOP BJ is entitled to collect a service fee approximately equal to SDH’s earnings before corporate income tax, i.e., SDH’s revenue after deduction of operating costs, expenses and other taxes, subject to adjustment based on services rendered and SDH’s operation needs.
This agreement became effective on June 10, 2019 and will remain effective unless otherwise terminated as required by laws or regulations, or by relevant governmental or regulatory authorities otherwise terminated earlier in accordance with the provisions of this agreement or relevant agreements separately executed between the parties. Nevertheless, this agreement shall be terminated after all the equity interest in SDH held by its shareholders and/or all the assets of SDH have been legally transferred to GIOP BJ and/or its designee in accordance with the Exclusive Option Agreement (described below).
The Chief Executive Officer (“CEO”) of GIOP BJ, Mr. Haiping Hu, is currently managing SDH pursuant to the terms of the Exclusive Service Agreement. The Exclusive Service Agreement does not prohibit related party transactions. The Company’s audit committee will be required to review and approve in advance any related party transactions, including transactions involving GIOP BJ or SDH.
Equity Pledge Agreement
Under the Equity Pledge Agreement between GIOP
BJ, and shareholders of SDH, together holding
The Equity Pledge Agreement is effective until: (1) the secured debt in the scope of pledge is cleared off; and (2) Pledgers transfer all the pledged equity interests to Pledgees according to the Equity Pledge Agreement, or other entity or individual designated by it.
The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SDH’s obligations under the Exclusive Service Agreement; (2) make sure the SDH Shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice GIOP BJ’s interests without GIOP BJ’s prior written consent. In the event SDH breaches its contractual obligations under the Exclusive Service Agreement, GIOP BJ will be entitled to dispose of the pledged equity interests.
Exclusive Option Agreement
Under the Exclusive Option Agreement, the SDH
Shareholders irrevocably granted GIOP BJ (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, once
or at multiple times, at any time, part or all of their equity interests in SDH or the assets of SDH. The option price to be paid by GIOP
BJ to each shareholder of SDH is RMB
Under the Exclusive Option Agreement, GIOP BJ may at any time under any circumstances, purchase, or have its designee purchase, at its discretion, to the extent permitted under PRC law, all or part of the SDH Shareholders’ equity interests in SDH or the assets of SDH. The Equity Pledge Agreement, together with the Equity Pledge Agreement, the Exclusive Service Agreement, and Powers of Attorney, enable GIOP BJ to be the primary beneficiary of SDH.
The Exclusive Option Agreement remains effective until all the equity or assets of SDH is legally transferred under the name of GIOP BJ and/or other entity or individual designated by it, or unilaterally terminated by GIOP BJ within 30-day prior written notice.
Powers of Attorney
Under each of the Powers of Attorney, the SDH Shareholders authorized GIOP BJ to act on their behalf as their exclusive agent and attorney with respect to all rights as shareholders, including, but not limited to: (a) attending shareholders’ meetings; (b) exercising all the shareholder’s rights, including voting, that shareholders are entitled to under the laws of China and the Articles of Association, including, but not limited to, the sale or transfer or pledge or disposition of shares in part or in whole; and (c) designating and appointing on behalf of shareholders the legal representative, the executive director, supervisor, the chief executive officer, and other senior management members of SDH.
The Powers of Attorney are irrevocable and continuously valid from the date of execution of the Powers of Attorney, so long as the SDH Shareholders own the equity interests of SDH.
F-10
Spousal Consent
Pursuant to the Spousal Consent, each spouse of the individual shareholders of SDH irrevocably agreed that the equity interest in SDH held by their respective spouses would be disposed of pursuant to the Equity Interest Pledge Agreement, the Exclusive Option Agreement, and the Powers of Attorney. Each spouse of the shareholders agreed not to assert any rights over the equity interest in SDH held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in SDH through the respective shareholder for any reason, he or she agrees to be bound by the contractual arrangements.
Risks in relation to the VIE structure
EPOW believes that the contractual arrangements among GIOP BJ, the VIE and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the EPOW’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and the VIE; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and the VIE; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and the VIE may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and the VIE to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance. |
The Company’s ability to conduct its wisdom sharing and enterprise consulting business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to receive economic benefits from the VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and VIE.
For the year ended December 31, 2024, the Company provided $
The Company had provided interest free loans of
$
The Company had not provided any financial support to VIE and VIE’s subsidiaries for the year ended December 31, 2022.
The following financial statements of the VIE and VIE’s subsidiaries were included in the consolidated financial statements as of December 31, 2024 and 2023 and for the years ended December 31, 2024, 2023 and 2022:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Notes receivable | ||||||||
| Inventories | ||||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term prepayments and other non-current assets | ||||||||
| Plant, property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Deferred revenue | ||||||||
| Deferred revenue - related parties | ||||||||
| Deferred government subsidy | ||||||||
| Income taxes payable | ||||||||
| Due to related parties | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
F-11
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Total net revenues | $ | $ | $ | |||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net cash provided by (used in) operating activities | $ | $ | ( | ) | $ | ( | ) | |||||
| Net cash provided by investing activities | $ | |||||||||||
| Net cash (used in) provided by financing activities | $ | ( | ) | $ | ||||||||
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and have been consistently applied.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE and VIE’s subsidiaries for which the Company is the ultimate primary beneficiary for accounting purpose only under U.S. GAAP.
A subsidiary is an entity in which the Company,
directly or indirectly, controls more than one half of the voting power, has the power to appoint or remove the majority of the members
of the board of directors, to cast a majority of votes at the meeting of the board of directors or to govern the financial and operating
policies of the investee under a statute or agreement among the shareholders or equity holders. The Company owns
All transactions and balances between the Company, its subsidiaries, the VIE and VIE’s subsidiaries have been eliminated upon consolidation.
Non-controlling interests
Non-controlling interests are recognized to reflect
the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. As of December
31, 2024, for the Company’s consolidated subsidiaries, the VIE and VIE’ s subsidiaries, non-controlling interests represent:
a) a non-controlling shareholder’s
As of December 31, 2023, for the Company’s
consolidated subsidiaries, the VIE and VIE’ s subsidiaries, non-controlling interests represent: a) a non-controlling shareholder’s
Non-controlling interests are presented as a separate line item in the equity section of the Company’s consolidated balance sheets and have been separately disclosed in the Company’s consolidated statements of operations and comprehensive loss to distinguish the interests from that of the Company.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Significant estimates required to be made by management, include, but are not limited to, the assessment of the allowance for credit loss, inventory valuation, depreciable lives of property and equipment, impairment of long-lived assets, impairment of long-term investments that do not have readily determinable fair values, realization of deferred tax assets, accretion to redemption value of redeemable non-controlling interests and extinguishment of the redeemable non-controlling interests. Actual results could differ from those estimates.
F-12
Foreign currency translation
The Company’s principal country of operations is the PRC. The financial position and results of its operations are determined using RMB , the local currency, as the functional currency. The Company’s consolidated financial statements are reported using the U.S. Dollars (“US$” or “$”). The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive loss included in consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the Company’s consolidated statements of operations and comprehensive loss.
The value of RMB against US$ and other currencies
may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation
of RMB may materially affect the Company’s financial condition in terms of US$ reporting.
| December 31, 2024 | December 31, 2023 | December 31, 2022 | ||||
| Year-end spot rate | US$ |
US$ |
US$ | |||
| Average rate | US$ |
US$ |
US$ |
Fair value measurements
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, restricted cash, accounts receivable, notes receivable, due from related parties, advance to suppliers, prepaid expenses and other current assets, short-term loan, deferred revenue, income taxes payable, accounts payable, note payable, due to related parties, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments. The carrying amount of long-term loans, financial lease liabilities, long-term payables and consideration payable approximates fair value as its interest rates are at the same level as the current market yield for comparable loans.
The Company’s non-financial assets, such as plant, property and equipment, land use rights and financial lease right-of-use assets would be measured at fair value only if they were determined to be impaired.
As a practical expedient, the Company uses Net Asset Value (“NAV”) or its equivalent to measure the fair value of its certain fund investment. NAV is primarily determined based on information provided by external fund administrators. The Group’s investments valued at NAV as a practical expedient are private equity funds, which represent the short-term investment on the balance sheet.
