STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 302023

 

 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File No. 001-34864

 

GREEN GIANT INC.

(Exact Name of Registrant as Specified in its Charter)

 

Florida   33-0961490
(State or Other Jurisdiction
of Incorporation)
  (I.R.S. Employer
Identification Number)

 

6 Xinghan Road, 19th FloorHanzhong City

Shaanxi Province, PRC 723000

(Address of principal executive offices) (zip code)

 

Registrant’s phone number, including area code

+(86)091-62622612

 

Yuhuai Luo

Chief Executive Officer

6 Xinghan Road, 19th Floor, Hanzhong City

Shaanxi Province, PRC 723000

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each class registered:   Trading Symbol   Name of each exchange on which registered:
Common Stock, par value $0.001   GGE   Nasdaq Capital Market

 

Securities registered under Section 12(g) of the Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging Growth Company

 

If and emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No 

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing price of the registrant’s common stock on March 31, 2023, the last business day of the Company’s second fiscal quarter, as reported by the Nasdaq Capital Market on that date, was $158 million. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.

 

As of December 27, 2023, there were 113,534,447 shares of Common Stock, par value $0.001 per share, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

 

 

 

GREEN GIANT INC.

 

FORM 10-K

 

For the Fiscal Year Ended September 30, 2023

 

INDEX

 

    Page
  PART I  
Item 1. Business 1
Item 1A. Risk Factors 20
Item 1B. Unresolved Staff Comments 47
Item 2. Properties 47
Item 3. Legal Proceedings 48
Item 4. Mine Safety Disclosure 48
     
  PART II  
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 49
Item 6.

[Reserved]

50
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63
Item 8. Financial Statements and Supplementary Data F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 64
Item 9A. Controls and Procedures 64
Item 9B. Other Information 65
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 65
     
  PART III  
Item 10. Directors, Executive Officers and Corporate Governance 66
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 71
Item 13. Certain Relationships and Related Transactions, and Director Independence 73
Item 14. Principal Accountant Fees and Services 73
     
  PART IV  
Item 15. Exhibits and Financial Statement Schedules 74
Item 16. Form 10-K Summary 75
SIGNATURES 76

 

i

 

 

FORWARD-LOOKING STATEMENTS

 

This annual report on Form 10-K (the “Report”) and other reports (collectively the “Filings”) filed by the registrant from time to time with the Securities and Exchange Commission (the “SEC”) contain or may contain forward looking statements and information that are based upon beliefs of, and information currently available to, the registrant’s management as well as estimates and assumptions made by the registrant’s management. When used in the filings the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan” or the negative of these terms and similar expressions as they relate to the registrant or the registrant’s management identify forward looking statements. Such statements reflect the current view of the registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this Report entitled “Risk Factors”) relating to the registrant’s industry, the registrant’s operations and results of operations and any businesses that may be acquired by the registrant. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Although the registrant believes that the expectations reflected in the forward looking statements are reasonable, the registrant cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the registrant does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with the registrant’s financial statements and the related notes thereto included in this Report.

 

In this Report, “we,” “our,” “us,” “Green Giant Inc. or the “Company” sometimes refers collectively to Green Giant Inc. and its subsidiaries and affiliated companies.

 

ii

 

 

PART I

 

ITEM 1. BUSINESS

 

Our Organization

 

Green Giant Inc. (formerly China HGS Real Estate Inc., the “Company” or “GGE,” “we”, “our”, “us”), is a corporation organized under the laws of the State of Florida.

 

China HGS Investment Inc. is a Delaware corporation and owns 100% of the equity interest in Shaanxi HGS Management and Consulting Co., Ltd. (“Shaanxi HGS”), a wholly owned foreign entity incorporated under the laws of the People’s Republic of China (“PRC” or “China”).

 

GGE does not conduct any substantive operations of its own. Instead, through its subsidiary, Shaanxi HGS, it entered into certain exclusive contractual agreements with Shaanxi Guangsha Investment and Development Group Co., Ltd. (“Guangsha”). Pursuant to these agreements, Shaanxi HGS is obligated to absorb a majority of the risk of loss from Guangsha’s activities and entitles Shaanxi HGS to receive a majority of Guangsha’s expected residual returns. In addition, Guangsha’s shareholders have pledged their equity interest in Guangsha to Shaanxi HGS, irrevocably granted Shaanxi HGS an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in Guangsha and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by Shaanxi HGS.

 

Our Company engages in real estate development, primarily in the construction and sale of residential apartments, car parks and commercial properties.

 

Guangsha was organized in August 1995 as a limited liability company under the laws of the PRC. Guangsha is headquartered in the city of Hanzhong, Shaanxi Province. Guangsha is engaged in developing large scale and high quality commercial and residential projects, including multi-layer apartment buildings, sub-high-rise apartment buildings, high-rise apartment buildings, and office buildings.

 

On November 29, 2021, Green Giant Ltd. was incorporated in Delaware.

 

Green Giant Energy Texas Inc. was incorporated in Texas on October 3, 2022 which is a wholly owned subsidiary of Green Giant Ltd.

 

Green Giant International Limited (Hong Kong) was incorporated in Hong Kong on December 9, 2021 as a wholly owned subsidiary of Green Giant Ltd.

 

Our corporate structure as of September 30, 2023 is set forth below:

 

 

1

 

 

Business Overview  

 

The Company currently operates in two segments, the real estate development business and green energy business. The Company engages in real estate development through the VIE, Guangsha, in mainland China, and is transitioning itself from its real estate development business to a new energy corporation.

 

Currently, we are operating in Hanzhong, a prefecture-level city in Shaanxi Province, and Yang County, a county in Hanzhong. Our management has been focused on expanding our business in Tier 3 and Tier 4 cities and counties in China that we strategically select based on population and urbanization growth rates, general economic conditions and growth rates, income and purchasing power of resident consumers, anticipated demand for private residential properties, availability of future land supply and land prices, and governmental urban planning and development policies. Initially, these Tier 3 and Tier 4 cities and counties will be located in the Shaanxi province, China. We utilize a standardized and scalable model that emphasizes rapid asset turnover, efficient capital management and strict cost control. We plan to expand into strategically selected Tier 3 and Tier 4 cities and counties with real estate development potential in Shaanxi Province, and expect to benefit from rising demand for residential housing as a result of increasing income levels of consumers and growing populations in these cities and counties due to urbanization.

 

In September 2020, the Company started land leveling and construction process for the Oriental Garden Phase II and Liangzhou Mansion real estate properties in the Liangzhou Road related projects. The Company started the construction of the Liangzhou Road related projects, which consist of residential buildings, office buildings and a commercial plaza, after the approval by the local government of the road. Upon completion, the Liangzhou Road related projects will become a new city center of Hanzhong city.

 

Since November 2022, the Company started to explore the possibility of entering into the green energy sector in the U.S. As the usage of electric vehicles and other battery-powered technologies surges, the demand for batteries correspondingly rises. This growth cycle presents both a challenge and an opportunity when these batteries reach their end-of-life stage. Our solution to this challenge lies in our innovative battery recycling process. We have been searching for a warehouse for our battery recycling production. During the recycling process, valuable metal such as lithium, nickel, and cobalt are extracted from the used batteries. These metals are then converted into lead ingots and blocks. The global market for these metals is dynamic, with prices fluctuating in response to the constantly changing supply and demand. We have started the trading of metal, the end-product of battery recycling, in April 2023, to leverage the fluctuation in their prices. The Company recorded $0.79 million revenue from the green energy segment for the fiscal year ended September 30, 2023. 

 

Furthermore, the Company is planning to enter the medical industry through selling medical devices like vitro short-wave radiometer, high-pressure syringe and related consumables. In the future, it also plans to sell high-end medical equipment including gamma knife and apparatus for kidney.

 

Green Energy and Battery Recycling Industry Overview

 

Since November 2022, the Company has been exploring business opportunities in the green energy sector in the U.S. and has entered into this industry with a focus on the battery recycling business. The global green energy and battery recycling industry is experiencing significant growth because of the global shift towards sustainable energy and the increasing demand for electric vehicles (EVs).

 

Green Energy Industry

 

Renewable Energy Sources: This sector includes solar, wind, hydroelectric, and geothermal power. The declining cost of technology, especially in solar and wind, has accelerated adoption.

 

Energy Storage Solutions: With the variability of renewable sources, energy storage systems, like lithium-ion batteries, play a crucial role in ensuring a steady energy supply.

 

Government Policies and Incentives: Many governments worldwide are promoting green energy through subsidies, tax incentives, and regulations to reduce carbon emissions.

 

Technological Innovations: Continuous advancements in technology are making renewable energy more efficient and cost-effective.

 

2

 

 

Battery Recycling Industry

 

Growing Demand for Battery Recycling: The surge in EVs and portable electronics has led to a higher need for battery recycling to manage waste and recover valuable materials like lithium, cobalt, and nickel.

 

Technological Advancements in Recycling: Companies are developing more efficient and environmentally friendly recycling methods, including hydrometallurgical processes and direct recycling.

 

Regulatory Framework: Regulations concerning battery disposal and recycling are becoming more stringent, encouraging the development of the recycling industry.

 

Supply Chain Sustainability: Recycling is seen as key to reducing the environmental impact of battery production and ensuring a sustainable supply of raw materials.

 

Challenges and Opportunities

 

Supply Chain Issues: The reliance on specific countries for raw materials poses risks. Recycling can help mitigate these risks by providing a more localized supply chain.

 

Investment and Infrastructure: Significant investment is needed to scale up renewable energy infrastructure and recycling facilities.

 

Technological Challenges: Both industries face challenges in improving efficiency, reducing costs, and minimizing environmental impacts.

 

Future Outlook

 

Integration of Renewable Energy and Storage: As the penetration of renewable energy grows, the integration with efficient storage solutions will be crucial.

 

Circular Economy in Batteries: Emphasizing a circular economy where batteries are reused, repurposed, and recycled will become increasingly important.

 

Overall, the green energy and battery recycling industries are at the forefront of the global transition to a more sustainable and environmentally friendly energy future.

 

Real Estate Industry Overview

 

During the volatile real estate market, the Company has been capitalizing on its inherent strengths and market opportunities in Tier 3 and Tier 4 cities and counties to deliver value for our shareholders. We feel confident and also competent to take on every challenge and grasp every opportunity during market consolidation. We expect to provide rapid response to the market on the basis of our projected business plans together with a flexible approach in seizing market opportunities; strict investment standards and prudent attitude towards investment opportunities, and appropriate replenishment of quality land resources in existing regions to realize value within the Tier 3 and Tier 4 cities and counties in Western China.

 

3

 

 

According to China Galaxy Securities Research Report dated October 25, 2023, the sixth session of China’s 14th National People’s Congress Standing Committee voted and passed resolutions on incremental issuance of treasury bonds by the state council and adjustment scheme of central government’s 2023 budget. The central finance will additionally issue 1 trillion treasury bonds of 2023 in the fourth quarter 2023, and all of the treasury bonds issued will be arranged to local governments through transfer payments. This will generate impacts to economy in following aspects: to assist reconstruction of disaster areas and economic resurgence, and will directly drive investment growth in local infrastructure, the directions concentrated on drainage and flood control projects and farmland construction related to water conservancy engineering.

 

According to CNR Cultural Media dated November 23, 2023, responsible officer from the ministry of finance stated that according to plan of the State Council and related work arrangement, part of increased 2024 debt limit of local governments was released in advance, to reasonably guarantee local financing need. The institutions predicted that the limit approved in advance may exceed 2.7 trillion and may continue to tilt towards east region in good fiscal condition. From the usage of special debit published by ministry of finance, fields of livelihood services, transportation infrastructure, infrastructure for municipal administration and Industrial Park, agriculture, forestry, and water conservancy accounted for 64.9%、23.8%、6.0% and 3.6% respectively.

 

 

Company Positioning

 

The Company is headquartered in Hanzhong in the southwestern part of the Shaanxi province, in the center of the Hanzhong Basin, on the Han River, near the Sichuan border. According to the China City Statistical Yearbook, Hanzhong had a population of about 3.8 million.

 

 

Hanzhong is a key transportation hub connecting China’s Middle Economic zone and Western Economic Zone. The travel time from Xi’an, the provincial capital of Shaanxi province, to Hanzhong takes less than 2 hours. The airport in Hanzhong was completed and put into service in 2014. The airport handled approximately 650,000 passengers and 2,200 tons of cargo on annual basis. Xicheng, a high-speed railway between Chengdu, the provincial capital of Sichuan province, and Xi’an with a major stop in Hanzhong was completed in 2017. It takes 1.5 hours from Hanzhong to Xi’an and 2.5 hours from Hanzhong to Chengdu. According to urban big data platform, GuangJunTong, the railway passenger’s volume was around 44.65 million in 2022.

 

According to Statistical Bulletin of National Economic and Social Development Hanzhong City, Hanzhong’s GDP reached RMB 190.55 billion (approximately $29.1 billion) by 2022 calendar year, representing a 4.3% increase from 2021 calendar year. Resident’s annual disposable income for 2022 calendar year was RMB38,776 (equivalent to $5,917 ) representing a 4.5% increase as compared to 2021 calendar year.

 

 

 

4

 

 

 

 

On November 11, 2022 the People’s Bank of China and the China Banking and Insurance Regulatory Commission issued “Yin Fa [2022] No. 254 “Notice on Supporting the Stable and Healthy Development of the Real Estate Market” to support the stable and healthy development of the real estate market. The details are as follows:  

 

A. Keeping real estate financing stable and order

 

1). Stabilize the issuance of real estate development loans.  

 

Adhere to the “two unswerving”, and treat all types of real estate enterprises such as state-owned and private enterprises equally. Encourage financial institutions to focus on supporting the steady development of real estate enterprises with sound governance, focus on their main business and good qualifications.  

 

Financial institutions should reasonably distinguish the risks of project subsidiaries from the risks of group holding companies, and meet the reasonable financing needs of real estate projects in accordance with the principle of marketization on the premise of ensuring the safety of creditor’s rights and the closed operation of funds. Support the project host bank and the syndicated loan model, strengthen the management of the whole process of loan approval, issuance and recovery, and effectively ensure the safety of funds.

 

2). Support the reasonable needs of individual housing loans.

 

Reasonably determine the down payment ratio of local personal housing loans and the lower limit of the loan interest rate policy to support rigid and improved housing demand.

 

Financial institutions are encouraged to reasonably determine the specific down payment ratio and interest rate level for individual housing loans based on the lower limit of urban policies in light of their own business conditions, customer risk status and credit conditions, etc.

5

 

 

3). Stabilize the credit supply of construction enterprises.

 

4). Support the reasonable extension of existing financing such as development loans and trust loans

 

For real estate enterprise development loans, trust loans and other existing financing, on the premise of ensuring the safety of creditor’s rights, financial institutions and real estate enterprises are encouraged to negotiate independently based on commercial principles, and actively support through the extension of existing loans, adjustment of repayment arrangements, etc., to promote the completion of the project deliver.

 

From the date of issuance of the notice, those due within the next six months may be allowed to extend for one more year beyond the original regulations, and the loan classification may not be adjusted, and the loan classification submitted to the credit reporting system should be consistent with it.

 

5). Keep bond stable, and support high-quality real estate enterprises to issue bond. Promote professional credit enhancement agencies to provide credit enhancement support for bond issuance of real estate enterprises with overall financial health and short-term difficulties. Encourage bond issuers to communicate with holders in advance and make arrangements for borrowing bonds to redeem funds. If it is really difficult to make payment on time, reasonable arrangements such as extension and replacement shall be made through negotiation to proactively resolve risks.

 

6). Maintain stable financing of asset management products such as trusts.

 

B. Actively do a good job in “delivery guarantee building” financial services

 

7). Support development policy banks to provide special loans for “delivery guarantee building”.

 

Support China Development Bank and Agricultural Development Bank in accordance with relevant policy arrangements and requirements. In accordance with the laws and regulations, the special insurance payment for “delivery guarantee building” is issued to the borrowers who have been reviewed and filed in an efficient and orderly manner, which is closed and dedicated. It is specially used to support the accelerated construction and delivery of overdue and difficult-to-deliver residential projects that have been sold.

 

8). Encourage financial institutions to provide supporting financing support.

 

Encourage financial institutions, especially the main financing commercial banks of the project personal housing loans or the syndicates they lead to form, in accordance with the principles of marketization and the rule of law, to provide new supporting financing support for special loan support projects, and promote the resolution of unfinished personal housing loan risks.

 

For the sale of the remaining value of goods, the project can be reviewed at the same time for special loans and new supporting financing, and the sales of the remaining value of goods cannot cover both the special loan and the new supporting financing, but it has been clarified that the new supporting financing and special financing The loan matching mechanism arranges and implements the project of the source of repayment, and encourages financial institutions to actively provide new matching financing support under the premise of commercial voluntary.

 

The subject of the newly added supporting financing should be consistent with the subject of the implementation of the special loan-supported project. The existing assets and liabilities of the project should be audited and evaluated by a qualified institution organized by the local government, and an implementation plan of “one building one policy” has been formulated. Commercial banks with the “special loan supporting financing” sub-section can be newly established under the real estate development loan for statistics and management. In principle, the supporting financing should not exceed the period of the corresponding special loan. For a maximum period of no more than 3 years, the project sales receipts shall be transferred to a special project account opened with the main financing commercial bank or other commercial banks, and the special project account shall be jointly managed by the commercial bank that provides additional financing. It is clearly stated that in accordance with the principle of “last-in, first-out”, the sales receipts of the remaining value of the project should be given priority to repay the newly-added supporting financing and special loans.