Cash and cash equivalents
Cash and cash equivalents include cash on hand and demand deposits in accounts maintained with commercial banks, as well as highly liquid investments which are unrestricted as to withdrawal or use and are readily convertible to known amounts of cash within three months. The interest incomes of highly liquid investments are reported in the Company’s consolidated statements of operations and comprehensive loss. The Company maintains the bank accounts in Mainland China and Hong Kong. Cash balances in bank accounts in Mainland China and Hong Kong are not insured by the U.S. Federal Deposit Insurance Corporation or other programs.
Restricted cash
Restricted cash represents bank deposits with designated use, which cannot be withdrawn without certain approval or notice. Such restricted cash mainly relates to the deposit for commercial note issuance.
On August 4, 2022, Sunrise Guizhou entered into
a line of credit financing contract with Bank of Guizhou for revolving credit for a term from August 4, 2022 to August 3, 2023. Pursuant
to the line of credit contract, the Company was obliged to deposit
F-13
On December 14, 2023, Sunrise Guizhou entered
into a banker’s acceptance note contract with Shanghai Pudong Development Bank Co., Ltd. (“SPD Bank”) for issuing banker’s
acceptance note to the suppliers of Sunrise Guizhou. Pursuant to the contract, the Company was obliged to deposit
On July 31, 2024, Sunrise Guizhou entered into a banker’s acceptance
note contract with China Everbright Bank Company Limited (“Everbright Bank”) for issuing banker’s acceptance note to
the suppliers of Sunrise Guizhou. Pursuant to the contract, the Company was obliged to deposit
Short-term investments
The Company evaluates whether an investment is other-than-temporarily impaired based on the specific facts and circumstances. Factors that are considered in determining whether an other-than-temporary decline in value has occurred include the market value of the security in relation to its cost basis, the financial condition of the investee, and the intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.
Accounts receivable, net
Accounts receivables mainly represent amounts due from clients in the ordinary course of business and are recorded net of allowance for credit loss.
On January 1, 2023, the Company adopted ASC 326 Financial Instruments – Credit Losses (“ASC 326”) using the modified retrospective approach through a cumulative-effect adjustment to the accumulated deficit. Upon adoption, the Company changed its impairment model to utilize a current expected credit losses model in place of the incurred loss methodology for financial instruments measured at amortized cost. The Company had not recorded an adjustment to the opening accumulated deficit as of January 1, 2023 due to immaterial cumulative impact of adopting ASC 326.
The Company used an expected
credit loss model for the impairment of financial instruments mentioned above as of period ends. For the allowance of the accounts receivable,
the Company believes the aging of accounts receivables is a reasonable parameter to estimate expected credit loss, and determines expected
credit losses for accounts receivables using an aging schedule as of period ends. The expected credit loss rates under each aging schedule
were developed on the basis of the average historical loss rates from previous years, and adjusted to reflect the effects of those differences
in current conditions and forecasted changes. The Company measured the expected credit losses of accounts receivables on a collective
basis. When an accounts receivable does not share risk characteristics with other accounts receivables, management will evaluate such
accounts receivable for expected credit loss on an individual basis. Doubtful accounts balances are written off and deducted from allowance
for credit loss, when receivables are deemed uncollectible, after all collection efforts have been exhausted and the potential for recovery
is considered remote. The allowance for credit loss was $
Inventories, net
The inventories as of December 31, 2024 and 2023 consisted of raw materials, materials in transit, work in process and finished goods. Finished goods were mainly graphite anode materials, health service gift cards, learning course gift cards, Chinese tea, latex pillows and health care products.
Part of the Company’s finished goods, such as health service gift cards, learning course gift cards, Chinese tea, latex pillows and health care products, were obtained through fee exchange arrangements with its customers prior to 2022. These arrangements were entered into at the Company’s discretion to receive inventory in exchange for collection of account receivables and deferred revenue due from the customers. The Company accounted for these nonmonetary exchanges based on the fair values of the assets involved. The cost of inventories acquired in exchange was initially measured at the fair value of the accounts receivable the Company surrendered to obtain them.
F-14
Other than inventories obtained through fee exchange arrangements, the costs of inventories include the cost of raw materials, freight, direct labor and related production overhead. The cost of inventories is calculated using the weighted average method. Inventory shall be measured at the lower of cost and net realizable value. Net realizable value is estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs.
The impairment of inventories provided for lower
of cost and net realizable value was $
Lease
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. To assess whether a contract is or contains a lease, the Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.
A lease arrangement is being evaluated for classification as operating or financing upon lease commencement. The right-of-use assets and related lease liabilities are recognized at the lease commencement date.
Lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, and corresponding right of-use assets, which represent the Company’s right to use an underlying asset for the lease term, are recognized at the commencement date of the lease based on the present value of fixed future payments, calculated using the discount rate implicit in the lease, if available, or the Company’s incremental borrowing rate.
The right-of-use of asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received.
Finance lease
Finance leases are generally those leases that transfer ownership to the Company or allow the Company to purchase assets at a nominal amount by the end of the lease term. Assets acquired under finance leases are recorded as finance lease right-of-use, or ROU, assets.
The Company’s leases have initial terms
ranging from
For finance lease, lease expense is generally front-loaded as the finance lease ROU asset is depreciated on a straight-line basis over the amortization period, but interest expense on the lease liability is recognized in interest expense using the effective interest method which results in more expense during the early years of the lease.
Operating lease
For operating leases, lease expense relating to fixed payments is recognized on a straight-line basis over the lease term. Additionally, the Company elected not to recognize leases with lease terms of 12 months or less at the commencement date. Lease payments on short-term leases are recognized as an expense on a straight-line basis over the lease term, not included in lease liabilities.
Sales and leaseback contracts
The Company enters into sale and leaseback transactions. The Company acts as the seller-lessee, transfers its assets to a third-party entity (the buyer-lessor) and then leases the transferred assets back from the buyer-lessor at a contract designated rental price. The Company evaluates if sales of the underlying assets in the sale and leaseback contract have occurred in accordance with ASC 606. When a sale and leaseback transaction does not qualify for sale accounting, the transaction is accounted for as a financing transaction by the seller-lessee and a lending transaction by the buyer-lessor. The seller-lessee shall not derecognize the transferred asset and shall account for any amounts received as a financial liability.
F-15
Plant, property and equipment, net
Plant, property and equipment are stated at cost
less accumulated depreciation.
| Building | ||
| Machines | ||
| Electronic equipment | ||
| Furniture, fixtures and equipment | ||
| Vehicle | ||
| Leasehold improvements |
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. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operation and comprehensive loss in other income or expenses.
Land use right, net
Land use rights are recorded at cost less accumulated
amortization Land use rights are amortized on a straight-line basis over the remaining term of the land certificates, from
Intangible assets, net
The Company’s intangible assets represent
intellectual property rights on manufacturing graphite anode materials from capital injection by a non-controlling shareholder of Sunrise
Guizhou and the copyright of course videos purchased from a third party including but not limited to course videos which cover subjects
such as entrepreneurship development, financial service, corporate governance, team management, marketing strategy and etc. Intangible
assets are stated at cost less accumulated amortization and impairment. Intangible assets are amortized on a straight-line basis over
their estimated useful lives. The estimated useful lives of intangible assets are determined to be
Long-term investments
Equity method investments in investees represent the Company’s investments in privately held companies, over which it has significant influence but does not own a majority equity interest or otherwise control. The Company applies the equity method to account for an equity investment, in common stock or in-substance common stock, according to ASC 323 “Investment — Equity Method and Joint Ventures”.
An investment in in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common stock. The Company considers subordination, risks and rewards of ownership and obligation to transfer value when determining whether an investment in an entity is substantially similar to an investment in that entity’s common stock.
Under the equity method, the Company’s share of the post-acquisition
profits or losses of the equity investee is recognized in the consolidated income statements and its share of post-acquisition movements
in accumulated other comprehensive income is recognized in shareholders’ equity. When the Company’s share of losses in the
equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company
has incurred obligations or made payments or guarantees on behalf of the equity investee. Investment income (loss) for long-term investments
of $
For other equity investments that do not have readily determinable fair values and over which the Company has neither significant influence nor control through investments in common stock or in-substance common stock, the Company accounts for these investments at cost minus any impairment, if necessary.
The Company continually reviews its
investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary. The
primary factors the Company considers in its determination are the length of time that the fair value of the investment is below the
Company’s carrying value, and the financial condition, operating performance and the prospects of the equity investee. If the
decline in fair value is deemed to be other than temporary, the carrying value of the equity investee is written down to fair value.