 

6

 

 

For commercial banks, in accordance with the requirements of this notice, within half a year from the date of issuance of this notice, the supporting financing issued to special fund-supported projects shall not be reduced in risk classification during the loan period; The main body management is not good for the newly issued supporting financing, and the relevant institutions and personnel have done their due diligence. Liability is waived.

 

C. Actively cooperate with trapped real estate enterprises to deal with the risk disposal

 

9). Provide financial support for M&A of real estate projects.

 

Encourage commercial banks to carry out M&A loan business for real estate projects in a stable and orderly manner, and focus on supporting high-quality real estate enterprises to merge and acquire projects of distressed real estate enterprises.

 

Encourage financial asset management companies and local asset management companies (hereinafter collectively referred to as asset management companies) to use their experience and capabilities in non-performing asset management and risk management, and jointly negotiate risk resolution models with local governments, commercial banks, and real estate companies, and promote accelerate asset disposal.

 

10) Actively explore market-oriented support methods. For some projects that have entered judicial reorganization, financial institutions can assist in promoting project resumption and delivery by one enterprise and one policy according to the principles of independent decision-making, risk-taking, and self-responsibility for profits and losses.

 

Encourage asset management companies to participate in project disposal by acting as bankruptcy administrators, reorganization investors, etc., and support qualified financial institutions to prudently explore the establishment of funds and other methods to resolve the risks of distressed real estate enterprises in accordance with laws and regulations, and support project completion and delivery.

 

D. Legally protect the legitimate rights and interests of housing finance consumers

 

11). Encourage independent negotiation and extension of principal and interest repayment in accordance with the law.

 

For individuals who have lost their source of income due to hospitalization or isolation due to the epidemic, or who have lost their income due to the closure of business due to the epidemic, as well as personal housing loans due to changes or cancellations of housing purchase contracts, financial institutions can follow the market-based approach. Based on the principle of rule of law, negotiate with the buyers independently, and make adjustments such as postponement and extension.

 

For malicious evasion of financial debts, they will be dealt with in accordance with laws and regulations to maintain a good market order.

 

12). Effectively protect the personal credit investigation rights of deferred loans.

 

If the repayment arrangement of the personal housing loan has been adjusted, the financial institution shall submit the credit record according to the new repayment arrangement; if the judgment or ruling of the people’s court determines that the adjustment should be made, the financial institution shall adjust the credit record and submit it according to the effective judgment or ruling of the people’s court which has been reported to be adjusted.

 

E. Phased adjustment of some financial management policies

 

13). Extending the transition period of the real estate loan concentration management policy.

 

For banking financial institutions that cannot meet the requirements of real estate loan concentration management as scheduled due to objective reasons such as the epidemic, the transition period will be reasonably extended based on the actual situation and objective assessment.

 

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14). Periodically optimize the M&A financing policy for real estate projects.

 

Relevant financial institutions should make good use of the phased real estate financial management policies issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission, which are applicable to major commercial banks and national financial asset management companies, and accelerate the marketization of real estate risks.

 

F. Increase financial support for housing leasing

 

15). Optimize housing leasing credit services.

 

16). Broaden diversified financing channels in the housing leasing market.

 

Support housing rental and sales enterprises to issue credit bonds and guaranteed bonds and other direct financing products, which are specially used for the construction and operation of rental housing, and Gupin Commercial Bank issues financial bonds to support housing rental to raise funds to increase housing rental development and construction loans and business operations. Loans were provided, and the pilot program of real estate investment trusts (REITs) was steadily promoted.

 

On November 14, 2022 China Banking and Insurance Regulatory Commission, the Ministry of Housing and Urban-Rural Development and the Central Bank issued the “Notice on the Relevant Work of Commercial Banks Issuing letters of Guarantee to Replace the Pre-sale Supervision Funds” (the “Pre-sale Supervision Funds Notice”). Commercial banks’ house related credit business is expected to expand. The “Financial Support for Real Estate Notice” issued sixteen measures to generate power at both supply and demand ends, it further clarifies the support policies for housing credit. Many policies have been implemented at the document system level for the first time, or will push banks to increase their support for the real estate market. It is expected to modify the conservative attitude of commercial banks to intervene in the development loan market and support the reasonable demand for individual housing loans.

 

1)The existing debt financing of real estate enterprises shall be reasonably extended. Reasonable extension arrangements will be made for the existing financing such as real estate development loans and trust loans, with an additional extension of one year for those due in the next six months, and the credit rating will not be downgraded or credit information will not be changed. The “Financial Support for Real Estate Notice” is the first time to mention the support policy for trust loans, which may help banks to enhance the risk appetite of house related businesses, especially private real estate enterprises.

 

2)Extend the transition period of the real estate concentration management policy arrangement. For the real estate concentration management requirements of banking financial institutions established by the end of 2020 that cannot meet the standards as scheduled due to the epidemic and other reasons, the transition period can be reasonably extended based on the actual situation through objective assessment. The phased “relaxation” of management requirements will help banks to participate in the real estate credit market in a reasonable manner based on the actual situation.

 

3)Emphasis on doing a good job to provide financial services for “delivery guarantee building”. Supporting the State Development bank, the Agricultural Development Bank and other institutions to provide special loans for real estate enterprises to “delivery guarantee building” and providing supporting financing for special loans projects, will further resolve the risks of individual housing loans that are not yet delivered.

 

4)Add exemption clause to relieve worries. If the participation in the newly issued supporting financing of the delivery guarantee building is bad, the relevant institutions and personnel shall perform their duties and be exempted from liability, which will boost the initiative of the relevant institutions to participate in such projects. With the introduction of the policy of replacing pre-sale supervision funds with letters of guarantee, real estate enterprises are facing significate liquidity benefits. According to the “Notice on Pre-sale Supervision Funds”, high-quality real estate enterprises can apply to banks for a letter of guarantee to replace the pre-sale supervision funds, which is a significant benefit to the short-term liquidity of real estate. According to the regulatory requirements, the replacement funds of real estate enterprises are given priority to use for project construction and repayment of debts due. On the one hand, the replacement funds can directly relieve the liquidity pressure of real estate enterprises and improve the cash flow of enterprises; On the other hand, it is good for real estate enterprises to activate the pre-sale funds to complete the project delivery, promote the “delivery guarantee building” in an orderly manner, strengthen the signal “stability maintenance” in the real estate market, and promote the recovery of the sales side, so as to substantially improve the debt repayment ability of real estate enterprises, especially private real estate enterprises, and the risks of banks involved in real estate can be mitigated.

 

8

 

 

The upper limit of the replacement quota and the term of the letter of guarantee are clearly stipulated, and the bank risk is guaranteed. According to the “Notice on Pre-sale Supervision Funds”, the replacement amount of the real estate enterprise shall not exceed 30% of the amount of funds required to ensure the completion and delivery of the project in the supervision account. At the same time, the term of the letter of guarantee shall be matched with the project construction period to ensure that the replacement funds are used for the project construction. At the regulatory level, there are clear provisions on the quota for the replacement of real estate enterprises and the term of the letter of guarantee, which not only improves the utilization efficiency of the use of pre-sale supervision funds, but also ensures the capital safety to the greatest extent and reduces the credit risk of banks.

 

The target market of the Company is in Western China. The Company continues to focus on Tier 3 and Tier 4 cities and counties in acquiring sizable quality land reserves at low cost in a flexible and diversified manner. There has been an increasing demand for high quality residential housing, largely driven by the “Go West” policy and accelerated urbanization. Many buyers in Tier 3 and Tier 4 cities and counties are first time home buyers. In order to mitigate default risk, the Company generally requires from its homebuyer customers a deposit in the range of 30%-50% of the purchase price, which is higher than the percentage required by the government for the mortgage down payment.

 

The Company received the National Grade-I real-estate development qualification granted by the Ministry of Housing and Urban-Rural Development of the People’s Republic of China (“MOHURD”) on October 12, 2011. The Company is not required to renew the National Grade-I real-estate development qualification after it passed the initial qualification application set out by the MOHURD. The Grade-I real-estate development qualification is the highest qualification for real-estate developers in China and requires meeting several strict criteria, including:

 

a.Registered capital of at least RMB 50 million (approximately $7.3 million);

 

b.At least five years of experience in real estate development and operations;

 

c.The completion of construction of a total over 300,000 square meters. of ground floor area (GFA) within the last three years and, in the most recent year, developed real estate projects of at least 150,000 square meters; and

 

d.The completed real estate projects have no quality issues in each of the past five years; and an established, comprehensive quality control and guarantee system.

  

Pre-Sales and Sales

 

In the PRC, real estate developers are allowed to begin to market properties before construction is completed. Like other developers, we pre-sell properties prior to completion of construction. Under PRC pre-sales regulations, property developers must satisfy specific conditions before properties under construction can be pre-sold. These mandatory conditions include:

 

the land premium must have been paid in full;

 

the land use rights certificate, the construction site planning permit, the construction work planning permit and the construction permit must have been obtained;

 

at least 25% of the total project development cost must have been incurred;

 

the progress and the expected completion and delivery date of the construction must be fixed;

 

the pre-sale permit must have been obtained; and

 

the completion of certain milestones in the construction processes must be specified by the local government authorities.

 

9

 

 

These mandatory conditions are designed to require a certain level of capital expenditure and substantial progress in project construction before the commencement of pre-sales. Generally, the local governments also require developers and property purchasers to have standard pre-sale contracts prepared under the auspices of the government. Developers are required to file all pre-sale contracts with local land bureaus and real estate administrations after entering into such contracts.

 

After-Sale Services and Delivery

 

We assist customers in arranging for and providing information related to financing. We also assist our customers in various title registration procedures related to their properties, and we have set up an ownership certificate team to assist purchasers to obtain their property ownership certificates. We offer various communication channels to customers to facilitate customer feedback collection. We also cooperate with property management companies that manage our properties and ancillary facilities, to handle customer feedback.

 

We endeavor to deliver the units to our customers on a timely basis. We closely monitor the progress of construction of our property projects and conduct pre-delivery property inspections to ensure timely delivery. The time frame for delivery is set out in the sale and purchase agreements entered into with our customers, and we are subject to penalty payments to the purchasers for any delay in delivery caused by us. The Company has never incurred any delay penalties. Once a property development has been completed, has passed the requisite government inspections and is ready for delivery, we will notify our customers and hand over keys and possession of the properties.

 

Marketing and Distribution Channel

 

We maintain a marketing and sales force for our development projects, which at September 30, 2023 consisted of 43 employees specializing in marketing and sales. We also train and use outside real estate agents to market and increase the public awareness of our projects, and spread the acceptance and influence of our brand. However, our marketing and sales are primarily conducted by our own sales force because we believe our own dedicated sales representatives are better motivated to serve our customers as well as to control our property pricing and selling expenses.

 

Our marketing and sales team develops the appropriate advertising and selling plan for each project. We develop public awareness through marketing and advertising as well as referrals from customers. We utilize a customer relationship management system to track customer profiles, which helps us to forecast future customer requirements and general demand for our projects. This allows us to have real-time information on the status of individual customer transactions as well as available inventory by project, which enables us to better anticipate the preferences of current and future customers.

 

We use various advertising media to market our developments and enhance our brand name, including newspapers, magazines, television, radio, e-marketing and outdoor billboards. We also participate in real estate exhibitions.

 

We have also developed a strong relationship with local institutional purchasers and governments. The Company has entered into various significant residential-apartment group-purchase agreements with local government and institutional purchasers.

 

A typical real estate property sales transaction usually consists of three steps. First, the customer pays a deposit to the Company. Within a week, after paying the deposit, the customer will sign a purchase contract with us and make a down payment to us in cash. After making the down payment, the customer arranges for a mortgage loan for the balance of the purchase price. Once the loan is approved, the mortgage loan proceeds are paid to us directly by the bank. Finally, we deliver the property to the customer. Legal title, as evidenced by a property ownership certificate issued by local land and construction bureaus, will be delivered to the customer.

 

For customers purchasing properties with mortgage financing, under current PRC laws, their minimum down payment is 30% of the total purchase price for the purchase of the first self-use residential unit with total GFA of 90 square meters (about 970 square feet) or more on all existing units and those yet to be completed, and a down payment of 20% on the first residential units for self-use with total GFA of under 90 square meters. In order to mitigate the default risk, the Company requires from its homebuyer customers deposits ranging from 30% - 50% of the purchase price, which is higher than the percentage required by the government for the mortgage down payment.

 

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Like most real estate companies in China, we generally provide guarantees to mortgagee banks in respect of the mortgage loans provided to the purchasers of our properties up until completion of the registration of the mortgage with the relevant mortgage registration authorities. As of September 30, 2023, the Company had security deposits for these guarantees of approximately $2.6 million. Guarantees for mortgages on residential properties are typically discharged when the individual property ownership certificates are issued. In our experience, the issuance of the individual property ownership certificates typically takes six to twelve months, so our mortgage guarantees typically remain outstanding for up to twelve months after we deliver the underlying property.

 

Our Property Development Operations

 

We have a systematic and standardized process of project development, which we implement through several well-defined phases. One critically significant portion of our process is the land acquisition process, which is segmented into three stages: (i) opportunity identification, (ii) initial planning and budgeting, and (iii) land use rights acquisition. The following diagram sets forth the key stages of our property development process.

 

LAND ACQUISITION PROCESS   Project 
planning and 
design
  Project 
construction 
and 
Management
  Pre-sale, sale
and marketing
  After-sale
and delivery
 
                   
Opportunity Identification   Initial Planning   Land Acquisition          
-Strategic planning   -Feasibility study   -Financial assessment   -Outsource architectural and engineering design   -Outsource
construction
  -Pre-sale   -Delivery  
-Geographic and market analysis  

- Preliminary design

 

 

-Internal approval

 

  -Design management   -Construction
supervision
  -Marketing   -Feedback collection  
    -Project evaluation   -Bidding process   -Arrange financing   -Quality control   -Advertising      
                -Completion inspection          
               

-Landscaping

and fixture installation

         

 

Our Projects

 

Overview

 

We develop the following three types of real estate projects, which may be developed in one or more phases:

 

multi-layer apartment buildings, which are typically six stories or less;

 

sub-high-rise apartment buildings, which are typically seven to 11 stories; and

 

high-rise apartment buildings, which are typically 12 to 33 stories.

 

At any one time, our projects (or phases of our projects) are in one of the following three stages:

 

completed projects, meaning properties for which construction has been completed;

 

properties under construction, meaning properties for which construction permits have been obtained but construction has not been completed; and

 

properties under planning, meaning properties for which we have entered into land grant contracts and are in the process of obtaining the required permits to begin construction.

 

Our main projects located in Hanzhong City are: Mingzhu Beiyuan, Oriental Pearl Garden and Liangzhou Road related projects. In Yang County, our project is Yangzhou Pearl Garden and Yangzhou Palace. Most projects are being developed in multiple phases.

 

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Real Estate Projects located in Hanzhong City

 

Mingzhu Garden - Mingzhu Beiyuan

 

This project is located in the southwest part of Hanzhong City. The Phase I project includes two high-rise residential buildings with commercial shops located on the first floor with unsold GFA of Nil square meters as of September 30, 2020. The Phase II Mingzhu Beiyuan project includes 17 high-rise residential buildings with GFA of 358,058 square meters. The Company started construction in the third quarter of fiscal 2012 and completed the construction in the last quarter of fiscal 2015. As of September 30, 2023, the unsold GFA was 78,677 square meters; un-allocated costs was $20,151,590.  

 

 

Oriental Pearl Garden

 

This project is located in the downtown of Hanzhong City. The Company started construction in the third quarter of fiscal 2012. It consists of 12 high-rise residential buildings with commercial shops on the first and second floors with GFA of approximately 275,014 square meters. The project was fully completed in fiscal 2016. As of September 30, 2023, the unsold GFA was 53,506 square meters; un-allocated costs was $16,989,637.

 

 

Real Estate Projects located in Yang County

 

Yangzhou Pearl Garden

 

Yangzhou Pearl Garden mainly consists of multi-layer residential buildings and sub-high-rise residential buildings with commercial shops on the first floors. As of September 30, 2021, the remaining unsold GFA of Phase I of Yangzhou Pearl Garden, which includes multi-layer residential buildings, commercial units, sub-high-rise and high-rise residential buildings was a total GFA of Nil square meters. Yangzhou Pearl Garden Phase II consists of five high-rise residential buildings and one multi-layer residential building, with a total GFA of 67,991 square meters. The construction was completed in fiscal 2015. As of September 30, 2023, the unsold GFA of Yangzhou Pearl Garden Phase II was 10,455 square meters; un-allocated costs was $1,981,727.

 

Yangzhou Palace

 

The Company is currently constructing 9 high-rise residential buildings and 16 sub-high-rise residential and multi-layer residential buildings with total GFA of 297,059 square meters in Yangzhou Palace located in Yang County. The construction started in the fourth quarter of fiscal 2013 and was completed during the year ended September 30, 2021. The Company received the pre-sale license on September 1, 2016 and started to promote and sell the property in November 2016. As of September 30, 2023, the remaining unsold GFA of Yangzhou Palace, which includes multi-layer residential buildings, commercial units, sub-high-rise and high-rise residential buildings was a total GFA of 86,541 square meters; un-allocated costs was $33,009,114.