Impairment charges for long-term investments were $, $
Impairment of long-lived assets
Long-lived assets, including plant, property and equipment, intangible asset, land use rights and finance lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets or assets group to the estimated undiscounted future cash flows expected to result from the use of the assets or asset group and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets or assets group, the Company would recognize an impairment loss based on the fair value of the assets or assets group, which is the excess of carrying amount over the fair value of the assets, using the expected future discounted cash flows.
F-16
Asset acquisition
When the Company acquires other entities, if the assets acquired and liabilities assumed do not constitute a business, the transaction is accounted for as an asset acquisition. Assets are recognized based on the cost, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the Company’s consolidated financial statements. The cost of a group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on their relative fair value and does not give rise to goodwill.
Redeemable non-controlling interests
Redeemable non-controlling interests represent redeemable preferred shares financing in Sunrise Guizhou from a non-controlling shareholder. As the preferred shares could be redeemed by the shareholder upon the occurrence of certain events that are not solely within the control of the Company, these shares are accounted for as redeemable non-controlling interests. The Company assesses the probability of redemption by the holder of the redeemable non-controlling interests. Due to the probability of being redeemed, the Company adjusts the carrying amount of the mezzanine equity to the redemption value at the end of each reporting period as if it was the redemption date for the redeemable non-controlling interest. The Company accounts for the changes in accretion to the redemption value in accordance with ASC 480, Distinguishing Liabilities from Equity. The redeemable non-controlling interests are recorded at redemption value. The Company adopts equity classification method to classify the ASC 480 offsetting entry as an adjustment to retained earnings (or additional paid-in capital in the absence of retained earnings).
The Company assesses whether an amendment to the terms of its redeemable non-controlling interests is an extinguishment or a modification based on a qualitative evaluation of the amendment. If the amendment adds, removes, significantly changes to a substantive contractual term or to the nature of the overall instrument, the amendment results in an extinguishment of the redeemable non-controlling interests. The Company also assesses if the change in terms results in value transfer between redeemable non-controlling interests and ordinary shareholders. When redeemable non-controlling interests are extinguished, the difference between the carrying amount and the fair value of the redeemable non-controlling interests is recorded against equity.
Share-based compensation
Share-based compensation is measured based on the grant date fair value of the equity instrument. Share-based compensation expenses are recognized over the requisite service period based on the graded vesting attribution method with corresponding impact reflected in additional paid-in capital. When no future services are required to be performed by grantees in exchange for an award of equity instruments, the cost of the award is expensed on the grant date. The Company elects to recognize forfeitures when they occur.
Government subsidies
The Company’s PRC based subsidiary received
government subsidies from local government. Government subsidies are recognized when there is reasonable assurance that the attached conditions
will be complied with. When the government subsidy relates to an expense item, it is net against the expense and recognized in the consolidated
statements of operations and comprehensive loss over the period necessary to match the subsidy on a systematic basis to the related expenses.
Where the subsidy relates to an asset acquisition, it is recognized as income in the consolidated statements of operations and comprehensive
loss in proportion to the useful life of the related assets. Government grants received for the years ended December 31, 2024, 2023 and
2022 were $
Revenue recognition
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation
The Company mainly offers and generates revenue from three kinds of services to its clients in China, sales of graphite anode materials, consulting services and other services.
Revenue recognition policies for each type of the Company’s services are discussed as follows:
Sales of graphite anode materials
The Company’s major business is to sell graphite anode materials to its customers. The Company’s major customers are manufacturers of industrial and consumer energy storage lithium-ion batteries, such as batteries for electric vehicles and electric ships, and smart consumer electronics. The Company examines the availability of the inventory, takes control of products in its own and third-party warehouses, and then organizes the shipping and delivery of products to customers after the purchase orders are received from customers.
F-17
Consulting services
The Company provides consulting services to small and medium-sized enterprises by helping them to develop strategies and solutions including corporate reorganization, product promotion and marketing, industry supply chain integration, corporate governance, financing and capital structure, etc. The consulting services are tailored to meet each client’s specific needs and requirements.
Consulting fees are based on the specifics of the services provided, for instance, time and efforts required, etc. The Company considers comprehensive factors and determines prices with reference to quoted market prices. If no quoted market price is available, the price will be estimated by using an expected cost plus a margin approach.
Consulting fees are recognized as revenue when services have been provided and receipt of consulting services is confirmed by clients as the duration of services is short, typically one month or less. Consulting fees collected before providing any service are presented as deferred revenue on the consolidated balance sheets.
Contract assets and liabilities
The Company’s contract liabilities consist of deferred revenues, primarily relating to the advance consideration received from customers, which include the advanced graphite anode material sales and consulting service fees received from customers. The amount from customers before provision of goods and service is recognized as deferred revenue. The deferred revenue is recognized as revenue once the criteria for revenue recognition are met.
The Company recognized $
There was no contract asset recorded as of December 31, 2024 and 2023.
Cost of goods sold
The cost of goods sold for the year ended December
31, 2024, 2023 and 2022 was primarily the cost of finished goods of graphite anode materials, including single granular coke, secondary
granular coke, mixed batches of single particle and secondary coke, depreciation and amortization, labor cost, outsourcing fee and freight.
Cost of goods sold was $
Service costs
Service costs primarily include (1) professional and consulting fees
paid to third parties for the Company’s activity; and (2) labor costs. Service costs were $
Income taxes
The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
F-18
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 tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures.
The Company believes there were no uncertain tax positions as of December 31, 2024 and 2023, respectively. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. The Company is not currently under examination by an income tax authority, nor has been notified that an examination is contemplated. The Company will recognize interest and penalties, if any, related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive loss. Accrued interest and penalties will be included on the related tax liability line in the consolidated balance sheet. Interest and penalties incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
Loss per share
The Company computes loss per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS are computed by dividing the loss available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised and converted into ordinary shares.
The Company has determined that the redeemable non-controlling interests are participating securities as the preferred shares participate in retained earnings of Sunrise Guizhou. The Company treats the entire measurement adjustment to redemption value of the redeemable non-controlling interest under ASC 480-10-S99-3A as being akin to a dividend, which affected in the calculation of loss available to ordinary shareholders of the Company used in the loss per share calculation.
Comprehensive loss
Comprehensive loss income consists of two components, net loss and other comprehensive loss. Other comprehensive loss refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net loss. Other comprehensive loss consists of foreign currency translation adjustment resulting from the Company translating its financial statements from functional currency into reporting currency.
Risks and uncertainties
Currency risk
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In Mainland China, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in Mainland China must be processed through the PBOC or other Company foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
The Company maintains certain bank accounts in
Mainland China. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial institutions,
such as commercial banks, established in Mainland China are required to purchase deposit insurance for deposits in RMB and in foreign
currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s
accounts, as its aggregate deposits are much higher than the compensation limit, which is RMB
The Company also maintains certain bank accounts
in Hong Kong. The Hong Kong Deposit Protection Scheme insures eligible deposits up to HK$
Other than the deposit insurance mechanism in Mainland China and Hong Kong mentioned above, the Company’s bank accounts are not insured by the U.S. Federal Deposit Insurance Corporation insurance or other insurance.
F-19
Concentration and credit risk
Financial instruments that potentially subject the Company to the concentration of credit risks consist of cash, cash equivalents and restricted cash. The maximum exposures of such assets to credit risk are their carrying amounts as of the balance sheet dates. The Company deposits its cash, cash equivalents and restricted cash with financial institutions located in jurisdictions where the subsidiaries are located. The Company believes that no significant credit risk exists as these financial institutions have high credit quality.
The Company’s exposure to credit risk associated
with its trading and other activities is measured on an individual counterparty basis, as well as by group of counterparties that share
similar attributes. There was $
There were $
Concentrations of credit risk can be affected by changes in political, industry, or economic factors. To reduce the potential for risk concentration, The Company generally requires advanced payment before delivery of the services but may extend unsecured credit to its clients in the ordinary course of business. Credit limits are established and exposure is monitored in light of changing counterparty and market conditions. The Company did not have any material concentrations of credit risk outside the ordinary course of business as of December 31, 2024 and 2023.
Interest rate risk
Fluctuations in market interest rates may negatively affect the financial condition and results of operations. The Company is exposed to floating interest rate risk on cash deposit and floating rate borrowings, and the risks due to changes in interest rates are not material. The Company has not used any derivative financial instruments to manage its interest risk exposure.