 

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The following table sets forth our real estate projects in the year ended September 30, 2023:

 

             Unsold
GFA as of
 
         GFA sold / disposed   September 30, 
Project Name  Location  Type of Buildings  during the year   2023 
Mingzhu Garden              
(Mingzhu Beiyuan) Phase II  Hanzhong City  High-rise residential          —    78,677 
                 
Oriental Pearl Garden  Hanzhong City  High-rise residential       53,506 
                 
Yangzhou Pearl Garden Phase II  Yang County  High-rise residential   90    10,455 
Yangzhou Palace  Yang County  High-rise residential   1,448    86,541 
Total         1,538    229,179 

 

(1)The amounts for “total GFA” in this table are the amounts of total saleable gross floor area and are derived on the following basis:

 

for properties that are sold, the stated GFA is based on sales contracts relating to such property;

 

for unsold properties that are completed, the stated GFA is calculated based on the detailed construction blueprint and the calculation method approved by the PRC government for saleable GFA, after necessary adjustments; and

 

for properties that are under planning, the stated GFA is based on the land grant contract and our internal projections.

 

Suppliers

 

Land Bank

 

In China, the supply of land is controlled by the government. Since the early 2000s, the real estate industry in China has been transitioning from an arranged system controlled by the PRC government to a more market-oriented system. At present, although the Chinese government still owns all urban land in China, land use rights with terms of up to 70 years can be granted to, owned or leased by, private individuals and companies.

 

Land - under planning and development

 

In May 2011, the Company entered into a development agreement with the local government. Pursuant to the agreement, the Company will prepay the development cost of approximately $16.4 million (RMB 119,700,000) and the Company has the right to acquire the land use rights through public bidding. The prepaid development cost will be deducted from the final purchase price of the land use rights. As of September 30, 2023, a deposit of approximately $2.1 million was paid by the Company (2022- $2.2 million).   The local government is still in a slow process of re-zoning the property. The Company expects to make payment of the remaining development cost based on the government’s current work progress.

 

All land transactions are required to be reported to and authorized by the local Bureau of Land and Natural Resources. With respect to real estate project design and construction services, the Company typically selects the lowest-cost provider based on quality selected through an open bidding process. Such service providers are numerous in China and the Company foresees no difficulties in securing alternative sources of services as needed.

 

Other Suppliers

 

The Company uses various suppliers in the construction of its projects. For the year ended September 30, 2023 and 2022, no suppliers accounted for more than 10% of the total project expenditures

 

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Competition

 

Real Estate Development Business

 

The real estate industry in China is highly competitive. In the Tier 3 and Tier 4 cities and counties that we focus on, the markets are relatively more fragmented than in the Tier 1 or Tier 2 cities. We compete primarily with regional property developers and an increasing number of large national property developers who have also started to enter these markets. Competitive factors include the geographical location of the projects, the types of products offered, brand recognition, price, designing and quality. In the regional markets in which we operate, our major competitors include regional real estate developers Wanbang Real Estate Development Co. Ltd. (“Wanbang”), Jingtai Real Estate Development Co. Ltd. (“Jingtai”) and Shaanxi Fenghui Real Estate Development Co. Ltd. (“Fenghui”) as well as other national real estate developers such as Evergrande Real Estate Group (“Evergrande”) who have also started their projects in these local markets.

 

Nationally, there are numerous national real estate developers that have real estate projects across China. There are many housing and land development companies listed on the Shanghai and Shenzhen Stock Exchanges. However, such companies usually undertake large scale projects and are unlikely to compete with the Company for business as the Company targets small to medium sized projects in Tier 3 and Tier 4 cities and counties.

 

In the regional market, the Company’s only direct competitor with meaningful market share in the market is Wanbang. This company generally undertakes medium and small scale projects and focuses on development of commercial real estate properties, such as hotels and shopping centers.

 

New Energy Business

 

Some prominent competitors in lithium battery recycling sector include Contemporary Amperex Technology Co. Ltd. (CATL), Li-Cycle Corp, Redwood Materials, American Manganese Inc and Retriev Technologies etc.

 

CATL is a leading global player in the development and manufacturing of lithium-ion batteries for electric vehicles (EVs) and energy storage systems. Headquartered in Ningde, Fujian, China, CATL has rapidly grown to become one of the world’s largest suppliers of EV batteries, boasting a significant market share. The company is known for its strong focus on research and development, leading to advancements in battery technology, lifespan, and energy density.

 

Li-Cycle Corp is based in Canada but with significant operations in the U.S., Li-Cycle is known for its patented Spoke & Hub Technologies, which allow for the recovery of high-grade materials from used lithium batteries.

 

Redwood Materials was founded by a former Tesla CTO, Redwood Materials is gaining attention for its advanced recycling processes and focus on creating a closed-loop supply chain for battery materials.

 

American Manganese Inc specializes in using its patented process for recycling lithium-ion battery cathode materials.

 

With over 30 years of experience, Retriev Technologies (formerly Toxco Inc.) is a veteran in battery recycling, including lithium batteries.

 

Competitive Strength:

 

We believe the following strengths allow us to compete effectively:

 

Real Estate Development Business

 

Well Positioned to Capture Opportunities in Tier 3 and Tier 4 Cities and Counties.

 

With the increase in consumer disposable income and urbanization rates, a growing middle-income consumer market has emerged driving demand for affordable and high quality housing in many cities across northwest China. We focus on building large communities of modern, mid-sized residential properties for this market segment and have accumulated substantial knowledge and experience about the residential preferences and demands of mid-income customers. We believe we can leverage our experience to capture the growth opportunities in the markets.

 

Standardized and Scalable Business Model.

 

Our business model focuses on a standardized property development process designed for rapid asset turnover. We break up the overall process into well-defined stages and closely monitor costs and development schedules through each stage. These stages include (i) identifying land, (ii) pre-planning and budgeting, (iii) land acquisition, (iv) detailed project design, (v) construction management, (vi) pre-sales, sales and (vii) after-sale services. We commence pre-planning and budgeting prior to the land acquisition, which enables us to acquire land at costs that meet our pre-set investment targeted returns and to quickly begin the development process upon acquisition. Our enterprise resource planning enables us to collect and analyze information on a real-time basis throughout the entire property development process. We utilize our customer relationship management system to track customer profiles and sales to forecast future individual preferences and market demand.

 

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Experienced Management Team Supported by Trained and Motivated Workforce.

 

Our management and workforce are well-trained and motivated. Employees receive on-going training in their areas of specialization at our head office in Hanzhong.

 

Guangsha is also an “AAA Enterprise in Shaanxi Construction Industry” as recognized by the Credit Association of Agricultural Bank of China, Shaanxi Branch.

 

Strategies 

 

Our goal is to become the leading residential property developer focused on China’s Tier 3 and Tier 4 cities and counties by implementing the following strategies:

 

Continue Expanding in Selected Tier 3 and Tier 4 Cities. We believe that Tier 3 and Tier 4 cities and counties present development opportunities that are well suited for our scalable business model of rapid asset turnover. Furthermore, Tier 3 and Tier 4 cities and counties currently tend to be in an early stage of market maturity and have fewer large national developers. We believe that the fragmented market and relative abundance of land supply in Tier 3 and Tier 4 cities, as compared to Tier 1 and Tier 2 cities, offer more opportunities for us to generate attractive margins. And we also believe that our experience affords us the opportunity to emerge as a leading developer in these markets. In the near future, we plan to enter into other Tier 3 and Tier 4 cities that have:

 

Increasing urbanization rates and population growth;

 

High economic growth and increasing individual income; and

 

Sustainable land supply for future developments.

 

We plan to continue to closely monitor our capital and cash positions and carefully manage our cost for land use rights, construction costs and operating expenses. We believe that we will be able to use our working capital more efficiently by adhering to prudent cost management, which will help to maintain our profit margins. When selecting a property project for development, we will continue to follow our established internal evaluation process, including utilizing the analysis and input of our experienced management team and choosing third-party contractors through a tender process open only to bids which meet our budgeted costs.

 

Nevertheless, due to the global economy slowdown and deteriorating real estate property market in mainland China, the Company is adjusting its property development strategy from aggressive expansion to survive through this critical and challenging period as its priority.

 

New Energy Business 

 

The company has strategically leveraged its resources by deploying experienced personnel from mainland China, renowned for its advanced and sophisticated lithium production and recycling technology. This move not only ensures access to cutting-edge methodologies but also embeds a deep understanding of the industry within the company’s operational framework. Furthermore, the firm has assembled a senior management team, each member handpicked for their extensive industry experience. This leadership is instrumental in steering the company’s operations towards efficiency and innovation, harnessing their collective expertise to navigate the complexities of the lithium production and recycling sector. This combination of skilled manpower and seasoned leadership distinctly positions the company to excel in a competitive market. 

 

Quality Control

 

We emphasize quality control to ensure that our buildings and residential units meet our standards and provide high quality service. We select only experienced design and construction companies. We, through our contracts with construction contractors, provide customers with warranties covering the building structure and certain fittings and facilities of our property developments in accordance with the relevant regulations. To ensure construction quality, our construction contracts contain quality warranties and penalty provisions for poor work quality. In the event of delay or poor work quality, the contractor may be required to pay pre-agreed damages under our construction contracts. Our construction contracts do not allow our contractors to subcontract or transfer their contractual arrangements with us to third parties. We typically withhold 2% of the agreed construction fees for two to five years after completion of the construction as security to guarantee quality, which provides us with assurance for our contractors’ work quality.

 

Our contractors are also subject to our quality control procedures, including examination of materials and supplies, on-site inspection and production of progress reports. We require our contractors to comply with relevant PRC laws and regulations, as well as our own standards and specifications. We set up a profile for each and every unit constructed and monitor the quality of such unit throughout its construction period until its delivery. We also employ independent surveyors to supervise the construction progress. In addition, the construction of real estate projects is regularly inspected and supervised by the PRC governmental authorities.

 

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Environmental Matters

 

As a developer of property in the PRC, we are subject to various environmental laws and regulations set by the PRC national, provincial and municipal governments. These include regulations on air pollution, noise emissions, as well as water and waste discharge.  As of September 30, 2023, we have never paid any penalties associated with the breach of any such laws and regulations. Compliance with existing environmental laws and regulations has not had a material adverse effect on our financial condition and results of operations, and we do not believe it will have such an impact in the future.

 

Our projects are normally required to undergo an environmental impact assessment by government-appointed third parties, and a report of such assessment needs to be submitted to the relevant environmental authorities in order to obtain their approval before commencing construction.

 

Upon completion of each project, the relevant environmental authorities inspect the site to ensure the applicable environmental standards have been complied with, and the resulting report is presented together with other specified documents to the relevant construction administration authorities for their approval and records. Approval from the environmental authorities on such report is required before we can deliver our completed work to our customers. As of September 30, 2023, we have not experienced any difficulties in obtaining those approvals for commencement of construction and delivery of completed projects.

 

Employees

 

We currently have 95 full-time employees.

 

Department    
Management   15 
Accounting Staff   11 
Sales and marketing staff   43 
Administrative   26 
Total   95 

 

Contractual Arrangements between Shaanxi HGS and Guangsha

 

Due to PRC legal restrictions on foreign ownership, neither we nor our subsidiaries own any direct equity interest in Guangsha. Instead, we control and receive the economic benefits of Guangsha’s business operation through a series of contractual arrangements. Shaanxi HGS, Guangsha and the Guangsha shareholders entered into a series of contractual arrangements, also known as VIE Agreements. The VIE agreements are designed to provide Shaanxi HGS with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of Guangsha, including absolute control rights and the rights to the assets, property and revenue of Guangsha. If Guangsha or the Guangsha’s shareholders fail to perform their respective obligations under the contractual arrangements, we could be limited in our ability to enforce the contractual arrangements that give us effective control over Guangsha and its subsidiary. Furthermore, if we are unable to maintain effective control, we would not be able to continue to consolidate the financial results of our variable interest entity in our financial statements.

 

Although we took every precaution available to effectively enforce the contractual and corporate relationship above, these contractual arrangements may still be less effective than direct ownership and that the Company may incur substantial costs to enforce the terms of the arrangements. 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. However, under the current contractual arrangements, we rely on the performance by the VIE and its shareholders of their obligations under the contracts to exercise control over the VIE. The shareholders of our consolidated VIE may not act in the best interests of our Company or may not perform their obligations under these contracts. In addition, failure of the VIE shareholders to perform certain obligations could compel the Company to rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which may not be effective.

 

16

 

 

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. 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 operating entities and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state.

 

Selected Condensed Consolidated Financial Schedule of the Company and its Subsidiaries and the VIE

 

The following tables present selected condensed consolidating financial data of the Company and its subsidiaries and the VIE for the fiscal years ended September 30, 2023 and 2022, and balance sheet data as of September 30, 2023 and 2022, which have been derived from our consolidated financial statements for those years.

 

SELECTED CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

 

   For the Year Ended September 30, 2023 
   The               Consolidated 
   Company   Subsidiaries   VIE   Eliminations   Total 
                     
Revenues  $   $788,582   $754,598   $   $1,543,180 
(Loss)/Income from equity method investment  $(104,086,934)  $   $   $104,086,934   $ 
Net income (loss)  $(110,121,478)  $(311,764)  $(103,775,170)  $104,086,934   $(110,121,478)
Comprehensive income (loss)  $(109,059,183)  $(311,764)  $(102,712,875)  $103,024,639   $(109,059,183)

 

   For the Year Ended September 30, 2022 
   The               Consolidated 
   Company   Subsidiaries   VIE   Eliminations   Total 
                     
Revenues  $   $        —   $9,577,405   $   $9,577,405 
(Loss)/Income from equity method investment  $(87,959,503)  $   $   $87,959,503   $ 
Net income (loss)  $(108,124,682)  $(65)  $(87,959,438)  $87,959,503   $(108,124,682)
Comprehensive income (loss)  $(119,559,356)  $(65)  $(99,394,112)  $99,394,177   $(119,559,356)

 

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SELECTED CONDENSED CONSOLIDATING BALANCE SHEETS

 

   As of September 30, 2023 
   The               Consolidated 
   Company   Subsidiaries   VIE   Eliminations   Total 
Cash  $2,193   $45,572   $45,368   $   $93,133 
Investments in subsidiaries and VIE  $(10,383,477)  $   $   $10,383,477   $ 
Total assets  $18,443,202   $442,545   $178,996,918   $7,209,803   $205,092,468 
Total liabilities  $2,749,245   $2,162,144   $184,487,122   $   $189,398,511 
Total shareholders’ equity  $15,693,957   $(1,719,599)  $(5,490,204)  $7,209,803   $15,693,957 
Total liabilities and shareholders’ deficit  $18,443,202   $442,545   $178,996,918   $7,209,803   $205,092,468 

 

   As of September 30, 2022 
   The               Consolidated 
   Company   Subsidiaries   VIE   Eliminations   Total 
Cash  $1,074,440   $2,000   $283,777   $   $1,360,217 
Investments in subsidiaries and VIE  $94,868,534   $   $   $(94,868,534)  $ 
Total assets  $123,043,589   $(70)  $280,939,924   $(96,596,049)  $307,387,394 
Total liabilities  $3,597,919   $669,765   $183,674,040   $   $187,941,724 
Total shareholders’ equity  $119,445,670   $(669,835)  $97,265,884   $(96,596,049)  $119,445,670 
Total liabilities and shareholders’ deficit  $123,043,589   $(70)  $280,939,924   $(96,596,049)  $307,387,394 

 

SELECTED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

 

   For the Year Ended September 30, 2023 
   The               Consolidated 
   Company   Subsidiaries   VIE   Eliminations   Total 
Net cash (used in) operating activities  $(6,279,717)  $(56,428)  $855,047  $         —   $(5,481,098)
Net cash provided by investing activities  $(100,000)  $100,000   $   $   $ 
Net cash used in financing activities  $5,307,470   $   $   $   $5,307,470 

 

   For the Year Ended September 30, 2022 
   The               Consolidated 
   Company   Subsidiaries   VIE   Eliminations   Total 
Net cash (used in) operating activities  $(925,560)  $2,000   $166,053   $           —   $(757,507)
Net cash provided by investing activities  $(26,936,915)  $   $   $   $(26,936,915)
Net cash used in financing activities  $28,936,915   $   $   $   $28,936,915 

 

Transfers of Cash to and from The VIE

 

Green Giant Inc. is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiary and VIE in China. As a result, although other means are available for us to obtain financing at the holding company level, Green Giant Inc.’s ability to pay dividends to its shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and license and service fees paid by our PRC consolidated affiliated entities. If any of our subsidiaries incurs debt on its own in the future, the instruments governing such debt may restrict its ability to pay dividends to Green Giant Inc. In addition, our PRC subsidiary and VIE are required to make appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a liquidation of the companies.

 

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Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to HGS Investment only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.

 

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Agreements, we may be unable to pay dividends on our common stock.

 

Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.

 

In order for us to pay dividends to our shareholders, we will be dependent on payments made from Guangsha to Shaanxi HGS, pursuant to VIE Agreements between them, and the distribution of such payments to HGS Investment as dividends from Shaanxi HGS. Certain payments from Guangsha to Shaanxi HGS are subject to PRC taxes, including business taxes and VAT. During the year ended September 30, 2023 and 2022, Guangsha made no payments to Shaanxi HGS. For the years ended September 30, 2023 and 2022, there was no cash transferred between the Company and Guangsha (the VIE).

 

PRC Limitation on Overseas Listing and Share Issuances

 

Neither we, our subsidiaries nor the VIE are currently required to obtain approval from Chinese authorities, including the China Securities Regulatory Commission, or CSRC, or the Cybersecurity   Administration Committee, or CAC, to list on U.S. exchanges or issue securities to foreign investors, however, if the VIE, subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on a U.S. exchange, which would materially affect the interest of investors. It is uncertain when and whether the Company 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. Although the Company is currently not required to obtain permission from any of the PRC federal or local governments to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.

 

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ITEM 1A. RISK FACTORS

 

Risks Relating to Our Business and Industry

 

We have an evolving business model with still untested growth initiatives.