Other uncertainty risk
The Company’s major operations are conducted in the PRC. Accordingly, the political, economic, and legal environments in the PRC, as well as the general state of the PRC’s economy may influence the Company’s business, financial condition, and results of operations.
The Company’s major operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations, including its organization and structure disclosed in Note 1, this may not be indicative of future results.
Recently issued accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
In December 2023, the FASB issued Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The amendments address more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is still evaluating the effect of the adoption of this guidance.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. This ASU may be applied either prospectively to financial statements issued for reporting periods after its effective date or retrospectively to all prior periods presented in the financial statements. The Company is in the process of evaluating the potential impact of the new guidance on its consolidated financial statements and related disclosures.
F-20
NOTE 3 – GOING CONCERN
As reflected in the consolidated financial statements,
the Company incurred net loss of $
As of December 31, 2024, the Company was in default
under a short-term loan agreement for $
In addition, as of December 31, 2024, the Company was in default under
two long-term loan agreements with China Construction Bank (“CCB”) Qianxinan Branch for $
These adverse conditions and events raised substantial doubt about the Company’s ability to continue as a going concern. For the next 12 months from the issuance date of this report, the Company plans to continue implementing various measures to boost revenue and control cost and expenses. In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand, its ability to generate sufficient revenue sources and ability to obtain additional financial support in the future, and its operating and capital expenditure commitments. The Company intends to finance its future working capital requirements and capital expenditures from financing activities for the cash shortfalls and the negative operating cash flows. The Company expects continued capital financing through debt or equity issuances to support its working capital requirements.
As of December 31, 2024, the Company had cash,
cash equivalents and restricted cash of $
Currently, the Company is working to improve its liquidity and capital sources primarily through cash flows from operation, debt financing, and financial support from its principal shareholder. In order to fully implement its business plans and sustain continued growth, the Company may also seek equity financing from outside investors when necessary.
On January 9, 2025, Sunrise Guizhou obtained bank
loan of RMB
On March 31, 2025, Sunrise Guizhou obtained bank
loan of RMB
On December 31, 2024, the shareholders of Sunrise Guizhou entered into
a capital increase agreement with Jieshou Xinyang Equity Investment Fund Partnership Enterprise (Limited Partnership) (“Xinyang
Partnership”), pursuant to which, Xinyang Partnership agreed to subscribe to
The Company can make no assurances that required financings will be available for the amounts needed, or on terms commercially acceptable to the Company, if at all. If one or all of these events does not occur or subsequent capital raises are insufficient to bridge financial and liquidity shortfall, there would likely be a material adverse effect on the Company and its consolidated financial statements.
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for credit loss | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
F-21
The movement of allowance of credit loss is as follows:
| As of December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Balance at beginning of the year | $ | $ | $ | |||||||||
| Current year addition | ||||||||||||
| Reversed | ( | ) | ||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||
| Balance at end of the year | $ | $ | $ | |||||||||
Allowance for credit loss
provision was $
NOTE 5 – INVENTORIES, NET
Inventories consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Work in process | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
The impairment of inventories was $
NOTE 6 – SHORT-TERM INVESTMENT
In February 2021, the Company entered into an
investment agreement with Viner Total investment Fund (the “Fund”) to invest in the Fund with the total investment consideration
of $
The value of a private fund is measured at fair
value with gains and losses recognized in earnings. As a practical expedient, the Company uses NAV or
its equivalent to measure the fair value of the Fund. NAV is primarily determined based on information provided by external fund administrators.
The Company redeemed the Fund with a redemption value of $
F-22
NOTE 7 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| As of December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Prepaid expenses | $ | - | $ | |||||||
| Advance to supplier | (1) | |||||||||
| Loans to third parties | ||||||||||
| Receivable from redemption on short-term investment | (2) | |||||||||
| Prepayment for investment | ||||||||||
| Other receivables | ||||||||||
| Interest receivable | ||||||||||
| Prepaid VAT and income tax | (3) | |||||||||
| Deposits for operating lease | ||||||||||
| Subtotal | ||||||||||
| Less: allowance for prepaid expenses and other current assets | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
| (1) |
| (2) |
| (3) |
NOTE 8 – LONG-TERM PREPAYMENTS AND OTHER NON-CURRENT ASSETS
| As of December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Prepayment for equipment | (1) | $ | $ | |||||||
| Finance lease deposit | ||||||||||
| Prepayment for long-term loan acquisition cost | (2) | |||||||||
| Others | ||||||||||
| Total | $ | $ | ||||||||
| (1) |
| (2) |
Note 9 – PLANT, PROPERTY AND EQUIPMENT, NET
Plant, property and equipment, stated at cost less accumulated depreciation, consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Building | $ | $ | ||||||
| Machines | ||||||||
| Vehicles | ||||||||
| Electronic equipment | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Leasehold improvements | ||||||||
| Subtotal | ||||||||
| Construction in progress | ||||||||
| Less: | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Plant, property and equipment, net | $ | $ | ||||||
Depreciation expense was $
F-23
NOTE 10 – LAND USE RIGHTS, NET
Land use rights, stated at cost less accumulated amortization, consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Land use rights - cost | $ | $ | ||||||
| Less: | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Land use rights, net | $ | $ | ||||||
For the years ended December 31, 2024, 2023 and 2022, amortization
expense amounted to $
| Year ending December 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total | $ | |||
NOTE 11 – INTANGIBLE ASSETS, NET
Intangible assets, stated at cost less accumulated amortization and impairment, consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Copyrights of course videos | $ | $ | ||||||
| Intellectual property rights | ||||||||
| Intangible assets, cost | ||||||||
| Less: | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
The Company recorded impairment loss on intangible
assets of $, $
For the years ended December 31, 2024, 2023 and
2022, amortization expense amounted to $
| Year ending December 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and thereafter | ||||
| Total | $ | |||
F-24
NOTE 12 – LONG-TERM INVESTMENTS
Long-term investments consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Equity method investments: | ||||||||
| Shidong (Suzhou) Investment Co., Ltd. (“Suzhou Investment”) | $ | $ | ||||||
| Shenzhen Jiazhong Creative Capital LLP (“Jiazhong”) | ||||||||
| Equity investments without readily determinable fair value: | ||||||||
| Beijing Jinshuibanlv Technology Co., Ltd. (“Jinshuibanlv”) | ||||||||
| Hangzhou Zhongfei Aerospace Health Management Co., Ltd. (“Zhongfei”) | ||||||||
| Shanghai Zhongren Yinzhirun Investment Management Partnership (“Yinzhirun”) | ||||||||
| Jiangxi Cheyi Tongcheng Car Networking Tech Co., Ltd.(“Cheyi”) | ||||||||
| Chengdu Wanchang Enterprise Management Consulting Partnership (Limited Partnership) (“Wanchang”) | ||||||||
| Shanghai Outu Home Furnishings Co., Ltd. (“Outu”) | ||||||||
| Zhejiang Qianshier Household Co., Ltd.(“Qianshier”) | ||||||||
| Taizhou Jiamenkou Auto Greengrocer’s Delivery Technology Co., Ltd. (“Jiamenkou”) | ||||||||
| Zhejiang Yueteng Information Technology Co., Ltd. (“Yueteng”) | ||||||||
| Shidong Funeng (Ruzhou) Industry Development Co., Ltd.( “Funeng”) | ||||||||
| Dongguan Zhiduocheng Car Service Co., Ltd. (“Car Service”) | ||||||||
| Subtotal | ||||||||
| Less: impairment | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Equity method investments
Investment in Suzhou Investment
In December 2017, the Company acquired
Investment in Jiazhong
In December 2020, the Company acquired
F-25
Equity investments without readily determinable fair value
Investment in Jinshuibanlv
In April 2021, the Company signed an investment agreement with Beijing
Zhitong Zhenye Technology Co., Ltd. and Li Jiyou to invest RMB
Investment in Zhongfei
In November 2020, the Company acquired
Investment in Yinzhirun
In December 2016, the Company acquired
Investment in Cheyi
In November 2020, the Company acquired
The Company noticed that Industry and Commerce
Administration of Nanchang Xihu Branch was not able to perform on-site inspection on Cheyi’s subsidiary Nanchang Qingchong Technology
Co., Ltd. (“Qingchong”) in August 2022; Another Cheyi’s subsidiary, Jiangxi Cheyi Tongcheng Vehicle Networking Technology
Co., Ltd. (“Cheyi Tongcheng”) had a legal dispute with CCB Nanchang Branch on March 9, 2023. The Company noticed the above
factors that raise significant concerns about the investee’s ability to continue as a going concern. Full impairment of $
Investment in Wanchang
In September 2019, the Company initially acquired
Investment in Outu
In December 2019, the Company acquired
F-26
Investment in Qianshier
In December 2020, the Company acquired
In 2022, the Company noticed Qianshier had
been subject to enforcement proceedings associated with a rental dispute, which raised significant concerns about the investee’s
ability to continue as a going concern. Full impairment of $
Investment in Jiamenkou
In June 2020, the Company acquired
Investment in Yueteng
In June 2020, the Company acquired
Investment in Funeng
In August 2019, the Company subscribed capital
with cash consideration of RMB
Investment in Car Service
In November 2017, the Company acquired
F-27
NOTE 13 – ASSET ACQUISITION
In July 2022, Sunrise Guizhou entered into purchase agreements with
original shareholders of Sunrise Tech (formerly known as Anlong Hengrui Graphite Material Co., Ltd.) to acquire
The Company evaluated the acquisition of the purchased assets under ASC 805-Business Combination (ASC 805), and concluded that as substantially all of the fair value of the gross assets acquired is concentrated in an identifiable group of similar assets, the transaction did not meet the requirements to be accounted for as a business combination and therefore was accounted for as an asset acquisition.