 

We have an evolving business model and intend to implement new strategies to grow our business in the future. There can be no assurance that we will be successful in developing new product categories or in entering new specialty markets or in implementing any other growth strategies. Similarly, there can be no assurance that we already have or will be able to obtain or retain any employees, consultants or other resources with any specialized skills or relationships to successfully implement our strategies in the future. 

 

Due to the significant decrease of the fair market value of our fixed assets, in line with best practice, we may be required to take write-downs or write-offs in connection with our real estate business that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause you to lose some or all of your investment.

 

As a result of the overall downturn in China’s real estate industry, particularly in non-first and second-tier cities, and the significant two-step impairment test we performed, it has been determined that the sum of the undiscounted future net cash flows expected from the utilization and disposition of our real estate assets is significant lower than its carrying value, and therefore we may be forced to later write-down or write-off assets, restructure our operations, or incur impairment or other charges in connection with our real estate business that could result in our reporting losses. Even though these charges may not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities.

 

Accordingly, our shareholders could suffer a reduction in the value of their securities. Such shareholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that our disclosures contained an actionable material misstatement or material omission.

 

The Company’s lithium-ion battery recycling business is and will be dependent on its recycling facilities. If one or more of its future facilities become inoperative, capacity constrained or if operations are disrupted, its business, results of operations and financial condition could be materially adversely affected.

 

The Company conducts its lithium-ion battery recycling business through Green Giant Energy, the operating entity in Texas. The Company’s lithium-ion battery recycling business revenue is and will be dependent on the operations of its future facilities, including the planned facility in Houston Texas and any other facilities it may develop in the future. To the extent that the Company experiences any operational risk events including, among other things, fire and explosions, severe weather and natural disasters (such as floods, windstorms, wildfires and earthquakes), failures in water supply, major power failures, equipment failures (including any failure of its process equipment, information technology, air conditioning, and cooling and compressor systems), a cyber-attack or other incident, failures to comply with applicable regulations and standards, labor force and work stoppages, including those resulting from local or global pandemics or otherwise, or if its future facilities become capacity constrained, the Company may be required to make capital expenditures even though it may not have sufficient available resources at such time. Additionally, there is no guarantee that the proceeds available from any of the Company’s insurance policies will be sufficient to cover such capital expenditures. The Company’s insurance coverage and available resources may prove to be inadequate for events that may cause significant disruption to its operations. Any disruption in the Company’s recycling processes could result in delivery delays, scheduling problems, increased costs or production interruption, which, in turn, may result in its customers deciding to send their end-of-life lithium-ion batteries and battery manufacturing scrap to the Company’s competitors. The Company is and will be dependent on its future facilities, which will in the future require a high degree of capital expenditures. If one or more of the Company’s current or future facilities become inoperative, capacity constrained or if operations are disrupted, its business, results of operations and financial condition could be materially adversely affected.

 

The development of an alternative chemical make-up of lithium-ion batteries or battery alternatives could materially adversely affect the Company’s revenues and results of operations.

 

The development and adoption of alternative battery technologies could materially adversely affect the Company’s prospects and future revenues. Current and next generation high energy density lithium-ion batteries for use in products such as EVs use nickel and cobalt as significant inputs. Cobalt and nickel tend to be in lower supply and therefore command higher prices than certain other raw materials. Alternative chemical makeups for lithium-ion batteries or battery alternatives are being developed and some of these alternatives could be less reliant on cobalt and nickel or use other lower-priced raw materials such as lithium-iron phosphate chemistries, which contain neither cobalt nor nickel. A shift in production to batteries using lower-priced raw materials could affect the value of the end products produced by the Company, lowering its revenues and negatively impacting its results of operations.

 

The Company is subject to the risk of litigation or regulatory proceedings, which could materially adversely impact its financial results.

 

All industries, including the green energy and lithium-ion battery recycling industry, are subject to legal claims, with or without merit. From time to time, we are subject to various litigation and regulatory proceedings arising in the normal course of business. Due to the inherent uncertainty of the litigation process, we may not be able to predict with any reasonable degree of certainty the outcome of any litigation or the potential for future litigation. Regardless of the outcome, any legal or regulatory proceeding could have a material adverse impact on the Company’s business, prospects, financial conditions and results of operations due to defense costs, the diversion of management resources, potential reputational harm and other factors.

 

The Company may not be able to complete its recycling processes as quickly as customers may require, which could cause it to lose supply contracts and could harm its reputation.

 

The Company may not be able to complete its recycling processes to meet the supply it receives from its customers. Operating delays and interruptions can occur for many reasons, including, but not limited to:

 

equipment failures;

 

personnel shortage;

 

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labor disputes; or

 

transportation disruptions.

 

The recycling process for lithium-ion batteries is complex. If the Company fails to complete its recycling processes in a timely fashion, its reputation may be harmed. Any failure by the Company to complete its recycling processes in a timely fashion may also jeopardize existing orders and cause the Company to lose potential supply contracts and be forced to pay penalties.

 

The Company operates in an emerging, competitive industry and if it is unable to compete successfully its revenue and profitability will be materially adversely affected.

 

The green energy and lithium-ion recycling market is competitive. As the industry evolves and the demand increases, the Company anticipates that competition will increase. the Company currently faces competition primarily from companies that focus on one type of lithium-ion material recycling, some of which have more expertise in the recycling of that material than the Company. The Company also competes against companies that have a substantial competitive advantage because of longer operating histories and larger budgets, as well as greater financial and other resources. National or global competitors could enter the market with more substantial financial and workforce resources, stronger existing customer relationships, and greater name recognition. Competitors could focus their substantial resources on developing a more efficient recovery solution than the Company’s solutions. Competition also places downward pressure on the Company’s contract prices and gross margins, which presents it with significant challenges in its ability to maintain strong growth rates and acceptable gross margins. If the Company is unable to meet these competitive challenges, it could lose market share to its competitors and experience a material adverse impact to its business, financial condition and results of operations.

 

Our business is sensitive to China’s economy and China real estate policies. A downturn in China’s economy and restrictive real estate polices could materially and adversely affect our revenues and results of operations.

 

Any slowdown in China’s economic development might lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and dramatic changes in business and consumer behaviors. The current package of economic support policies is designed to stabilize the economy against slowing exports. Ongoing government regulatory measures, including the “Ten National Notices” announced in 2010, the “Eight National Notices” and property tax approved in January 2011, might have an adverse effect on our results of operations and the PRC property market. In 2023, the overall risk remained in Tier 3 and 4 cities despite initial signs of improvement in sales. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of homes, and our homebuyers may also defer, reduce or cancel purchases of our units and our results of operations may be materially and adversely affected.

 

If we are unable to successfully manage our expansion into other Tier 3 and Tier 4 cities, we will not be able to execute our business plan.

 

Historically, our business and operations have been concentrated in Hanzhong City and other surrounding counties. If we are unable to successfully develop and sell projects outside Hanzhong City, our future growth may be limited and we may not generate adequate returns to cover our investments in these Tier 3 and Tier 4 cities. In addition, as we expand our operations to Tier 3 and Tier 4 cities with higher land prices, our costs may increase, which may lead to a decrease in our profit margin.

 

We require substantial capital resources to fund our land use rights acquisitions and property developments, which may not be available.

 

Property development is capital intensive. Our ability to secure sufficient financing for land use rights acquisition and property development depends on a number of factors that are beyond our control, including market conditions in the capital markets, the PRC economy and the PRC government regulations that affect the availability and cost of financing for real estate companies.

 

We may be unable to acquire desired development sites at commercially reasonable costs.

 

Our revenue depends on the completion and sale of our projects, which in turn depends on our ability to acquire development sites. Our land use rights costs are a major component of our cost of real estate sales and increases in such costs could diminish our gross margin. In China, the PRC government controls the supply of land and regulates land sales and transfers in the secondary market. As a result, the policies of the PRC government, including those related to land supply and urban planning, affect our ability to acquire, and our costs of acquiring, land use rights for our projects. In recent years, the PRC government has introduced various measures attempting to moderate investment in the property market in China.

 

Although we believe that these measures are generally targeted at the luxury property market and speculative purchases of land and properties, the PRC government could introduce other measures in the future that may adversely affect our ability to obtain land for development. We currently acquire our development sites primarily by bidding for government land. Under current regulations, land use rights acquired from government authorities for commercial and residential development purposes must be purchased through a public tender, auction or listing-for-sale. Competition in these bidding processes has resulted in higher land use rights costs for us. We may also need to acquire land use rights through acquisition, which could increase our costs. Moreover, the supply of potential development sites in any given city will diminish over time and we may find it increasingly difficult to identify and acquire attractive development sites at commercially reasonable costs in the future.

 

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We provide guarantees for the mortgage loans of our customers which expose us to risks of default by our customers.

 

We pre-sell properties before actual completion and, in accordance with industry practice, our customers’ mortgage banks require us to guarantee our customers’ mortgage loans. Typically, we provide guarantees to PRC banks with respect to loans procured by the purchasers of our properties for the total mortgage loan amount until the completion of the registration of the mortgage with the relevant mortgage registration authorities, which generally occurs within six to twelve months after the purchasers take possession of the relevant properties. In line with what we believe to be industry practice, we rely on the credit evaluation conducted by mortgagee banks and do not conduct our own independent credit checks on our customers. The mortgagee banks typically require us to maintain, as restricted cash, 5% to 10% of the mortgage proceeds paid to us as security for our obligations under such guarantees (the security deposit).

 

If a purchaser defaults on its payment obligations during the term of our guarantee, the mortgagee bank may deduct the delinquent mortgage payment from the security deposit. If the delinquent mortgage payments exceed the security deposit, the banks may require us to pay the excess amount. If multiple purchasers default on their payment obligations at around the same time, we will be required to make significant payments to the banks to satisfy our guarantee obligations. If we are unable to resell the properties underlying defaulted mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses. For the years ended September 30, 2023 and 2022, the Company has not experienced any delinquent mortgage loans and has not experienced any losses related to this guarantee. As of September 30, 2023 and 2022, our outstanding guarantees in respect of our customers’ mortgage loans amounted to approximately $24.2    million  and $24.9 million, respectively. As of September 30, 2023 and 2022, the amount of security deposits provided for these guarantees was approximately $1.7 million and $1.8 million, respectively, and the Company believes that such reserves are sufficient. Since inception through the release of this report, the Company has not experienced any delinquent mortgage loans and has not experienced any losses related to these guarantees.

 

A large portion of our loan portfolio is tied to the real estate market and we may be negatively impacted by downturns in that market.

 

As of September 30, 2023, we had large construction loans payable of approximately $105.66 million. These loans generally have a higher degree of risk than long-term financing of existing properties because repayment depends on the completion of the project and usually on the sale of the property. In addition, these loans are often “interest-only loans,” which normally require only the payment of interest accrued prior to maturity. Interest-only loans carry greater risk than principal and interest loans because no principal is paid prior to maturity. This risk is particularly apparent during periods of rising interest rates and declining real estate values. If there is a significant decline in the real estate market due to a material increase in interest rates or for other reasons, many of these loans could default and result in foreclosure. Moreover, most of these loans are for projects located in our primary market area. If we are forced to foreclose on a project prior to completion, we may not be able to recover the entire unpaid portion of the loan or we may be required to fund additional money to complete the project or hold the property for an indeterminate period of time. Any of these outcomes may result in losses and reduce our earnings.

 

We rely on third-party contractors.

 

Substantially all of our project construction and related work are outsourced to third-party contractors. We are exposed to risks that the performance of our contractors may not meet our standards or specifications. Negligence or poor work quality by any contractors may result in defects in our buildings or residential units, which could in turn cause us to suffer financial losses, harm our reputation or expose us to third-party claims. We work with multiple contractors on different projects and we cannot guarantee that we can effectively monitor their work at all times.

 

Although our construction and other contracts contain provisions designed to protect us, we may be unable to successfully enforce these rights and, even if we are able to successfully enforce these rights, the third-party contractor may not have sufficient financial resources to compensate us. Moreover, the contractors may undertake projects from other property developers, engage in risky undertakings or encounter financial or other difficulties, such as supply shortages, labor disputes or work accidents, which may cause delays in the completion of our property projects or increases in our costs.

 

We may be unable to complete our property developments on time or at all. The progress and costs for a development project can be adversely affected by many factors, including, without limitation:

 

  delays in obtaining necessary licenses, permits or approvals from government agencies or authorities;

 

  shortages of materials, equipment, contractors and skilled labor;

 

  disputes with our third-party contractors;

 

  failure by our third-party contractors to comply with our designs, specifications or standards;

 

  difficult geological situations or other geotechnical issues; and

 

  onsite labor disputes or work accidents; and natural catastrophes or adverse weather conditions.

 

Any construction delays, or failure to complete a project according to our planned specifications or budget, may delay our property sales, which could harm our revenues, cash flows and our reputation.

 

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Changes of laws and regulations with respect to pre-sales may adversely affect our cash flow position and business performance.

 

We depend on cash flows from pre-sale of properties as an important source of funding for our property projects and servicing our indebtedness. Under current PRC laws and regulations, property developers must fulfill certain conditions before they can commence pre-sale of the relevant properties and may only use pre-sale proceeds to finance the construction of specific developments (the “Pre-Sale Conditions and Usage”). Changes in laws and regulations or in their interpretation or the imposition of more stringent Pre-Sale Conditions and Usage could have a material adverse effect on our cash flow position and business performance.

 

Our results of operations may fluctuate from period to period.

 

Our results of operations tend to fluctuate from period to period. The number of properties that we can develop or complete during any particular period is limited due to the substantial capital required for land acquisition and construction, as well as the lengthy development periods required before positive cash flows may be generated. In addition, several properties that we have developed or that are under development are large scale and are developed in multiple phases over the course of one to several years. The selling prices of the residential units in larger scale property developments tend to change over time, which may impact our sales proceeds and, accordingly, our revenues for any given period.

 

We rely on our key management members.

 

We depend on the services provided by key management members. Competition for management talent is intense in the property development sector. In particular, we are highly dependent on Mr. Yuhuai Luo, our Chairman and Chief Executive Officer. We do not maintain key employee insurance. In the event that we lose the services of any key management member, we may be unable to identify and recruit suitable successors in a timely manner or at all, which will adversely affect our business and operations. Moreover, we need to employ and retain more management personnel to support our expansion into other Tier 3 and Tier 4 cities and counties. If we cannot attract and retain suitable human resources, especially at the management level, our business and future growth will be adversely affected.

 

Increases in the price of raw materials may increase our cost of sales and reduce our earnings.

 

Our third-party contractors are responsible for procuring almost all of the raw materials used in our project developments. Our construction contracts typically provide for fixed or capped payments, but the payments are subject to changes in government-suggested steel prices. The increase in steel prices could result in an increase in our construction costs. In addition, the increases in the price of raw materials, such as cement, concrete blocks and bricks, in the long run could be passed on to us by our contractors, which will increase our construction costs. Any such cost increase could reduce our earnings to the extent we are unable to pass these increased costs to our customers.

 

Any unauthorized use of our brand or trademark may adversely affect our business.

 

We own trademarks for “汉中广厦”, in the form of Chinese characters and our Company logo. We rely on the PRC intellectual property and anti-unfair competition laws and contractual restrictions to protect brand name and trademarks. We believe our brand, trademarks and other intellectual property rights are important to our success. Any unauthorized use of our brand, trademarks and 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 is 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, our reputation may be harmed and our business may be adversely affected.

 

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We may fail to obtain or may experience material delays in obtaining necessary government approvals for any major property development, which will adversely affect our business.

 

The real estate industry is strictly regulated by the PRC government. Property developers in China must abide by various laws and regulations, including implementation rules promulgated by local governments to enforce these laws and regulations. Before commencing, and during the course of, development of a property project, we need to apply for various licenses, permits, certificates and approvals, including land use rights certificates, construction site planning permits, construction work planning permits, construction permits, pre-sale permits and completion acceptance certificates. We need to satisfy various requirements to obtain these certificates and permits. To date, we have not encountered serious delays or difficulties in the process of applying for these certificates and permits, but we cannot guarantee that we will not encounter serious delays or difficulties in the future. In the event that we fail to obtain the necessary governmental approvals for any of our major property projects, or a serious delay occurs in the government’s examination and approval progress, we may not be able to maintain our development schedule and our business and cash flows may be adversely affected.

 

We may forfeit land to the PRC government if we fail to comply with procedural requirements applicable to land grants from the government or the terms of the land use rights grant contracts.

 

According to the relevant PRC regulations, if we fail to develop a property project according to the terms of the land use rights grant contract, including those relating to the payment of land premiums, specified use of the land and the time for commencement and completion of the property development, the PRC government may issue a warning, may impose a penalty or may order us to forfeit the land. Specifically, under current PRC law, if we fail to commence development within one year after the commencement date stipulated in the land use rights grant contract, the relevant PRC land bureau may issue a warning notice to us and impose an idle land fee on the land of up to 20% of the land premium. If we fail to commence development within two years, the land will be subject to forfeiture to the PRC government, unless the delay in development is caused by government actions or force majeure. Even if the commencement of the land development is compliant with the land use rights grant contract, if the developed GFA on the land is less than one-third of the total GFA of the project or the total capital invested is less than one-fourth of the total investment of the project and the suspension of the development of the land continues for more than one year without government approval, the land will also be treated as idle land and be subject to penalty or forfeiture. We cannot assure you that circumstances leading to significant delays in our development schedule or forfeiture of land will not arise in the future. If we forfeit land, we will not only lose the opportunity to develop the property projects on such land, but may also lose all past investments in such land, including land premiums paid and development costs incurred.

 

Any non-compliant GFA of our uncompleted and future property developments will be subject to governmental approval and additional payments.

 

The local government authorities inspect property developments after their completion and issue the completion acceptance certificates if the developments are in compliance with the relevant laws and regulations. If the total constructed GFA of a property development exceeds the GFA originally authorized in the relevant land grant contracts or construction permit, or if the completed property contains built-up areas that do not conform with the plan authorized by the construction permit, the property developer may be required to pay additional amounts or take corrective actions with respect to such non-compliant GFA before a completion acceptance certificate can be issued to the property development.

 

Our failure to assist our customers in applying for property ownership certificates in a timely manner may lead to compensatory liabilities to our customers.

 

We are required to meet various requirements within 90 days after delivery of property, or such other period contracted with our customers, in order for our customers to apply for their property ownership certificates, including passing various governmental clearances, formalities and procedures. Under our sales contract, we are liable for any delay in the submission of the required documents as a result of our failure to meet such requirements, and are required to compensate our customers for delays. In the case of serious delays on one or more property projects, we may be required to pay significant compensation to our customers and our reputation may be adversely affected.

 

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We are subject to potential environmental liabilities.

 

We are subject to a variety of laws and regulations concerning the protection of health and the environment. The particular environmental laws and regulations that apply to any given development site vary significantly according to the site’s location and environmental conditions, the present and former uses of the site and the nature of the adjoining properties. Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs and can prohibit or severely restrict project development activity in environmentally-sensitive regions or areas. Although the environmental investigations conducted by local environmental authorities have not revealed any environmental liabilities that we believe would have a material adverse effect on our business, financial condition or results of operations to date, it is possible that these investigations did not reveal all environmental liabilities and that there are material environmental liabilities of which we are unaware. We cannot assure you that future environmental investigations will not reveal material environmental liabilities. Also, we cannot assure you that the PRC government will not change the existing laws and regulations or impose additional or stricter laws or regulations, the compliance with which may cause us to incur significant capital expenditures.

 

We need to improve our internal financial reporting controls. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth.

 

As a public company, we are required to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act of 2013. If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act or if we fail to maintain adequate internal controls over financial reporting, our business, results of operations and financial condition could be materially adversely affected.

 

As a public company, we are required to comply with the periodic reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including preparing annual reports and quarterly reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under U.S. federal securities laws, expose us to lawsuits and restrict our ability to access financing. In addition, we are required under applicable law and regulations to design and implement internal controls over financial reporting, and evaluate our existing internal controls with respect to the standards adopted by the U.S. Public Company Accounting Oversight Board.

 

The Company assessed its internal control over financial reporting and still has significant and material deficiencies as of September 30, 2023. To remediate the material weaknesses described above and to prevent similar deficiencies in the future, we are currently evaluating additional controls and procedures, which may include: (i) provide more U.S. GAAP knowledge and SEC reporting requirement training for the accounting department and establish formal policies and procedures for an internal audit function; and (ii) implementation of an ongoing initiative and training in the Company to ensure the importance of internal controls and compliance with established policies and procedures are fully understood throughout the organization and plan to provide continuous U.S. GAAP knowledge training to relevant employees involved to ensure the performance of and compliance with those procedures and policies. Any actions we have taken or may take to remediate these material weaknesses are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors. We cannot assure you that these material weaknesses will not occur in the future and that we will be able to remediate such weaknesses in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. The management is committed to improving the internal controls over financial reporting and will undertake the consistent improvements or enhancements on an ongoing basis. However, we cannot assure you that our current remediation plan can resolve all the significant deficiencies and material weaknesses in the internal control over financial reporting. As a result, we may be required to implement further remedial measures and to design enhanced processes and controls to address issues identified through future reviews. This could result in significant delays and costs to us and require us to divert substantial resources, including management time, from other activities.

 

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If we do not fully remediate the material weaknesses identified by management or fail to maintain the adequacy of our internal controls in the future, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, any failure to satisfy the requirements of Section 404 on a timely basis 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 common stock.

 

We do not have business insurance coverage. Any future business liability, disruption or litigation we experience might divert management focus from our business and could significantly impact our financial results.

 

Availability of business insurance products and coverage in China is limited, and most such products are expensive in relation to the coverage offered. We have determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurances on commercially reasonable terms make it impractical for us to maintain such insurance. As a result, we do not have any business liability, disruption or litigation insurance coverage for our operations in China. Accordingly, a business disruption, litigation or natural disaster may result in substantial costs and divert management’s attention from our business, which would have an adverse effect on our results of operations and financial condition.

 

The PRC government may adopt further restrictive measures to slow the increase in prices of real property and real property development.

 

Along with the economic growth in China, investments in the property sectors have increased significantly in the past few years. In response to concerns over the scale of the increase in property investments, the PRC government has introduced policies to curtail property development. We believe those regulations, among others, significantly affect the property industry in China.

 

These restrictive regulations and measures could increase our operating costs in adapting to these regulations and measures, limit our access to capital resources or even restrict our business operations. We cannot be certain that the PRC government will not issue additional and more stringent regulations or measures, which could further slowdown property development in China and adversely affect our business and prospects.

 

We are heavily dependent on the performance of the residential property market in China, which is at a relatively early development stage.

 

The residential property industry in the PRC is still in a relatively early stage of development. Although demand for residential property in the PRC has been growing rapidly in recent years, such growth is often coupled with volatility in market conditions and fluctuation in property prices. It is extremely difficult to predict how much and when demand will develop, as many social, political, economic, legal and other factors, most of which are beyond our control, may affect the development of the market. The level of uncertainty is increased by the limited availability of accurate financial and market information as well as the overall low level of transparency in the PRC, especially in Tier 3 and 4 cities which have lagged in progress in these aspects when compared to Tier 1 cities.

 

The lack of a liquid secondary market for residential property may discourage investors from acquiring new properties. The limited amount of property mortgage financing available to PRC individuals may further inhibit demand for residential developments.

 

We face intense competition from other real estate developers.

 

The property industry in the PRC is highly competitive. In the Tier 3 and Tier 4 cities we focus on, local and regional property developers are our major competitors, and an increasing number of large state-owned and private national property developers have started entering these markets. Many of our competitors, especially the state-owned and private national property developers, are well capitalized and have greater financial, marketing and other resources than we have. Some also have larger land banks, greater economies of scale, broader name recognition, a longer track record and more established relationships in certain markets. In addition, the PRC government’s recent measures designed to reduce land supply further increased competition for land among property developers.

 

Competition among property developers may result in increased costs for the acquisition of land for development, increased costs for raw materials, shortages of skilled contractors, oversupply of properties, decrease in property prices in certain parts of the PRC, a slowdown in the rate at which new property developments will be approved and/or reviewed by the relevant government authorities and an increase in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect our business and financial condition. Furthermore, property developers that are better capitalized than we are may be more competitive in acquiring land through the auction process. If we cannot respond to changes in market conditions as promptly and effectively as our competitors, or effectively compete for land acquisition through the auction systems and acquire other factors of production, our business and financial condition will be adversely affected.

 

In addition, risk of property over-supply is increasing in parts of China, where property investment, trading and speculation have become overly active. We are exposed to the risk that in the event of actual or perceived over-supply, property prices may fall drastically, and our revenue and profitability will be adversely affected.

 

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Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.

 

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where they operate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. As of September 30, 2023 and 2022, we have made adequate employee benefit payments in strict compliance with the relevant PRC regulations for and on behalf of our employees. If we fail to make contributions to various employee benefits plans in strict compliance with applicable PRC labor-related laws and regulations may subject us to late payment penalties, and we could also be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

 

We may not effectively manage our growth in the two business segments, which could materially harm our business. 

 

We expect that our business will continue to grow, which may place a significant strain on our management, personnel, systems and resources. We must continue to improve our operational and financial systems and managerial controls and procedures, and we will need to continue to expand, train and manage our technology and workforce. We must also maintain close coordination among our compliance, accounting, finance, marketing and sales organizations. We cannot assure you that we will manage our growth effectively. If we fail to do so, our business could be materially harmed. 

 

Our continued growth will require an increased investment by us in technology, facilities, personnel and financial and management systems and controls. It also will require expansion of our procedures for monitoring and assuring our compliance with applicable regulations, and we will need to integrate, train and manage a growing employee base. The expansion of our existing businesses, any expansion into new businesses and the resulting growth of our employee base will increase our need for internal audit and monitoring processes that are more extensive and broader in scope than those we have historically required. Further, unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our operating margins and profitability will be adversely affected.

 

Risks Relating to Doing Business in PRC

 

The Opinions, the Trial Measures, and the revised Provisions recently issued by the PRC authorities may subject us to additional compliance requirements in the future.

 

The General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. The Opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirements in the future. On February 17, 2023, the CSRC promulgated the Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. Pursuant to the Trial Measures, the companies that have already been listed on overseas stock exchanges, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days after the subsequent securities offerings are completed in the same offshore market. Thus, the filing shall be made within 3 working days after this offering is completed.

 

Breaches of the Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives. Such rules have been issued that means the Chinese government may exert more oversight and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors and could cause the value of our securities to significantly decline or become worthless.

 

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As of the date of this annual report, none of the Company, our PRC subsidiary, or the VIE have applied for, received, or been denied approval from any PRC authorities to issue our securities to foreign investors, nor received any inquiry, notice, warning, or sanctions regarding issuing our securities to foreign investors from the CSRC, the CAC, or any other PRC governmental authorities.  As advised by our PRC counsel, Shaanxi Jiameng Law Firm, apart from the filing with the CSRC as per requirement of the Trial Measures, we, our subsidiaries, and the VIE are not required to obtain any other permission from the CSRC, the CAC, or any other Chinese authorities to issue our securities to foreign investors based on PRC laws and regulations currently in effect.

 

On February 24, 2023, the CSRC, together with the MOF, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions issued by the CSRC and National Administration of State Secrets Protection and National Archives Administration of China in 2009. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies,” and came into effect on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, among other things, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities, including securities companies, securities service providers, and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations. After March 31, 2023, any failure or perceived failure by our Company, our subsidiaries, or the VIE to comply with the above confidentiality and archives administration requirements under the revised Provisions and other PRC laws and regulations may result in the relevant entities being held legally liable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.

 

The Opinions, the Trial Measures, the revised Provisions and any related implementing rules to be enacted may subject us to additional compliance requirements in the future. As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we will be able to comply with all new regulatory requirements of the Opinions, the Trial Measures, the revised Provisions, or any future implementing rules on a timely basis, or at all.

 

You may experience difficulties in effecting service of legal process, enforcing foreign judgments, or bringing actions in China against us or our management based on foreign laws. It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China.

 

We are a company incorporated under the laws of the state of Florida, and we conduct most of our operations in China and most of our assets are located in China. In addition, all of our directors and officers are nationals or residents of the PRC and all or a substantial portion of their assets are located outside the U.S. As a result, it may be difficult for you to effect service of process upon us or those persons inside mainland China. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of U.S. securities laws or those of any U.S. state.

 

The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the U.S. that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security, or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S. See “Enforceability of Civil Liabilities.”

 

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It may also be difficult for you or overseas regulators to conduct investigations or collect evidence within China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the authorities in China may establish a regulatory cooperation mechanism with its counterparts of another country or region to monitor and oversee cross-border securities activities, such regulatory cooperation with the securities regulatory authorities in the U.S. may not be efficient in the absence of a practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigations or evidence collection activities within the territory of the PRC. Article 177 further provides that Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to foreign agencies without prior consent from the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. While detailed interpretation of or implementing rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests.

 

Because all our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The Chinese government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our common stocks.

 

As a business operating in China, we are subject to the laws and regulations of the PRC, which can be complex and evolve rapidly. The PRC government has the power to exercise significant oversight and discretion over the conduct of our business, and the regulations to which we are subject may change rapidly and with little notice to us or our shareholders. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the PRC are often uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or authorities, and inconsistently with our current policies and practices. New laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may:

 

  delay or impede our development;

 

  result in negative publicity or increase the Company’s operating costs;

 

  require significant management time and attention; and

 

  subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed for our current or historical operations, or demands or orders that we modify or even cease our business practices.

 

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The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise unfavorably impact the ability or way we conduct our business and could require us to change certain aspects of our business to ensure compliance, which could decrease demand for our products, reduce revenues, increase costs, require us to obtain more licenses, permits, approvals or certificates, or subject us to additional liabilities. To the extent any new or more stringent measures are required to be implemented, our business, financial condition and results of operations could be adversely affected as well as materially decrease the value of our common stock, potentially rendering it worthless.

 

The uncertainties in the China legal system could materially and adversely affect us.

 

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 a document to enhance its enforcement against illegal activities in the securities markets and promote the high-quality development of the capital markets, 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 Chinese securities laws. Since this document is relatively new, uncertainties 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.

 

It is especially difficult for us to accurately predict the potential impact to the Company of new legal requirements in China because the China legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the China legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the China legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules may not be uniform and enforcement of these laws, regulations and rules involves uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, the China legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.

 

We may be deemed a PRC resident enterprise for PRC tax purposes under the Enterprise Income Tax Law, which could result in the imposition of a 25% enterprise income tax payable on our taxable global income.

 

On March 16, 2007, the National People’s Congress of the PRC passed the Enterprise Income Tax Law of the PRC (“New Income Tax Law’’), which took effect on January 1, 2008. On December 6, 2007, the Implementation Rules of Enterprise Income Tax Law of the PRC (“Implementation Rules’’) were also enacted and took effect on January 1, 2008. In accordance with the new laws and regulations, a unified enterprise income tax rate of 25% and unified tax deduction standards will be applied equally to both domestic enterprises and foreign-invested enterprises.

 

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Under the New Income Tax Law and the Implementation Rules, enterprises established under the laws of foreign jurisdictions other than the PRC may nevertheless be considered as PRC-resident enterprises for tax purposes if these enterprises have their “de facto management body’’ within the PRC. Under the Implementation Rules, “de facto management body’’ is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. At present, it is unclear what factors will be used by the PRC tax authorities to determine whether we are a “de facto management body’’ in China. All of our management personnel are located in the PRC, and all of our revenues arise from our operations in China. If the PRC tax authorities determine that we are a PRC resident enterprise, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which may have a material adverse effect on our financial condition and results of operations. Notwithstanding the foregoing provision, the New Income Tax Law also provides that, if a PRC resident enterprise already invests in another PRC resident enterprise, the dividends received by the investing resident enterprise from the invested resident enterprise are exempt from income tax, subject to certain qualifications. Therefore, if we are classified as a PRC resident enterprise, the dividends received from our PRC subsidiaries may be exempt from income tax. However, due to the limited history of the New Income Tax Law, it is unclear as to (i) the detailed qualification requirements for such exemption and (ii) whether dividend payments by our PRC subsidiaries to us will meet such qualification requirements, even if we are considered a PRC resident enterprise for tax purposes.

 

We face uncertainty from the Circular on Strengthening the Administration of Enterprise Income Tax on Non-resident Enterprises’ Share Transfer (“Circular 698”) released in December 2009 by China’s State Administration of Taxation (SAT), effective as of January 1, 2008.

 

Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country (jurisdiction) where the effective tax burden is less than 12.5% or where the offshore income of their residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers.

 

Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through the abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the tax authority has the power to re-assess the nature of the equity transfer in accordance with the “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. “Income derived from equity transfers” as mentioned in this circular refers to income derived by non-resident enterprises from direct or indirect transfers of equity interest in China resident enterprises, excluding share in Chinese resident enterprises that are bought and sold openly on the stock exchange.

 

While the term “indirectly transfer” is not defined, we understand that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. The relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country (jurisdiction) and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. Meanwhile, there are no formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to determine if our company complies with the Circular 698.

 

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Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may materially adversely affect us.

 

On July 15, 2014, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Investment, Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 37, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 37 by (1) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (2) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; (3) covering the use of existing offshore entities for offshore financings; (4) purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (5) making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 37 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 37, a retroactive SAFE registration was required to have been completed before March 31, 2006. This date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 37, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

 

We have asked our stockholders, who are PRC residents as defined in Circular 37, to register with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiary. However, we cannot provide any assurances that they can obtain the above SAFE registrations required by Circular 37 and Notice 106. Moreover, because of uncertainty over how Circular 37 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 37 and Notice 106 by our PRC resident beneficial holders.

 

In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 37 and Notice 106. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 37 and Notice 106, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

 

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In February 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our Company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, and limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

 

Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulations concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

 

Changes in the policies, regulations, rules, and the enforcement of laws of the PRC government may be quick with little advance notice and could have a significant impact upon our ability to operate profitably in the PRC.

 

All of our operations are located in China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic, legal developments and social conditions in China generally and by continued economic growth in China as a whole. Policies, regulations, rules, and the enforcement of laws of the PRC government can have significant effects on economic conditions in the PRC and the ability of businesses to operate profitably. Our ability to operate profitably in the PRC may be adversely affected by changes in policies by the PRC government, including changes in laws, regulations or their interpretation, particularly those dealing with security, intellectual property, money laundering, taxation and other laws that affect our post-combination entity’s ability to operate its business.

 

Changes in foreign exchange regulations may adversely affect our results of operations.