The purchase prices of the assets as of the acquisition date are as follows:
| Land use rights | $ | |||
| Plant, property and equipment – buildings | ||||
| Total assets acquired | ||||
| Deferred tax liabilities | ( | ) | ||
| Net assets acquired | $ |
The Company recognized any excess consideration transferred over the fair value of the net assets acquired on a relative fair value basis to the identifiable net assets. The Company determined the estimated fair values using Level 3 inputs after review and consideration of relevant quoted market prices of comparable companies and relevant information.
For the year ended December 31, 2023, the Company
had paid RMB
These consideration payables were interest free, and the present value
was discounted using the incremental borrowing rate. The current and non-current portion of the consideration payable was $
NOTE 14 – FINANCE LEASES
The Company’s leases are mainly related to graphite anode material manufacturing equipment leases from financial lease companies. Finance lease contracts offer the Company an option to purchase assets at a nominal amount by the end of the lease term and it is reasonably certain the Company will exercise that option. The Company amortizes the finance lease right-of-use asset to the end of the useful life of the underlying asset.
As of December 31, 2024, the Company’s finance
leases had a weighted average remaining lease term of
The components of lease expense for the years ended December 31, 2024, 2023 and 2022 were as follows:
| Statement of | For the years ended December 31, | |||||||||||||
| Income Location | 2024 | 2023 | 2022 | |||||||||||
| Lease costs | ||||||||||||||
| Finance lease expense | $ | $ | $ | |||||||||||
Maturity of lease liabilities under the finance leases as of December 31, 2024 were as follows:
| For the years ending December 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| Total lease payments | ||||
| Less: interest | ( | ) | ||
| Present value of finance lease liabilities | $ | |||
| Finance lease liabilities, current | $ | |||
| Finance lease liabilities, non-current | $ | |||
F-28
NOTE 15 – DEFERRED GOVERNMENT SUBSIDY
Deferred government subsidy consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Deferred subsidy on relocation | $ | $ | ||||||
| Others | ||||||||
| Total | $ | $ | ||||||
In November 2021, GMB BJ planned to relocate the
Company address from Beijing to Zibo city, and it applied for subsidy of RMB
NOTE 16 – LONG-TERM PAYABLE
Long-term payable represented the financial liabilities due to financial lease companies maturing within one or over one year. The long-term payable consisted of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Long-term payables: | ||||||||
| Far East International Financial Leasing Co., Ltd. (“Far East”) | $ | $ | ||||||
| China Power Investment Ronghe Financial Leasing Co., Ltd. (“Ronghe”) | ||||||||
| Zhongguancun Science and Technology Leasing Co., Ltd. (“Zhongguancun”) | ||||||||
| Xiamen Guomao Chuangcheng Financial Leasing Co., Ltd. (“Guomao”) | ||||||||
| Risheng International Finance Leasing Co., Ltd. (“Risheng”) | ||||||||
| Total | $ | $ | ||||||
| Current portion | $ | $ | ||||||
| Non-current portion | $ | $ | ||||||
On September 22, 2022, Sunrise Guizhou entered into a sales and
leaseback contract with Far East. Pursuant to the contract, the Company sold its machines for RMB
On November 4, 2022, Sunrise Guizhou entered into a sales and leaseback
financing contract a three-year financing with Ronghe to obtain an amount of RMB
On February 7, 2023, Sunrise Guizhou entered into a sales and leaseback
financing contract for a two-year financing with Zhongguancun to obtain an amount of RMB
F-29
On October 27, 2023, Sunrise Guizhou entered into
a sales and leaseback financing contract for a two-year financing with Guomao for RMB
On October 14, 2024, Sunrise Guizhou entered into a sales and leaseback
financing contract for a thirty two-month financing with Risheng for RMB
NOTE 17 – LOANS
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Short-term loans: | ||||||||
| Everbright Bank | $ | $ | ||||||
| Post Savings Bank of China | ||||||||
| Industrial Bank | ||||||||
| Total | ||||||||
| Long-term loans: | ||||||||
| China Construction Bank | ||||||||
| WeBank Co., Ltd. | ||||||||
| Post Savings Bank of China | ||||||||
| Current portion | $ | $ | ||||||
| Non-current portion | $ | $ | ||||||
Short-term loan
Everbright Bank
On May 16, 2023, Sunrise Guizhou entered into a credit facility agreement
with Everbright Bank to obtain revolving fund up to RMB
Post Bank
On June 19, 2024, Sunrise Guizhou entered into a line of credit facility
agreement with Post Savings Bank of China (“Post Bank”) to obtain revolving fund up to RMB
F-30
Industrial Bank
On June 19, 2024, GIOP BJ entered into a line
of credit facility agreement with Industrial Bank to obtain revolving fund up to RMB
Although GIOP BJ has been timely paying interests to Industrial Bank
in accordance with its terms, GIOP BJ was in default under the loan agreement as of December 31, 2024. Specifically, the financial covenants
of the loan agreement required GIOP BJ to keep: (1) current assets not less than RMB
Long-term loan
China Construction Bank
On March 8, 2024, Sunrise Guizhou obtained bank loan of RMB
Although Sunrise Guizhou has been timely repaying CCB in accordance
with its terms, Sunrise Guizhou was in default under the loan agreement as of December 31, 2024. Specifically, the financial covenants
of the loan agreement required the Sunrise Guizhou to keep: (1) asset liability ratio not more than
WeBank
On April 26, 2024, the Company obtained a loan
for RMB
Post Bank
On January 18, 2023, Sunrise Guizhou entered into a line of credit
facility agreement with Post Bank to obtain revolving fund up to RMB
NOTE 18 – TAXES
a. VAT
The Company is subject to VAT and related surcharges in Mainland China
for sales of graphite anode materials and providing member services and other in-depth services.
All of the tax returns of the Company have been and remain subject to examination by the Mainland China tax authorities for five years from the date of filing.
F-31
b. Income tax
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains, or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on the issue of shares by, or any transfers of shares of, Cayman Islands companies (except those which hold interests in land in the Cayman Islands). There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of our ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares, as the case may be, nor will gains derived from the disposal of our ordinary shares be subject to Cayman Islands income or corporation tax.
Hong Kong
In accordance with the relevant tax laws and regulations
of Hong Kong, a company registered in Hong Kong is subject to income taxes within Hong Kong at the applicable tax rate on taxable income.
Mainland China
The Company’s subsidiaries are incorporated
in Mainland China, and are subject to the Mainland China Enterprise Income Tax Laws (“EIT Laws”) with the statutory income
tax rate of
In accordance with the implementation rules of EIT Laws, a qualified
“High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of
The components of the income tax provision (benefit) were as follows:
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Current | ||||||||||||
| China | $ | $ | $ | |||||||||
| Deferred | ||||||||||||
| China | ( | ) | ( | ) | ||||||||
| Total | $ | $ | ( | ) | $ | |||||||
Loss before income taxes was attributable to the following geographic locations for the years ended December 31:
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| PRC | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Others | ( | ) | ( | ) | ( | ) | ||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
F-32
Reconciliation between the provision (benefit)
for income taxes computed by applying the Mainland China EIT rate of
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Mainland China EIT rate | % | % | % | |||||||||
| Income taxes computed at statutory EIT rate | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Reconciling items: | ||||||||||||
| Effect of tax holiday and preferential tax rate | ( | ) | ||||||||||
| Effect of changes in tax rate | ( | ) | ||||||||||
| Effect of tax rates in foreign jurisdictions | ||||||||||||
| Effect of non-deductible share-based compensation | ||||||||||||
| Effect of true up on net operating loss in the tax returns | ||||||||||||
| Effect of non-deductible expense | ||||||||||||
| Super deduction of qualified R&D expenditures | ( | ) | ||||||||||
| Changes in valuation allowance | ||||||||||||
| Income tax (benefit) expense | $ | $ | ( | ) | $ | |||||||
| Effective tax rate | ( | )% | % | ( | )% | |||||||
Deferred tax assets and liabilities
Significant components of deferred tax assets and liabilities were as follows:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Provision for doubtful debts | ||||||||
| Finance lease liabilities | ||||||||
| Impairment on inventory | ||||||||
| Impairment of intangible assets | ||||||||
| Impairment of long-term investment | ||||||||
| Deferred tax assets, gross | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets, net | $ | $ | ||||||
| Deferred tax liabilities | ||||||||
| Finance lease right-of-use assets | $ | $ | ||||||
| Assets acquired in the asset acquisition | ||||||||
| Total deferred tax liabilities | $ | $ | ||||||
| Deferred tax assets, net | $ | $ | ||||||
| Deferred tax liabilities, net | $ | $ | ||||||
The movement of valuation allowance was as follows:
| As of December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Balance at beginning of the year | $ | $ | $ | |||||||||
| Current year addition | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||
| Balance at end of the year | $ | $ | $ | |||||||||
F-33
For entities incorporated in Mainland China, net
operating loss can be carried forward for
| For the years ending December 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| 2032 | ||||
| 2033 | ||||
| 2034 | ||||
| Total | $ | |||
As of December 31, 2024, the Company had net operating
loss carrying forwards of $
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2024 and 2023, the Company did not have any unrecognized uncertain tax positions and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. For the years ended December 31, 2024, 2023 and 2022, the Company did not incur any interest and penalties related to any potential underpaid income tax expenses.
For the Company’s operating subsidiaries, as of December 31, 2024, the tax years ended December 31, 2019, through December 31, 2023 remain open for statutory examination by PRC tax authorities.
NOTE 19 – RELATED PARTY BALANCE AND TRANSACTIONS
The following is a list of related parties which the Company has transactions with:
| (a) | Ningbo Zhuhai Investment Co., Ltd. (“Zhuhai Investment”), a company controlled by Mr. Haiping Hu. | |
| (b) | Bally Corp. (“Bally”), a company controlled by Mr. Haiping Hu. | |
| (c) | Zhongna Times (Shenzhen) New Energy Technology Co., Ltd. (“Zhongna Times”), a company controlled by Mr. Haiping Hu. | |
| (d) | Shanghai Huiyang Investment Co. (“Shanghai Huiyang”), | |
| (e) | Suzhou Investment, a company of which Mr. Haiping Hu is the CEO. | |
| (f) | Mr. Shousheng Guo, Director, | |
| (g) | Mr. Wenwu Zhang, Director of Sunrise Guizhou. | |
| (h) | Mr. Chenming Qi, General Manager, Director and | |
| (i) | Ms. Jing Ji, CEO of and | |
| (j) | Haicheng Shenhe, | |
| (k) | Ms. Chao Liu, Chief Financial Officer of the Company. | |
| (l) | GMB Internet Technology Co., Ltd., one of the shareholders of the Company. | |
| (m) | GMB Business Communication Co., Ltd. one of the shareholders of the Company. | |
| (n) | GMB Enterprise Cooperation Development Co., Ltd., one of the shareholders of the Company. | |
| (o) | GMB Information Technology Co., Ltd., one of the shareholders of the Company. | |
| (p) | GMB Wisdom Sharing Platform Co., Ltd., one of the shareholders of the Company. | |
| (q) | GMB Technology Co., Ltd., one of the shareholders of the Company. | |
| (r) | GMB Project Incubation Services Co., Ltd., one of the shareholders of the Company. | |
| (s) | Guizhou Yilong New Area Industrial Development and Investment Co., Ltd., | |
| (t) | Ms. Fangfei Liu, spouse of Mr. Haiping Hu. | |
| (u) | Mr. Huiyu Du, the former legal representative of Sunrise Guizhou. | |
| (v) | Beijing Huatai Zhonghe Venture Capital Center (Limited Partnership) (“Huatai Zhonghe”), controlled by Mr. Shousheng Guo. | |
| (w) | Ningbo Meishan Bonded Port Zone Zhihai Yuncheng Investment Management Partnership Enterprise (Limited Partnership) (“Zhihai Yuncheng”), a limited partnership controlled by Mr. Haiping Hu. | |
| (x) | Shenzhen Zhuhai New Energy Co., Ltd. (“Shenzhen Zhuhai”), a company ultimately controlled by Mr. Haiping Hu. |
F-34
| a. | Due from related parties |
As of December 31, 2024 and 2023, the balances of amount due from related parties were as follows:
| As of December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Due from related parties | ||||||||||
| Bally | $ | $ | ||||||||
| Mr. Shousheng Guo | (2) | |||||||||
| Suzhou Investment | - | |||||||||
| Mr. Wenwu Zhang | (1) | |||||||||
| Ms. Chao Liu | (2) | |||||||||
| Shenzhen Zhuhai | (4) | |||||||||
| Zhihai Yuncheng | (3) | |||||||||
| Others | ||||||||||
| Total | $ | $ | ||||||||
| (1) |
| (2) |
| (3) |
| (4) |
| b. | Due to related parties |
As of December 31, 2024 and 2023, the balances of amounts due to related parties were as follows:
| As of December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Due to related parties | ||||||||||
| Mr. Haiping Hu | $ | $ | ||||||||
| Mr. Chenming Qi | ||||||||||
| Ms. Jing Ji | ||||||||||
| Shanghai Huiyang | (1) | |||||||||
| Haicheng Shenhe | ||||||||||
| Huatai Zhonghe | ||||||||||
| Zhuhai Investment | (2) | |||||||||
| Zhongna Times | ||||||||||
| Others | ||||||||||
| Total | $ | $ | ||||||||
| (1) | |
| (2) |
F-35
| c. | Deferred revenue -related parties |
As of December 31, 2024 and 2023, the balances of deferred revenue of related parties were as follows:
| As of December 31, | ||||||||||
| 2024 | 2023 | |||||||||
| Deferred revenue of related parties | ||||||||||
| Shanghai Huiyang | (1) | $ | $ | |||||||
| Total | $ | $ | ||||||||
| (1) |
| d. | Related party transactions |
Related party purchase
The Company purchased consulting services for
knowledge sharing and enterprise business from Zhuhai Investment. For the years ended December 31, 2024, 2023 and 2022, consulting
fee to Zhuhai Investment were $
The Company rented office spaces from Zhuhai Investment.