 

We currently receive all of our revenues in RMB. The PRC government regulates the conversion between RMB and foreign currencies. Over the years, the government has significantly reduced its control over routine foreign exchange transactions under current accounts, including trade and service-related foreign exchange transactions, payment of dividends and service of foreign debt. However, foreign exchange transactions by our PRC subsidiaries under capital accounts continue to be subject to significant foreign exchange controls and require the approval of, or registration with, PRC governmental authorities. There can be no assurance that these PRC laws and regulations on foreign investment will not cast uncertainties on our financing and operating plans in China. Under current foreign exchange regulations in China, subject to the relevant registration at SAFE, we will be able to pay dividends in foreign currencies, without prior approval from SAFE, by complying with certain procedural requirements. However, there can be no assurance that the current PRC foreign exchange policies regarding debt service and payment of dividends in foreign currencies will continue in the future. Changes in PRC foreign exchange policies might have a negative impact on our ability to service our foreign currency-denominated indebtedness, if any, and to distribute dividends to our shareholders in foreign currencies.

 

Future inflation in China may inhibit our activity to conduct business in China.

 

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation, which have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. While inflation has been more moderate since 1995, high inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products.

 

Because Chinese law governs almost all of our material agreements, we may not be able to enforce our legal rights within China or elsewhere, which could result in a significant loss of business, business opportunities, or capital.

 

We cannot assure you that we will be able to enforce any of our material agreements or that remedies will be available outside of China. The system of laws and the enforcement of existing laws in China may not be as certain in implementation and interpretation as in the United States. The inability to enforce or obtain a remedy under any of our current or future agreements could result in a significant loss of business, business opportunities or capital. It will be extremely difficult to acquire jurisdiction and enforce liabilities against our officers, directors and assets based in China.

 

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Substantially all of our assets are located in the PRC and all of our officers and most of our present directors reside outside of the United States. As a result, it may not be possible for United States investors to enforce their legal rights, to effect service of process upon our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties of our directors and officers under Federal securities laws. Moreover, we have been advised that China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States. Further, it is unclear if extradition treaties now in effect between the United States and China would permit effective enforcement of criminal penalties of the Federal securities laws.

 

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

 

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

 

We may have difficulty establishing adequate management, legal and financial controls in the PRC.

 

The PRC historically has been deficient in Western style management and financial reporting concepts and practices, as well as in modern banking, computer and other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. We may have difficulty establishing adequate management, legal and financial controls in the PRC.

 

Although the audit report included in this annual report is prepared by U.S. auditors who are currently inspected by the PCAOB, there is no guarantee that future audit reports will be prepared by auditors inspected by the PCAOB and, as such, in the future investors may be deprived of the benefits of such inspection. Furthermore, trading in our securities may be prohibited under the HFCA Act if the SEC subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on December 29, 2022, the Consolidated Appropriations Act, was signed into law by President Biden. The Consolidated Appropriations Act contained, among other things, an identical provision to AHFCAA, which reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two.

 

As an auditor of companies that are registered with the SEC and publicly traded in the United States and a firm registered with the PCAOB, our auditor is required under the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards.

 

Although currently we operates substantially in mainland China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, is 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. Inspections of other auditors conducted by the PCAOB outside mainland China have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of the PCAOB inspections of audit work undertaken in mainland China prevents the PCAOB from regularly evaluating auditors’ audits and their quality control procedures. As a result, if there is any component of our auditor’s work papers become located in mainland China in the future, such work papers will not be subject to inspection by the PCAOB. As a result, investors would be deprived of such PCAOB inspections, which could result in limitations or restrictions to our access of the U.S. capital markets.

 

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As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular mainland China’s, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress which, if passed, would require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate the audit work performed by a foreign public accounting firm completely. The proposed Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (“EQUITABLE”) Act prescribes increased disclosure requirements for these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the Nasdaq of issuers included on the SEC’s list for three consecutive years. It is unclear if this proposed legislation will be enacted. Furthermore, there have been recent deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. On May 20, 2020, the U.S. Senate passed the HFCA Act, which includes requirements for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The U.S. House of Representatives passed the HFCA Act on December 2, 2020, and the HFCA Act was signed into law on December 18, 2020. Additionally, in July 2020, the U.S. President’s Working Group on Financial Markets issued recommendations for actions that can be taken by the executive branch, the SEC, the PCAOB or other federal agencies and department with respect to Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the United States. In response, on November 23, 2020, the SEC issued guidance highlighting certain risks (and their implications to U.S. investors) associated with investments in China-based issuers and summarizing enhanced disclosures the SEC recommends China-based issuers make regarding such risks. On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year (as defined in the interim final rules) under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above. Under the HFCA Act, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our common stock being delisted. Furthermore, on June 22, 2021, the U.S. Senate passed the AHFCAA, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to the PCAOB inspections for two consecutive years instead of three and would reduce the time before our securities may be prohibited from trading or delisted. On September 22, 2021, the PCAOB adopted a final rule implementing the AHFCAA, which provides a framework for the PCAOB to use when determining, as contemplated under the AHFCAA, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the HFCA Act. On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. The PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the PRC, and (2) Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. On December 29, 2022, the Consolidated Appropriations Act, was signed into law by President Biden. The Consolidated Appropriations Act contained, among other things, an identical provision to AHFCAA, which reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two. Our auditor, OneStop Assurance PAC, is headquartered in Singapore, not mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination. Therefore, our auditor is not currently subject to the determinations announced by the PCAOB on December 16, 2021, and it is currently subject to the PCAOB inspections.

 

While our auditor is based in the U.S. and is registered with the PCAOB and has been inspected by the PCAOB on a regular basis, in the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the our securities to be prohibited under the HFCA Act, and ultimately result in a determination by a securities exchange to delist our securities. In addition, the recent developments would add uncertainties to the listing of our securities and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. It remains unclear what the SEC’s implementation process related to the above rules will entail or what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). In addition, the above amendments and any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our common stock could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement or being required to engage a new audit firm, which would require significant expense and management time.

 

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On August 26, 2022, the PCAOB signed Statement of Protocol (the “SOP”) Agreement with the CSRC and China’s Ministry of Finance. The SOP Agreement, together with two protocol agreements (collectively, “SOP Agreements”), governs inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. Delisting of our common stock would force holders of our common stock to sell their shares of common stock. The market price of our common stock could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with significant operations in China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.

 

Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact the operating entities’ business.

 

On December 28, 2021, the CAC, together with 12 other governmental departments of the PRC, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provides that, in addition to critical information infrastructure operators (“CIIOs”) that intend to purchase Internet products and services, data processing operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures further requires that CIIOs and data processing operators that possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting listings in foreign countries.

 

On November 14, 2021, the CAC published the Security Administration Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. The deadline for public comments on the Security Administration Draft was December 13, 2021.

 

As of the date of this annual report, we have not received any notice from any authorities identifying any of the operating entities as a CIIO or requiring any of the operating entities to go through cybersecurity review or network data security review by the CAC. As the Cybersecurity Review Measures became effective and if the Security Administration Draft is enacted as proposed, we believe that our operating entity, Guangsha’s operations and our listing will not be affected and that the operating entities are not subject to cybersecurity review or network data security review by the CAC, given that: (i) Guangsha engages in real estate development, primarily in the construction and sale of residential apartments, car parks and commercial properties, therefore it is unlikely to be classified as a CIIO by the PRC regulatory agencies; (ii) Guangsha possesses personal data of fewer than one million individual clients in its business operations as of the date of this annual report and do not anticipate that Guangsha will be collecting over one million users’ personal information in the near future, which we understand might otherwise subject Guangsha to the Cybersecurity Review Measures; and (iii) since Guangsha are in real estate development, data processed in their business is unlikely to have a bearing on national security and therefore is unlikely to be classified as core or important data by the authorities. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, the operating entities will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on them. We cannot guarantee, however, that our operating entity in mainland China will not be subject to cybersecurity review and network data security review in the future. During such reviews, our operating entity in mainland China may be required to suspend its operations or experience other disruptions to its operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of Guangsha’s managerial and financial resources, which could materially and adversely affect its business, financial conditions, and results of operations.

 

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The Opinions recently issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council may subject the operating entities to additional compliance requirement in the future.

 

Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection. The aforementioned policies and any related implementation rules to be enacted may subject the operating entities to additional compliance requirement in the future. As the Opinions were recently issued, official guidance and interpretation of the Opinions remain unclear in several respects at this time. Therefore, we cannot assure you that the operating entities will remain fully compliant with all new regulatory requirements of the Opinions or any future implementation rules on a timely basis, or at all.

 

Risks Relating to Our Corporate Structure

 

If the PRC government deems that the contractual arrangements in relation to Guangsha, our consolidated variable interest entity, do not comply with PRC regulatory restrictions on foreign investment in 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 are a holding company incorporated under the laws of the State of Florida. As a holding company with no material operations of our own, we conduct all of our operations through our subsidiaries established in PRC and the VIE. We control and receive the economic benefits of the VIE’s business operations through certain contractual arrangements.

 

The VIE contributed 94% and 60% of the Company’s consolidated results of operations for the years ended September 30, 2023 and 2022, respectively. As of September 30, 2023, the VIE accounted for approximately 87% of the consolidated total assets and 97% of total liabilities of the Company, respectively.

 

We rely on and expect to continue to rely on our wholly owned PRC subsidiary’s contractual arrangements with Guangsha and its shareholders to operate our business. These contractual arrangements may not be as effective in providing us with control over Guangsha as ownership of controlling equity interests would be in providing us with control over or enabling us to derive economic benefits from the operations of Guangsha. Under the current contractual arrangements, as a legal matter, if Guangsha or any of its shareholders executing the VIE Agreements fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if shareholders of a variable interest entity were to refuse to transfer their equity interests in such variable interest entity to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.

 

If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity or its shareholders terminate the contractual arrangements (iii) any variable interest entity or its shareholders fail to perform its/his/her obligations under these contractual arrangements, or (iv) if these regulations change or are interpreted differently in the future, our business operations in China would be materially and adversely affected, and the value of your shares would substantially decrease or even become worthless. Further, if we fail to renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in China.

 

In addition, if any variable interest entity or 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. If any of the variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated 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 and our ability to generate revenues.

 

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. 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 operating entities and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations.

 

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These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. 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. However, under the current contractual arrangements, we rely on the performance by the VIE and its shareholders of their obligations under the contracts to exercise control over the VIE. The shareholders of our consolidated VIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the contractual arrangements with the VIE.

 

If the VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. For example, if the shareholders of the VIE refuse to transfer their equity interest in the VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they otherwise act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations. In addition, if any third parties claim any interest in such shareholders’ equity interests in the VIE, our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired. If these or other disputes between the shareholders of the VIE and third parties were to impair our control over the VIE, our ability to consolidate the financial results of the VIE would be affected, which would in turn result in a material adverse effect on our business, operations and financial condition.

 

In the opinion of our PRC legal counsel, each of the contractual arrangements among our WFOE, the VIE and its shareholders governed by PRC laws are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities may ultimately take a view that is contrary to the opinion of our PRC legal counsel. In addition, 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. PRC government authorities may deem that foreign ownership is directly or indirectly involved in the VIE’s shareholding structure. If our corporate structure and contractual arrangements are deemed by the Ministry of Industry and Information Technology, MIIT, or the Ministry of Commerce, MOFCOM, or other regulators having competent authority to be illegal, either in whole or in part, we may lose control of our consolidated VIE and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to the VIE’s business. Furthermore, if we or the VIE is found to be in violation of any existing or future PRC laws or regulations, or 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, without limitation:

 

  revoking the business license and/or operating licenses of our WFOE or the VIE;

 

  discontinuing or placing restrictions or onerous conditions on our operations through any transactions among our WFOE and the VIE;

 

  imposing fines, confiscating the income from our WFOE, the VIE or its subsidiaries, or imposing other requirements with which we or the VIE may not be able to comply;

 

  placing restrictions on our right to collect revenues;

 

  requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the VIE and deregistering the equity pledges of the VIE, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control over the VIE; or

 

  taking other regulatory or enforcement actions against us that could be harmful to our business.

 

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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 corporate 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 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 our variable interest entity and its subsidiary in China for our business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as through ownership of controlling equity interests.

 

We are a holding company with no material operations of our own. We conduct a substantial majority of our operations through our subsidiaries established and the VIE in the PRC. We rely on and expect to continue to rely on our wholly owned PRC subsidiary’s contractual arrangements with Guangsha and its shareholders to operate our business. These contractual arrangements may not be as effective in providing us with control over Guangsha as direct ownership in providing us with control over Guangsha, or enabling us to derive economic benefits from the operations of Guangsha. Under the current contractual arrangements, as a legal matter, if Guangsha or any of Guangsha Shareholders fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if Guangsha Shareholders were to refuse to transfer their equity interests in Guangsha to us or our designated persons when we exercise the purchase option pursuant to these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations. Furthermore, if we had direct ownership of Guangsha, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Guangsha, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the VIE Agreements, we rely on the performance by Guangsha and its shareholders of their obligations under the contracts to exercise control over Guangsha. The shareholders of Guangsha may not act in the best interests of our Company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portions of our business through the contractual arrangements with Guangsha. In addition, if any third parties claim any interest in such shareholders’ equity interests in the VIE, our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired. If these or other disputes between the shareholders of the VIE and third parties were to impair our control over the VIE, our ability to consolidate the financial results of the VIE would be affected, which would in turn result in a material adverse effect on the business, operations and financial condition.

 

Our PRC counsel, Shaanxi Jiameng Law Firm, has advised us that the ownership structure of the PRC entities does not violate PRC laws or regulations currently in effect, and that the contractual arrangements are valid, binding and enforceable, and do not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current PRC Laws, and there can be no assurance that the PRC government will ultimately take a view that is consistent with such opinion.

 

If (i) the applicable PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any variable interest entity or its shareholders terminate the contractual arrangements or (iii) any variable interest entity or its shareholders fail to perform its/his/her obligations under these contractual arrangements, our business operations in China would be materially and adversely affected, and the value of your shares would substantially decrease. Further, if we fail to renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then current PRC law allows us to directly operate businesses in China.

 

In addition, if any variable interest entity or 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. If our variable interest entity undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of their assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business and our ability to generate revenues.

 

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All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. 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 operating entity and we may be precluded from operating our business, which would have a material adverse effect on our financial condition and results of operations.

 

We are a holding company, and will rely on dividends paid by our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our common stock.

 

We are a holding company and conduct substantially all of our business through our PRC subsidiary, which is a limited liability company established in China. We may rely on dividends to be paid by our PRC subsidiary to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

 

Under PRC laws and regulations, our PRC subsidiary, which is a wholly foreign-owned enterprise in China, may pay dividends only out of its accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.

 

Our PRC subsidiary generates primarily all of its revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiary to use its Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting process may be put forward by State Administration of Foreign Exchange for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

We may not be able to consolidate the financial results of our affiliated companies or such consolidation could materially and adversely affect our operating results and financial condition.

 

Our business is conducted through Guangsha, which is considered a VIE for accounting purposes, and we, through Shaanxi HGS, are considered the primary beneficiary, thus enabling us to consolidate our financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE no longer meets the definition of a VIE under applicable accounting rules, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity’s financial results in our consolidated financial statements for reporting purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity’s financial results in our consolidated financial statements for accounting purposes. If such entity’s financial results were negative, this would have a corresponding negative impact on our operating results for reporting purposes.

 

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Because we rely on the Contractual Arrangements for our revenue, the termination of these agreements would severely and detrimentally affect our continuing business viability under our current corporate structure.

 

We are a holding company, and all of our business operations are conducted through the Contractual Arrangements. Although Guangsha does not have termination rights pursuant to the Contractual Arrangements, it could terminate, or refuse to perform under, the Contractual Arrangements. Because neither we, nor our subsidiaries, own equity interests of Guangsha, the termination or non-performance of the Contractual Arrangements would sever our ability to consolidate Guangsha and to receive payments from them under our current holding company structure. While we are currently not aware of any event or reason that may cause the Contractual Arrangements to terminate, we cannot assure you that such an event or reason will not occur in the future. In the event that the Contractual Arrangements are terminated, this would have a severe and detrimental effect on our continuing business viability under our current corporate structure, which, in turn, would affect the value of your investment.

 

Contractual arrangements in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIE owe additional taxes, which could negatively affect our financial condition 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. The PRC tax authorities could effectively disregard the VIE structure, resulting in increased tax liabilities. 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 tax liabilities without reducing our 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.

 

We conduct our business through Guangsha by means of Contractual Arrangements. If the PRC courts or administrative authorities determine that these contractual arrangements do not comply with applicable regulations, we could be subject to severe penalties and our business could be adversely affected. In addition, changes in such PRC laws and regulations may materially and adversely affect our business.

 

There are uncertainties regarding the interpretation and application of PRC laws, rules and regulations, including the laws, rules and regulations governing the validity and enforcement of the Contractual Arrangements between Shaanxi HGS and Guangsha. We have been advised by our PRC counsel, the Shaanxi Jiameng Law Firm, based on their understanding of the current PRC laws, rules and regulations, that (i) the structure for operating our business in China (including our corporate structure and Contractual Arrangements with Shaanxi HGS, Guangsha and its shareholders) will not result in any violation of PRC laws or regulations currently in effect; and (ii) the Contractual Arrangements among Shaanxi HGS and Guangsha and its shareholders governed by PRC law are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations concerning foreign investment in the PRC, and their application to and effect on the legality, binding effect and enforceability of the contractual arrangements. In particular, we cannot rule out the possibility that PRC regulatory authorities, courts or arbitral tribunals may in the future adopt a different or contrary interpretation or take a view that is inconsistent with the opinion of our PRC legal counsel. Therefore, the Contractual Arrangements may be determined by PRC authorities to be inconsistent with the laws and regulations of the PRC, including those related to foreign investment in certain industries.