For the fiscal years ended December 31, 2024, 2023 and 2022, total rental fee to Zhuhai Investment were $, $ and $
The Company purchased maintenance services for
the Company’s APP on knowledge sharing and enterprise business from Zhihai Yuncheng. For the years ended December 31,
2024, 2023 and 2022, maintenance fee to Zhihai Yuncheng were $
The Company purchased raw materials for graphite
anode material manufacturing from Haicheng Shenhe. For the years ended December 31, 2024, 2023 and 2022, total purchases were $, $
Related party sales
The Company sold titanium for $
| e. | Related party guarantee |
On August 4, 2022, Sunrise Guizhou entered into
a line of credit financing contract with Bank of Guizhou for revolving credit of RMB
In July 2022, Sunrise Guizhou entered into purchase agreements with
original shareholders of Sunrise to acquire
On September 22, 2022, Sunrise Guizhou entered
into a financing contract into an eighteen-month loan with Far East to obtain a loan of RMB
F-36
On May 16, 2023, Sunrise Guizhou entered into
a credit facility agreement with Everbright Bank to obtain revolving fund up to RMB
On January 18, 2023, Sunrise Guizhou entered into a credit facility
agreement with Post Bank to obtain revolving fund up to RMB
On June 13, 2023, Sunrise Guizhou entered into
a finance lease agreement with Chongqing Xingyu Finance Lease Co., Ltd. to lease graphite anode materials production facilities. The principal
of the contract was RMB
On October 26, 2023, Sunrise Guizhou entered into
a three-year debt arrangement with SPD Bank to obtain line of credit up to RMB
On March 8, 2024, Sunrise Guizhou obtained bank
loan of RMB
On April 26, 2024, the Company obtained a loan
for RMB
On June 19, 2024, GIOP BJ entered into a line of credit facility agreement
with Industrial Bank to obtain revolving fund up to RMB
On July 31, 2024, Sunrise Guizhou entered into
a banker’s acceptance note contract with Everbright Bank for issuing banker’s acceptance note to the suppliers of Sunrise
Guizhou. Pursuant to the contract, the Company was obliged to deposit fifty percent of the note payable amount issued as restricted cash
in the designated bank account in Everbright Bank. As of December 31, 2024 and 2023, the deposit for note issuance was $
NOTE 20 – REDEEMABLE NON-CONTROLLING INTERESTS
On June 13, 2022, Guizhou Province New Kinetic
Industry Development Fund Partnership (“New Kinetic Partnership”) subscribed
In addition to the preferential rights in dividend
and liquidation, the New Kinetic Partnership has a right to require Sunrise Guizhou and its shareholders to redeem New Kinetic Partnership’s
shares, at any time and from time to time on or after the date of the earliest to occurrence of the certain events, including but not
limited to: (i) Sunrise Guizhou fails to complete a qualified initial public offering (“IPO”) thirty-six months post-closing;
(ii) Sunrise Guizhou fails to complete the profit commitment for consecutive two years; (iii) Sunrise Guizhou’s conviction of breaches
or violation of criminal laws and/or applicable regulations which may have a material adverse effect on the Company’s business;
(iv) the occurrence of the change of business of Sunrise Guizhou; (v) the net assets of Sunrise Guizhou is less than the net assets as
of the date of the investment; (vi) the account receivable of Sunrise Guizhou exceeds RMB
F-37
The redemption value on the investment by the
New Kinetic Partnership is higher of (i)
On June 18, 2024, the New Kinetic Partnership amended the terms of the investment agreement to waive their preferential rights in dividend and liquidation, and remove the redemption events related to completion of an IPO and meeting performance commitment. In addition, the Company, including Zhuhai Zibo, the controlling shareholder of Sunrise Guizhou, is excluded from the redemption obligor and certain shareholders of Sunrise Guizhou become the sole obligor of the redemption. As a result of the amendments, the Company reclassified the equity interest held by New Kinect Partnership from mezzanine equity to non-controlling interests.
The movement of redeemable non-controlling interests was as follows:
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Balance at beginning of the year | $ | $ | $ | |||||||||
| Contribution from redeemable non-controlling interests | ||||||||||||
| Accretion to redemption value of redeemable non-controlling interests | ||||||||||||
| Reclassification of the redeemable non-controlling interests to permanent equity | ( | ) | ||||||||||
| Foreign exchange effect | ( | ) | ( | ) | ( | ) | ||||||
| Balance at end of the year | $ | $ | $ | |||||||||
NOTE 21 – SHAREHOLDERS’ EQUITY
Ordinary shares
EPOW was established under the laws of the Cayman
Islands on February 22, 2019. The authorized number of ordinary shares was
On February 11, 2021, the Company closed its initial
public offering (“IPO”) on Nasdaq. The Company offered
F-38
Share capital increase and re-designation
On February 8, 2024, the 2023 annual general meeting of shareholders (the “Meeting”) of the Company was held. At the Meeting, the shareholders of the Company approved the increase and re-designation of the Company share capital.
The Company increased its authorized share capital
from US$
Immediately following the Share Capital Increase,
the Company re-designated and re-classified its authorized share capital so that the afore-mentioned authorized share capital of $500,000
comprise
The
Company believes that the re-designation should be accounted for on a retroactive basis pursuant to ASC 260. The Company has
retroactively restated all shares data for all periods presented. As a result, there were
Share consolidation
On September 16, 2024, the extraordinary general
meeting of shareholders of the Company was held. At the extraordinary general meeting, the shareholders adopted an ordinary resolution
on consolidation of every ten (10) Class A and Class B ordinary shares with a par value of US$
2024 subscription agreement and subscription receivable
On October 18, 2024, the Company entered into
a subscription agreement with Chong Ee Chang, a Malaysian citizen. Pursuant to the subscription agreement, Chong Ee Chang agreed to subscribe
for and purchase from the Company, and the Company agreed to issue and sell to Chong Ee Chang an aggregate of
Share-based compensation
The Company adopted the 2022 Stock Incentive Plan
for the grant of restricted share units to employees, directors and non-employees to provide incentive for their services. The maximum
number of ordinary shares that may be delivered pursuant to compensatory awards granted to the employees, directors and non-employees
under the 2022 Stock Incentive Plan should not exceed
On February 8, 2024, the 2023 annual general meeting
of shareholders of the Company was held. At the Meeting, the shareholders of the Company approved the 2024 Employee Share Incentive Plan.
The Company adopted the 2024 Employee Share Incentive Plan for the grant of restricted share units to employees, directors and non-employees
to provide incentive for their services. The maximum number of ordinary shares that may be delivered pursuant to compensatory awards granted
to the eligible persons under the 2024 Stock Incentive Plan may not exceed
The Company recorded share-based compensation
expenses of $
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cost of revenues | $ | $ | $ | |||||||||
| Selling expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Research and development expenses | ( | ) | ||||||||||
| Total | $ | $ | $ | |||||||||
Restricted share units
On August 26, 2022, the Company granted
F-39
A summary of the restricted shares units’ activities was as follows:
| Number of restricted share units outstanding | Weighted average grant date fair value | Aggregate intrinsic value | ||||||||||
| Restricted share units outstanding as of January 1, 2022 | ||||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ||||||||||
| Restricted share units outstanding as of December 31, 2022 | ||||||||||||
| Vested | ( | ) | ||||||||||
| Forfeited | ( | ) | ||||||||||
| Restricted share units outstanding as of December 31, 2023 | ||||||||||||
| Vested | ( | ) | ||||||||||
| Forfeited | ( | ) | ||||||||||
| Restricted share units outstanding as of December 31, 2024 | ||||||||||||
The weighted average grant date fair value of
restricted share units granted during the years ended December 31, 2024, 2023 and 2022 were $
The Company recognized compensation expense over
the requisite service period for each separately vesting portion of the award as if the award is in substance, multiple awards. The Company
recorded share-based compensation expenses relating to restricted share units of $
Non-controlling interests
Non-controlling interests consist of the following:
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| GMB (Beijing) | $ | $ | ||||||
| GMB Culture | ( | ) | ||||||
| Sunrise Tech | ( | ) | ( | ) | ||||
| GMB Consulting | ||||||||
| Shidong Cloud | ||||||||
| Sunrise Guxian | ( | ) | ( | ) | ||||
Sunrise Chenhui | ( | ) | ||||||
| GMB Technology | ( | ) | ( | ) | ||||
| Sunrise Guizhou | ||||||||
| Total | $ | $ | ||||||
F-40
Sunrise Guizhou was established by Zhuhai (Zibo)
Investment and five other companies in November, 2021. Shidong Cloud was established by GIOP BJ and Beijing Yunqianyi Information Technology
Co., Ltd. (“Yunqianyi”) in December 2022.
Sunrise Guxian was established by Zhuhai Guizhou and seven other companies in April, 2022. Sunrise Chenhui was established by Sunrise Tech on March 25, 2024.
For the year ended December 31, 2022, the Company
made capital contributions of $
For the years ended December 31, 2023 and 2022, the non-controlling
shareholders made capital contributions of $
For the year ended December 31, 2024, GMB (Hangzhou)
acquired
For the year ended December 31, 2024, the Company reclassified the
redeemable non-controlling interest of $
The actual capital contributions made by the Company and the non-controlling shareholders for the years ended December 31, 2024, 2023 and 2022 had no effect on the Company’s percentage of interest in its subsidiaries and VIE’s subsidiaries.