 

If any of our PRC entities or their ownership structure or the Contractual Arrangements are determined to be in violation of any existing or future PRC laws, rules or regulations, or any of our PRC entities 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;

 

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  discontinuing or restricting the operations;

 

  imposing conditions or requirements with which the PRC entities may not be able to comply;

 

  requiring us and our PRC entities to restructure the relevant ownership structure or operations, including termination of the contractual arrangements with the VIE and deregistering the equity pledge of the VIE, which in turn would affect our ability to consolidate, derive economic interests from, or exert effective control the VIE;

 

  imposing fines or confiscating the income from our PRC subsidiaries or the VIE.

 

The imposition of any of these penalties would severely disrupt our ability to conduct business and have a material adverse effect on our financial condition, results of operations and prospects.

 

The shareholders of the VIE may have actual or potential conflicts of interest with us and as a result may refuse to perform, or may breach, the Contractual Arrangements, which may materially and adversely affect our business and financial condition.

 

The shareholders of the VIE may have actual or potential conflicts of interest with us. These shareholders may refuse to perform or sign or may breach, or cause the VIE to breach, or refuse to renew, the existing Contractual Arrangements, which would have a material and adverse effect on our ability to effectively control the VIE and receive economic benefits from it. As a result, control over, and funds due from, the VIE may be jeopardized if the shareholders of the VIE breach, or refuse to renew, the Contractual Arrangements. 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. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

 

Any failure by the VIE or its shareholders to perform their obligations under the Contractual Arrangements, or any unauthorized use of indicia of corporate power or authority, would have a material adverse effect on our business.

 

We refer to the shareholders of the VIE as its nominee shareholders because although they remain the holders of equity interests on record in the VIE, pursuant to the terms of the relevant power of attorney, such shareholders have irrevocably authorized the individual appointed by Shaanxi HGS to exercise their rights as a shareholder of the VIE. If the VIE or its shareholders fail to perform their respective obligations under the Contractual Arrangements or if any physical instruments, such as chops and seals, or other indicia of corporate power or authority, are used without our authorization, we may have to incur substantial costs and expend additional resources to seek legal remedies under PRC laws, including specific performance or injunctive relief, and/or claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of the VIE were to refuse to transfer their equity interest in the VIE to us or our designee if we exercise the purchase option pursuant to the 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 perform their contractual obligations.

 

The Contractual Arrangements are governed by PRC laws. Accordingly, any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the U.S. As a result, uncertainties in the PRC legal system could limit our ability to enforce the Contractual Arrangements or could affect the validity of the Contractual Arrangements, and as a result we may not be able to exert effective control over the VIE, and our ability to conduct our business may therefore be materially adversely affected.

 

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Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.

 

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020. Since it is relatively new, uncertainties exist in relation to its interpretation and its implementation rules that are yet to be issued. The Foreign Investment Law does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign-invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or the State Council of the PRC, or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment. Therefore, there can be no assurance that our control over the VIE through contractual arrangements will not be deemed as a foreign investment in the future.

 

The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in a “negative list”. The Foreign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industries will require market entry clearance and other approvals from relevant PRC government authorities. If our control over the VIE through contractual arrangements are deemed as foreign investment in the future, and any business of the VIE is “restricted” or “prohibited” from foreign investment under the “negative list” effective at the time, we may be deemed to be in violation of the Foreign Investment Law, the contractual arrangements that allow us to have control over the VIE may be deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/or restructure our business operations, any of which may have a material adverse effect on our business operations. In addition, as the Chinese government has been updating the Negative List in recent years and reducing the sectors prohibited or restricted for foreign investment, it is probable in the future that, even if the VIE is identified as a FIE, it is still allowed to acquire or hold equity of enterprises in sectors currently prohibited or restricted for foreign investment.

 

Furthermore, the PRC Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the PRC Foreign Investment Law.

 

In addition, the PRC Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.

 

Notwithstanding the above, the PRC Foreign Investment Law stipulates that foreign investment includes “foreign investors invest through any other methods under laws, administrative regulations or provisions prescribed by the State Council”. Therefore, there are possibilities that future laws, administrative regulations or provisions prescribed by the State Council may regard contractual arrangements as a form of foreign investment, and then whether our contractual arrangement will be recognized as a foreign investment, whether our contractual arrangement will be deemed to be in violation of the foreign investment access requirements and how the above-mentioned contractual arrangement will be handled are uncertain.

 

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The Chinese government may exercise significant oversight influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S. exchanges, however, if the VIE or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would materially affect the interest of the investors.

 

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 through the VIE 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.

 

For example, the Chinese cybersecurity regulator announced on July 2021 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app was removed from smartphone app stores. On July 24, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly released the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign investment in such firms via mergers and acquisitions, franchise development, and variable interest entities are banned from this sector.

 

We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the Company’s business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply, and such compliance or any associated inquiries or investigations or any other government actions may:

 

  delay or impede our development;

 

  result in negative publicity or increase the Company’s operating costs;

 

  require significant management time and attention; and

 

Furthermore, it is uncertain when and whether the Company 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. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry, which could result in a material adverse change in the value of our securities, potentially rendering it worthless. As a result, both you and us face uncertainty about future actions by the PRC government that could significantly affect our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless.

 

If any of our affiliated entities becomes the subject of a bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy assets held by such entity, which could materially and adversely affect our business, financial condition and results of operations.

 

We currently conduct our operations in China through our Contractual Arrangements. As part of these arrangements, substantially all of our assets that are significant to the operation of our business are held by the VIE. If the becomes bankrupt and all or part of its 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. In addition, if any of our affiliated entities undergoes a voluntary or involuntary liquidation proceeding, its equity owner or unrelated third-party creditors may claim rights relating to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business, our ability to generate revenue and the market price of our common stock.

 

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Risks Relating to our Securities

 

We have never paid cash dividends and are not likely to do so in the foreseeable future.

 

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not expect to pay any cash dividends in the foreseeable future but will review this policy as circumstances dictate.

 

We may be subject to the penny stock rules which will make the shares of our common stock more difficult to sell.

 

We may be subject now and in the future to the SEC’s “penny stock” rules if our shares of common stock sell below $1.00 per share. Penny stocks generally are equity securities with a price of less than $1.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

 

On June 21, 2019, the “Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that it is no longer in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed companies to maintain a minimum bid price of $1.00 per share. The letter noted that the bid price of the Company’s common stock was below $1.00 for the 30-day period ending June 20, 2019. The notification letter has no immediate effect on the Company’s listing on the Nasdaq Capital Market. Nasdaq has provided the Company with 180 days, or until January 14, 2020, to regain compliance with the minimum bid price requirement by having a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. On December 19, 2019, Nasdaq determined that the Company is eligible for an additional 180 calendar day period, or until June 15, 2020, to regain compliance. Given the extraordinary market conditions caused by COVID-19, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements through June 30, 2020. In that regard, on April 16, 2020, Nasdaq filed an immediately effective rule change with the Securities and Exchange Commission. Accordingly, the Company had until August 31, 2020, to regain compliance. On November 2, 2020, NASDAQ advised the Company that so long as it remains in compliance with NASDAQ continued listing standards until March 1, 2021, NASDAQ would grant the Company continued listing on NASDAQ. Should the company fail to demonstrate compliance with Nasdaq Listing Rule 5550(a)(2) by that date, the Panel will issue a final delist determination and the Company will be suspended from trading on The Nasdaq Stock Market. The Company maintained compliance through March 1, 2021.

 

In addition, the penny stock rules require that prior to a transaction, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our common stock. As long as our shares of common stock are subject to the penny stock rules, the holders of such shares of common stock may find it more difficult to sell their securities.

 

Our shares of common stock are very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future.

 

Our shares of common stock are very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of our business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.

 

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In addition, the securities markets have from time to time experienced price and volume fluctuations that are not related to the operating performance of particular companies. As a result, to the extent shareholders sell our shares in a negative market fluctuation, they may not receive a price per share that is based solely upon our business performance. We cannot guarantee that shareholders will not lose some or all of their investment in our common stock.

 

Currently, we are listed on the NASDAQ Capital Market. If our financial condition deteriorates, we may not meet continued listing standards on the NASDAQ Capital Market.

 

The NASDAQ Capital Market requires companies to fulfill specific requirements in order for their shares to continue to be listed. In order to qualify for continued listing on the NASDAQ Capital Market, we must meet the following criteria:

 

  Our stockholders’ equity must be at least $2,500,000; or the market value of our listed securities must be at least $35,000,000; or our net income from continuing operations in our last fiscal year (or two of the last three fiscal years) must have been at least $500,000;

 

  The market value of our publicly held shares must be at least $1,000,000;

 

  The minimum bid price for our shares must be at least $1.00 per share;

 

  We must have at least 300 stockholders;

 

  We must have at least 500,000 publicly held shares;

 

  We must have at least 2 market makers; and

 

  We must have adopted NASDAQ-mandated corporate governance measures, including a board of directors comprised of a majority of independent directors, an Audit Committee comprised solely of independent directors and the adoption of a code of ethics among other items.

 

Current, we are listed on the NASDAQ Capital Market, but if we are delisted from the NASDAQ Capital Market at some later date, our stockholders could find it difficult to sell our shares. In addition, if our common stock is delisted from the NASDAQ Capital Market at some later date, we may apply to have our common stock quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the NASDAQ Capital Market. In addition, if our common stock is not so listed or are delisted at some later date, our common stock may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common stock might decline. If our common stock is delisted from the NASDAQ Capital Market at some later date or become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our stockholders would find it difficult to sell their shares.

 

The requirements of being a public company may strain our resources and divert management’s attention, which could have a material adverse effect on our business.

 

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.

 

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As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.

 

The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies which could have an adverse effect on our results of operations.

 

We are a reporting company in the United States. As a reporting company, we are required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our Company and stockholders. In some cases, we are required to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our Company. Similarly, as a U.S.-listed public company, we are governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, this could affect our results of operations.

 

Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.

 

The trading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As we are a reporting company in the United States, we may attract research coverage and the analysts who publish information about our common stock will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline and result in the loss of all or a part of your investment in us.

 

ITEM 1B. Unresolved Staff Comments

 

None.

 

ITEM 2. Properties

 

The Company’s principal administrative, sales, and marketing facilities are located at 6 Xinghan Road, 19th Floor, Hanzhong City, Shaanxi Province. The Company built the office building in which its headquarters are located and owns the floor that houses its headquarters. In addition, the Company also owns a sales office in Yang County. See Item 1. Business — Overview.

 

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ITEM 3.  Legal Proceedings  

 

There are 112 on-going legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. Some of the Company’s property is the subject of on-going legal proceedings.

 

  1) Dispute of labor services contracts between WangCang County Lexin Labor Services Co.Ltd (WangCang), Xi’an branch office of Zhejiang Hongcheng Construction Group Co.Ltd. (Hongcheng) and Shaanxi Guangxia Investment Development Group Co., Ltd (Guangxia). The court judgement pronounced that Guangxia was not responsible, but after WangCang applying enforcement of lawsuit execution, Guangxia was debtors to Hongcheng. The Intermediate People’s Court of Hanzhong City sent letters requiring Guangxia to assist in executing and fulfilling mature liabilities. Guangxia was appended as party subject to enforcement later. During the period when WangCang substituted execution, Guangxia provided real estate for the court to sequestrate and auction. Afterwards, WangCang sued for the same case at the People’s court of HanTai District, requesting that Guangxia assumed responsibilities within the range of unpaid project funds. the court decided that Guangxia assumed responsibilities for the principal of WangCang’ project funds within the range of its unpaid project funds to Hongcheng, This case concurrently entered the execution procedure. As the subject matter of the above lawsuits coincided, Hongcheng also has applied enforcement with the Intermediate People’s Court of Hanzhong city to sequestrate enough real estate of Guangxia. Guangxia  proposed objection to execution to the Intermediate People’s Court of Hanzhong city, requiring to terminate the petition to execute by WangCang and to unfreeze the sequestration of real estate. WangCang’ execution constitutes duplicate execution, and continuing its substituted execution was unjustifiable from law standpoint. At of November 17, 2023, the Intermediate People’s Court of Hanzhong city has held hearing and has not arrived at any effective verdict. As of September 30, 2023, unpaid principal was RMB 24 million ($3.3 million) and unpaid interest accrual was included in the following case 2.

 

  2) Execution of dispute over projects construction contracts between Zhejiang Hongcheng Construction Group Co.Ltd (Hongcheng) and Shaanxi Guangxia  Investment Development Group Co., Ltd (Guangxia). Guangxia proposed objection to execution to the Intermediate People’s Court of Hanzhong city, As Guangxia and Hongcheng both have lawsuit execution against each other, Guangxia has fulfilled execution payments to some executors who assisted and the three lawsuits in which Guangxia prosecuted Hongcheng for construction contracts disputes have not been ruled by the court that involving around RMB 60 million ($8.3 million), therefore, whether Guangxia Co owes should be confirmed after all lawsuits are judged effectively and the two parties reconciled with each other’s accounting books. As of September 30, 2023, RMB 6.33 million ($0.87 million) has been paid, unpaid balance was RMB53.68 million ($7.38 million), plus the interests accrual in RMB2,33 million ($0.32 million) in fiscal 2023, accumulated principle and interest totaled in RMB67.01 million ($9.22 million) as at September 30, 2023.

 

3)Disputes over leasing contracts between Hantai District Community Center Hanzhong Urban Counsel and Shaanxi Guangsha Investment Development Group Co., Ltd, was in execution stage at present. As the implementation of project cooperated with the government of HanTai district to renovate housing units in run-down areas, it has been suspended, the fund should be assumed by the government of HanTai district. Guangxia can recover from the government of HanTai district after assuming. As of September 30, 2023, unpaid principal was RMB0.77 million ($0.11 million) and interest was RMB0.17 million ($0.02 million), plus the interest accrual in RMB0.06 million ($0.008 million) in fiscal 2023, accumulated principle and interest totaled in RMB0.99 million ($0.14 million) as at September 30, 2023.

 

4)Disputes over construction contracts between Shaanxi Tangxin Fire-Fighting Safety Engineering Co., Ltd and Shaanxi Guangxia Investment Development Group Co., Ltd, the two parties mediated and wound up. The execution of this lawsuit has been concluded. As of September 30, 2023, unpaid principal was RMB0.91 million ($0.13 million) plus the interests accrual in RMB0.04 million ($0.005 million) in fiscal 2023, accumulated principle and interest totaled in RMB0.95 million ($0.13 million) as at September 30, 2023.

 

ITEM 4. Mine Safety Disclosure

 

Not applicable.

 

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PART II

 

Item 5.  Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities

 

Market Information

 

Our common stock is currently quoted on the NASDAQ Capital Market under the symbol “GGE.” Between September 13, 2010 and July 19, 2012, our common stock was quoted on the NASDAQ Global Market under the symbol “HGSH.” Prior to our listing on the NASDAQ Global Market, our common stock was quoted on the OTC Bulletin Board under the symbol “CAHS.” The following table sets forth the high and low sale prices for the Company’s common stock for the periods indicated.

 

FISCAL 2023  High   Low 
1st Quarter Ended December 31, 2022  $3.77   $0.66 
2nd Quarter Ended March 31,2023  $3.11   $2.00 
3rd Quarter Ended June 30, 2023  $2.95   $2.09 
4th Quarter Ended September 30, 2023  $2.25   $0.80 

 

FISCAL 2022  High   Low 
1st Quarter Ended December 31, 2021  $2.06   $1.97 
2nd Quarter Ended March 31,2022  $3.20   $2.91 
3rd Quarter Ended June 30, 2022  $1.51   $1.41 
4th Quarter Ended September 30, 2022  $1.21   $1.05 

 

Holders

 

According to the records of our transfer agent, the Company had   291 stockholders of record as of September 30, 2023.

 

Dividends

 

All of our assets are located within the PRC. Under the laws of the PRC governing foreign invested enterprises, dividend distributions and liquidating distributions are allowed but subject to special procedures under relevant rules and regulations. Any dividend payment is subject to the approval of the Board of Directors and subject to foreign exchange rules governing such repatriation. Any liquidating distribution is subject to both the relevant government agency’s approval and supervision, as well as foreign exchange controls.

 

We have never declared or paid any cash dividends on our common stock and we do not expect to pay any cash dividends in the foreseeable future. We expect to retain any earnings to support operations and to finance the growth and development of our business.  Any future determination relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.  The payment of dividends from our subsidiaries to our parent company is subject to restrictions including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents.

 

PRC regulations restrict the ability of our PRC subsidiary to make dividends and other payments to its offshore parent company.  PRC legal restrictions permit payments of dividends by our PRC subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary is also required under PRC laws and regulations to allocate at least 10% of its annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of its registered capital. Allocations to this statutory reserve fund can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiary to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business. 

 

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Equity Compensation Plan Information

 

See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for disclosure regarding our equity compensation plan.

 

Purchase of Equity Securities by Our Company and Affiliated Purchases

 

None.

 

Recent Sales of Unregistered Securities

 

During the fiscal years ended September 30, 2023 and 2022, we did not have sales of unregistered securities other than those already disclosed in the quarterly reports on Form 10-Q in the fiscal years 2023 and 2022 and current reports on Form 8-K.

 

Item 6. [Reserved]

 

Not applicable.

 

Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

 

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Green Giant Inc. for the fiscal years ended September 30, 2023 and 2022 and should be read in conjunction with such financial statements and related notes included in this report.

 

Preliminary Note Regarding Forward-Looking Statements.

 

We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations which follow under the headings “Business and Overview,” “Liquidity and Capital Resources,” and other statements throughout this report preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions.

 

Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements, including the risks and uncertainties described below and other factors we describe from time to time in our periodic filings with the SEC. We therefore caution you not to rely unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. These forward-looking statements include, among other things, statements relating to:

 

our ability to sustain our project development

 

our ability to obtain additional land use rights at favorable prices;

 

the market for real estate in Tier 3 and 4 cities and counties;

 

our ability to obtain additional capital in future years to fund our planned expansion; or

 

economic, political, regulatory, legal and foreign exchange risks associated with our operations.