Statutory reserves
In accordance with the Regulations on Enterprises
of PRC, the Company’s subsidiaries, GIOP BJ, VIE and VIE’s subsidiaries in the PRC are required to provide for statutory reserves,
which are appropriated from net profit as reported in the Company’s PRC statutory accounts. They are required to allocate
As of December 31, 2024 and 2023, the statutory
reserves of the Company’s subsidiaries, GIOP BJ, the VIE and VIE’s subsidiaries in the PRC have not reached
Restricted net assets
The Company’s PRC subsidiaries and the VIE
and VIE’s subsidiaries are restricted in their ability to transfer a portion of their net assets, equivalent to their statutory
reserves and their share capital to the Company in the form of loans, advances, or cash dividends. The payment of dividends by entities
organized in China is subject to limitations, procedures, and formalities. Regulations in the PRC currently permit payment of dividends
only out of accumulated profits as determined in accordance with accounting standards and regulations in China. As of December 31, 2024,
the statutory reserves and the share capital amounted to $
NOTE 22 – LOSS PER SHARE
On February 8, 2024, the Company adopted dual class ordinary share structure. Pursuant to the Second Amended and Restated Memorandum and Articles of Association of the Company, at any general meeting every Member shall have one (1) vote for every Class A ordinary share and twenty (20) votes for every Class B ordinary share. Each Class B ordinary share shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Company or any transfer agent for such shares, into one fully paid and non-assessable Class A ordinary share. Holders of Class A ordinary shares and Class B ordinary shares have the same rights, except for voting rights and conversion rights. Therefore, the two-class method of computing the loss per share is not applicable.
F-41
Basic and diluted loss per ordinary share is computed using the weighted average number of ordinary shares outstanding during the year. The Company has determined that the redeemable non-controlling interests are participating securities as the preferred shares participate in retained earnings of Sunrise Guizhou.
The Company treats the entire measurement adjustment to redemption value of the redeemable non-controlling interest under ASC 480-10-S99-3A as being akin to a dividend, which affected in the calculation of loss available to ordinary shareholders of the Company used in the EPS calculation.
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Numerator: | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Less: accretion to redemption value of redeemable non-controlling interests | ||||||||||||
| foreign currency effect on redemption value of redeemable non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to ordinary shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Denominator: | ||||||||||||
| Weighted average number of shares outstanding – basic and diluted | ||||||||||||
| Loss per share – basic and diluted | ( | ) | ( | ) | ( | ) | ||||||
The potentially dilutive securities that were
not included in the calculation of dilutive net loss per share in those periods where their inclusion would be anti-dilutive include restricted
share units of
NOTE 23 – COMMITMENTS AND CONTINGENCIES
Contingencies
The Company may be involved in various legal proceedings, claims and other disputes arising from the commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the outcomes of these legal proceedings cannot be predicted, the Company does not believe these actions, in the aggregate, will have a material adverse impact on its financial position, results of operations or liquidity. As of December 31, 2024, the Company was not aware of any material litigations or lawsuits against it.
NOTE 24 – SEGMENT REPORTING
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment’s profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The Company adopted this ASU on December 31, 2024 and the adoption of the ASU does not have a material effect on its consolidated financial statements.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s CODM for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing the performance of the Company.
Based on the management’s assessment, the Company determined
that it had
F-42
The Company’s CODM evaluates performance based on each reporting segment’s revenues and costs of revenues. Revenues, cost of revenues and gross (loss) profits by segment were presented below.
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| REVENUES, NET | ||||||||||||
| Graphite anode business | $ | $ | $ | |||||||||
| Knowledge sharing and enterprise business | ||||||||||||
| Total revenues | ||||||||||||
| COSTS OF REVENUES | ||||||||||||
| Graphite anode business | ||||||||||||
| Knowledge sharing and enterprise business | ||||||||||||
| Total cost of revenues | ||||||||||||
| GROSS (LOSS) PROFIT | ||||||||||||
| Graphite anode business | ( | ) | ( | ) | ||||||||
| Knowledge sharing and enterprise business | ( | ) | ||||||||||
| Total gross loss | ( | ) | ( | ) | ( | ) | ||||||
| RECONCILIATION OF LOSS (SEGMENT OF GROSS LOSS) | ||||||||||||
| UNALLOCATED AMOUNTS | ||||||||||||
| OPERATING EXPENSES | ||||||||||||
| Selling expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Impairment of intangible assets | ||||||||||||
| Total operating expenses | ||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||
| OTHER (EXPENSES) INCOME | ||||||||||||
| Investment income (losses) | ( | ) | ( | ) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ||||||||||||
| Total other expenses | ( | ) | ( | ) | ( | ) | ||||||
| LOSS BEFORE INCOME TAXES | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
F-43
NOTE 25 – SUBSEQUENT EVENTS
On January 9, 2025, Sunrise Guizhou obtained bank loan of RMB
On December 31, 2024, the shareholders of Sunrise Guizhou entered into
a capital increase agreement with Xinyang Partnership, pursuant to which, Xinyang Partnership agreed to subscribe to
On March 1, 2025, the Board of Directors of the
Company approved the 2025 Employee Share Incentive Plan, in which certain restricted share units or share option would be granted to the
Company’s directors, employees and consultants to provide incentive for their services. The maximum number of ordinary shares that
may be delivered pursuant to compensatory awards granted to the eligible persons under the 2025 Stock Incentive Plan may not exceed
On March 31, 2025, Sunrise Guizhou obtained bank
loan of RMB
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date that the audited consolidated financial statements were available to be issued, and determined that that no subsequent events have occurred that would require recognition or disclosure in these financial statements, except as disclosed in this Note 25 or elsewhere in the notes to the consolidated financial statements.
SCHEDULE – UNAUDITED CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X require the condensed financial information of the parent company to 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 subsidiaries and the VIE and its subsidiaries exceeded 25% of the consolidated net assets of the Company, therefore, the condensed financial information for the parent company are included herein.
For purposes of the above test, restricted net assets of consolidated subsidiaries and VIE and its 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 and VIE and its subsidiaries in the form of loans, advances or cash dividends without the consent of a third party.
The unaudited condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries and the VIE and its subsidiaries. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries and VIE” or “Equity loss in subsidiaries and VIE” and the respective loss as “Equity in loss of subsidiaries and VIE” on the condensed statements of operations and comprehensive loss.
This schedule contains supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company. Certain information and disclosures normally included in financial statements prepared in accordance with U.S GAAP have been condensed or omitted.
The Company did not pay any dividend for the periods
presented.
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SUNRISE NEW ENERGY CO., LTD.
PARENT COMPANY BALANCE SHEETS
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Due from related parties | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Investment in subsidiaries and VIE | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Amounts due to related companies | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Equity loss in subsidiaries and VIE | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITES | ||||||||
| (DEFICIT) EQUITY | ||||||||
| Class A ordinary shares* ( | ||||||||
| Class B ordinary shares* ( | ||||||||
| Subscription receivable | ( | ) | - | |||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| TOTAL (DEFICIT) EQUITY | ( | ) | ||||||
| TOTAL LIABILITIES AND (DEFICIT) EQUITY | $ | $ | ||||||
| * |
F-45
SUNRISE NEW ENERGY CO., LTD.
PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| REVENUES, NET | $ | $ | $ | |||||||||
| COSTS OF REVENUES | ||||||||||||
| GROSS LOSS | ( | ) | ( | ) | ( | ) | ||||||
| OPERATING EXPENSES | ||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||
| OTHER EXPENSES | ( | ) | ( | ) | ( | ) | ||||||
| LOSS BEFORE EQUITY LOSS IN SUBSIDIARIES AND VIE | ( | ) | ( | ) | ( | ) | ||||||
| Equity loss in subsidiaries and VIE | ( | ) | ( | ) | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO SUNRISE NEW ENERGY CO., LTD. ORDINARY SHAREHOLDERS | ( | ) | ( | ) | ( | ) | ||||||
| Foreign currency translation adjustment | ||||||||||||
| COMPREHENSIVE LOSS ATTRIBUTABLE TO SUNRISE NEW ENERGY CO., LTD. ORDINARY SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
F-46
SUNRISE NEW ENERGY CO., LTD.
PARENT COMPANY STATEMENTS OF CASH FLOWS
| For the years ended December 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net cash provided by investing activities | ||||||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||||||
| Decrease in cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | $ | |||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | $ | |||||||||
| Less: restricted cash | ||||||||||||
| Cash and cash equivalents, end of year | $ | $ | $ | |||||||||
F-47