 

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Our Business Overview

 

The Company currently operates in two segments, the real estate development business and green energy business. The Company engages in real estate development through the VIE, Guangsha, in mainland China, and is transitioning itself from its real estate development business to a new energy corporation.

 

Currently, we are operating in Hanzhong, a prefecture-level city in Shaanxi Province, and Yang County, a county in Hanzhong. Our management has been focused on expanding our business in Tier 3 and Tier 4 cities and counties in China that we strategically select based on population and urbanization growth rates, general economic conditions and growth rates, income and purchasing power of resident consumers, anticipated demand for private residential properties, availability of future land supply and land prices, and governmental urban planning and development policies. Initially, these Tier 3 and Tier 4 cities and counties will be located in the Shaanxi province, China. We utilize a standardized and scalable model that emphasizes rapid asset turnover, efficient capital management and strict cost control. We plan to expand into strategically selected Tier 3 and Tier 4 cities and counties with real estate development potential in Shaanxi Province, and expect to benefit from rising demand for residential housing as a result of increasing income levels of consumers and growing populations in these cities and counties due to urbanization.

 

In September 2020, the Company started land leveling and construction process for the Oriental Garden Phase II and Liangzhou Mansion real estate properties in the Liangzhou Road related projects. The Company started the construction of the Liangzhou Road related projects, which consist of residential buildings, office buildings and a commercial plaza, after the approval by the local government of the road. Upon completion, the Liangzhou Road related projects will become a new city center of Hanzhong city.

 

Since November 2022, the Company started to explore the possibility of entering into the green energy sector in the U.S. As the usage of electric vehicles and other battery-powered technologies surges, the demand for batteries correspondingly rises. This growth cycle presents both a challenge and an opportunity when these batteries reach their end-of-life stage. Our solution to this challenge lies in our innovative battery recycling process. We have been searching for a warehouse for our battery recycling production. During the recycling process, valuable metal such as lithium, nickel, and cobalt are extracted from the used batteries. These metals are then converted into lead ingots and blocks. The global market for these metals is dynamic, with prices fluctuating in response to the constantly changing supply and demand. We have started trading metal, the end-product of battery recycling, in April 2023, to leverage the fluctuation in their prices. The Company recorded $0.79 million revenue from the green energy segment for the fiscal year ended September 30, 2023.

 

The Company is planning to enter the medical industry through selling medical devices like vitro short-wave radiometer, high-pressure syringe and related consumables. In the future, it also plans to sell high-end medical equipment including gamma knife and apparatus for kidney.

 

For the fiscal year of 2023, our sales and net loss were approximately $1.5 million and $110.1 million, representing a decrease of approximately 83.0%   and an increase of 1.8% from fiscal 2022, respectively. The year-over-year decrease was mainly caused by the following reasons: 1) The macro-control of the real estate market by the Chinese government, mainly suppressed in the past 12 months; 2) China’s economic downturn due to repeated epidemic; 3) Lower disposable income resulted in the decreased demand for housing; 4) The Company is a real estate developer in the third and fourth tier cities in China, the decline in house prices is especially obvious than that in the first tier and second tier cities. For thfiscal year of 2023, our average selling price (“ASP”) for real estate projects located in Yang County was approximately $643per square meter, increased from ASP of $524 per square meter in fiscal 2022 due to less commercial units sold in Yangzhou Palace during fiscal 2023.  

 

Recent Developments

 

Sales Agreement

 

On March 23, 2023, Green Giant Energy Texas Inc. (“Green Giant Energy”), an indirect wholly owned subsidiary of Green Giant Inc., entered into a sales contract with AGR Enterprises Inc. (“AGR”), pursuant to which Green Giant Energy agreed to purchase, and AGR agreed to sell to Green Giant Energy, 80 MT Zorba Scrap, with the unit price of $1,930 per MT.

 

Termination and Settlement Agreement with Spartan Capital Securities LLC

 

On June 15, 2023, the Company and Spartan Capital Securities LLC (“Spartan”) entered into certain financial advisory agreement (the “Financial Advisory Agreement”), pursuant to which Spartan will serve as the exclusive lead underwriter, financial advisor, deal manager, sole book running manager, placement agent and/or investment banker for the Company in connection with any public or private offerings and debt offering, including all equity linked financings and any financing during the term of the Financial Advisory Agreement.

 

On December 5, 2023, the Company entered into certain termination and settlement agreement with Spartan (the “Termination Agreement”), pursuant to which Spartan agreed to waive all claims and liabilities against the Company in connection with the Financial Advisory Agreement for a one-time lump sum payment of the greater of (i) 1.50% of the gross proceeds raised in this offering and (ii) $75,000 (the “Settlement Payment”).

 

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Registered Offering

 

On December 12, 2023, the Company entered into certain securities purchase agreement (the “Purchase Agreement”) with certain non-affiliated institutional investors (the “Purchasers”) pursuant to which the Company agreed to sell 21,470,585 common units (each, a “Common Unit”, collectively, the “Common Units”), each consisting of one share of common stock, $0.001 par value per share (the “Common Stock”), one Class A common warrant to purchase one share of Common Stock (each, a “Class A Warrant” and collectively, the “Class A Warrants”) and one Class B common warrant to purchase one share of Common Stock (each, a “Class B Warrant” and collectively, the “Class B Warrants”) at a purchase price of $0.17 per Common Unit, and 13,529,415 pre-funded units (each, a “Pre-Funded Unit”, collectively, the “Pre-Funded Units”), each consisting of one pre-funded warrant to purchase one share of Common Stock (each, a “Pre-Funded Warrant”) and collectively, the “Pre-Funded Warrants”), one Class A Warrant, and one Class B Warrant in a registered offering (the “Offering”), for gross proceeds of approximately $5.95 million. The purchase price for each Common Unit is $0.17. The purchase price for each Pre-Funded Unit is $0.1699. The Offering closed on December 14, 2023.

 

Market Outlook

 

On November 11, 2022 the People’s Bank of China and the China Banking and Insurance Regulatory Commission issued “Yin Fa [2022] No. 254 “Notice on Supporting the Stable and Healthy Development of the Real Estate Market” to support the stable and healthy development of the real estate market.

 

On November 14, 2022 China Banking and Insurance Regulatory Commission, the Ministry of Housing and Urban-Rural Development and the Central Bank issued the “Notice on the Relevant Work of Commercial Banks Issuing letters of Guarantee to Replace the Pre-sale Supervision Funds” (the “Pre-sale Supervision Funds Notice”). Commercial banks’ house related credit business is expected to expand. The “Financial Support for Real Estate Notice” issued sixteen measures to generate power at both supply and demand ends, it further clarifies the support policies for housing credit. Many policies have been implemented at the document system level for the first time, or will push banks to increase their support for the real estate market. It is expected to positively affect the conservative attitude of commercial banks to intervene in the development of loan market and support the increasing demand from home buyers for mortgage loans.

 

According to China Galaxy Securities Research Report dated October 25, 2023, the sixth session of China’s 14th National People’s Congress Standing Committee voted and passed resolutions on incremental issuance of treasury bonds by the state council and adjustment scheme of central government’s 2023 budget. The central finance will additionally issue 1 trillion treasury bonds of 2023 in the fourth quarter 2023, and all of the treasury bonds issued will be arranged to local governments through transfer payments. This will generate impacts to economy in following aspects: to assist reconstruction of disaster areas and economic resurgence, and will directly drive investment growth in local infrastructure, the directions concentrated on drainage and flood control projects and farmland construction related to water conservancy engineering.

 

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According to CNR Cultural Media dated November 23, 2023, responsible officer from the ministry of finance stated that according to plan of the State Council and related work arrangement, part of increased 2024 debt limit of local governments was released in advance, to reasonably guarantee local financing need. The institutions predicted that the limit approved in advance may exceed 2.7 trillion and may continue to tilt towards east region in good fiscal condition. From the usage of special debit published by ministry of finance, fields of livelihood services, transportation infrastructure, infrastructure for municipal administration and Industrial Park, agriculture, forestry, and water conservancy accounted for 64.9%、23.8%、6.0% and 3.6% respectively. 

 

The Company intends to remain focused on our existing construction projects in Hanzhong City and Yang County, deepening our institutional sales network, enhancing our cost and operational synergies and improving cash flows and strengthening our balance sheet.

 

The Company started the construction of the Liangzhou Road related projects after the approval by the local government of the road. These projects comprise residential for end-users and upgraders, shopping malls as well as serviced apartments and offices to satisfy different market demands.

 

In December 2019, a novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly to many parts of the PRC and other parts of the world in the first quarter of 2020, which has caused significant volatility in the PRC and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC and international economies. For the year ended September 30, 2022, the COVID-19 pandemic did not have did have a material net impact on the Company’s financial position and operating results, especially Yang County which is operation was shut down. On and off from August 2022 onwards The extent of the impact on the Company’s future financial results will be dependent on future developments such as the length and severity of the crisis, the potential resurgence of the pandemic, future government actions in response to the pandemic and the overall impact of the COVID-19 pandemic on the local economy and real estate markets, among many other factors, all of which remain highly uncertain and unpredictable. Given this uncertainty, the Company is currently unable to quantify the future impact of the COVID-19 pandemic on its future operations, financial condition, liquidity and results of operations if the current situation continues.

 

Liangzhou road related projects

 

In September 2013, the Company entered into an agreement (“Liangzhou Agreement”) with the Hanzhong local government on the Liangzhou Road reformation and expansion project (“Liangzhou Road Project”). Pursuant to the Liangzhou Agreement, the Company was contracted to reform and expand the Liangzhou Road, a commercial street in downtown Hanzhong City, with a total length of 2,080 meters and width of 30 meters and to resettle the existing residents in the Liangzhou Road area. The government’s original road construction budget was approximately $33million in accordance with the Liangzhou Agreement. The Company, in return, is being compensated by the local government to have an exclusive right on acquiring at least 394.5 Mu (approximately 65 acres) land use rights in a specified residential zone of Hanzhong City. The Liangzhou Road Project’s road construction started at the end of 2013. In 2014, the original scope and budget on the Liangzhou Road reformation and expansion project was extended, because the local government included more area and resettlement residences into the project, which resulted in additional investments from the Company. In return, the Company was authorized by the local government to develop and manage the commercial and residential properties surrounding the Liangzhou Road project.

 

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As of September 30, 2023, the actual costs incurred by the Company were approximately $ 172.3  million  (September 30, 2022 - 173.3 million). The Liangzhou Road related projects mainly consists of Oriental Garden Phase II, Liangzhou Mansion and Pearl Commercial Plaza surrounding the Liangzhou road area:

 

Oriental Garden Phase II

 

Oriental Garden Phase II project is planned to consist of 8 high-rise residential buildings and 6 commercial buildings with total planned GFA of 370,298 square meters. The project will also include a farmer’s market.

 

 

Liangzhou Mansion

 

Liangzhou Mansion project is planned to consist of 7 high-rise building and commercial shops on the first floor with total planned GFA of 160,000 square meters.

   

Pearl Commercial Plaza

 

Pearl Commercial Plaza is planned to consist one office building, one service apartment (or hotel), classical architecture style of Chinese traditional houses and shopping malls with total planned GFA of 124,191 square meters.

 

The Company plans to start these three real estate projects after the road construction passes the local government’s inspection and approval. These related projects may take 2-3 years to be fully completed.

 

Road Construction 

 

Other road construction projects mainly included the Yang County East 2nd Ring Road construction project. The Company was engaged by the Yang County local government to construct the East 2nd Ring Road with a total length of 2.15 km. The local government is required to repay the Company’s project investment costs within 3 years after completion of the project with interest at the interest rate based on the commercial borrowing rate with the similar term published by the China Construction Bank (which as of September 30, 2022 –was 4.75%). The local government’s repayment could be used by the Company to reduce local surcharges or taxes otherwise required in the real estate development. The road construction was substantially completed as of September 30, 2021 and is in the process of government review and approval.  For the year ended September 30, 2023, the Company received local government’ installment payments of approximately $2.1 million and the final payment approximately of $4.4 million is pending the local government’s approval. The installment received was included in the Company’s customer deposits as of September 30, 2022.

 

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In September 2012, the Company was approved by the Hanzhong local government to construct four municipal roads  with a total length of approximately 1,192 meters. The project was deferred and then restarted during the quarter ended March 31, 2014. As of September 30, 2023, the local government was still in the process of assessing the budget for these projects, which is expected to be completed in fiscal year of 2024.

 

Under development:   Estimated Completion time of construction
Hanzhong City Hanfeng Beiyuan East Road   The road construction was substantially completed and is pending local government’s acceptance.
Hanzhong City Liangzhou Road related projects   The road construction was substantially completed and is pending local government’s acceptance.
Hanzhong City Beidajie project   Under planning stage and waiting for local government’s zoning plan
Yang County East 2nd Ring Road   The road construction was substantially completed and is pending local government’s acceptance.

 

RESULTS OF OPERATIONS

 

Year ended September 30, 2023 as compared to year ended September 30, 2022

 

Revenues

 

We derive our revenues from three operating segments, (i) real estate sales and (ii) battery recycling. The following table sets forth our revenues by segment and as a percentage of total revenues for the periods indicated:

 

   For the Years Ended September 30,     
   2023   2022       Variance 
   Revenue   %   Revenue   %   Variance   % 
Real estate sales  $993,954    48.9%  $9,577,405    100.0%  $(8,583,451)   (91.7)%
Sales tax   (239,356)        (505,652)        266,296      
Battery recycling   788,582    51.1%       %   788,582    100.0%
Total revenues  $1,543,180    100%  $9,071,753    100.0%  $(7,528,573)   (83.0)%

 

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We generate more than half of our revenues from real estate sales in fiscal 2023. We also generate revenues from the sale of battery recycling which contributed 51.1% of our total revenues in fiscal 2023, there were no such revenues in fiscal 2022.The following table summarizes our revenue generated by different real estate projects:

 

   For the Years Ended September 30,     
   2023   2022       Variance 
   Revenue   %   Revenue   %   Variance   % 
Projects:                        
Yangzhou Pearl Garden Phase I and II  $8,777    0.9%  $    %  $8,777    100.0%
Oriental Pearl Garden       %   810,220    8.5%   (810,220)   (100.0)%
Nanyuan II Project       %       %       %
Mingzhu Garden (Nanyuan and Beiyuan) Phase I and II   4,996    0.5%   1,063,278    11.1%   (1,058,282)   (99.5)%
Yangzhou Palace   980,181    98.6%   7,703,907    80.4%   (6,723,726)   (87.3)%
Total Revenue   993,954    100.0%   9,577,405    100.0%   (8,583,451)   (89.6)%
Sales Tax   (239,356)       (505,652)       266,296    (52.7)%
Revenue net of sales tax  $754,598        $9,071,753        $(8,317,155)   (91.7)%

 

Real estate revenue is derived from the sale of residential buildings, commercial store-fronts and parking spaces in projects that we have developed. Compared to last year, revenues before sales tax decreased by $8.6 million to approximately $1.0 million for the year ended September 30, 2023. The total GFA sold for the remaining real estate projects during the year September 30, 2023 and 2022 was 1,538 square meters and 16,182 square meters, respectively. The sales tax for the years ended September 30, 2023 was approximately $0.2 million, decreased by 52.7% from fiscal 2022, consistent with the revenue decrease in fiscal 2023.  

 

The year-over-year decrease in revenue was mainly caused by the following reasons: 1) The macro-control of the real estate market by the Chinese government, mainly suppressed in the past 12 months; 2) China’s economic downturn due to recurring epidemic; 3) Lower disposable income resulted in the decreased demand for housing.

 

Cost of Revenues

 

The following table sets forth our cost of revenues by segment and as a percentage of total cost of revenues for the periods indicated:

 

   For the Years Ended September 30,     
   2023   2022       Variance 
   Revenue   %   Revenue   %   Variance   % 
Cost of Real estate sales  $796,623    50.5%  $5,489,411    100.0%  $(4,692,788)   (85.5)%
Cost of Battery recycling   781,173    49.5%       %   781,173    100.0%
Total cost of revenues  $1,577,796    100.0%  $5,489,411    100.0%  $(3,911,615)   (71.3)%

 

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The following table sets forth a breakdown of cost of real estate.

 

   For the Years Ended September 30,     
   2023   2022       Variance 
   Cost   Percentage   Cost   Percentage   Variance   % 
Land use rights  $80,282    10.1%  $582,548    10.6%  $(502,266)   (86.2)%
Construction costs   716,341    89.9%   4,906,863    89.4%   (4,190,522)   (85.4)%
Total  $796,623    100.0%  $5,489,411    100.0%  $(4,692,788)   (85.5)%

 

Our cost of sales consists primarily of costs associated with land use rights and construction costs. Cost of sales are capitalized and allocated to development projects using a specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales area of units to the estimated total sales area of the project or phase of the project times the total cost of the project or phase of the project.

 

Cost of sales was approximately $0.8 million for the year ended September 30, 2023 compared to $5.5 million for last year. It was mainly attributable to limited GFA sold for the year ended September 30, 2023.

 

Land use rights cost: The cost of land use rights includes the land premium we pay to acquire land use rights for our property development sites, plus taxes. Our land use rights cost varies for different projects according to the size and location of the site and the minimum land premium set for the site, all of which are influenced by government policies, as well as prevailing market conditions. Costs for land use rights for the year ended September 30, 2023 were approximately $0.1 million, as compared to approximately $0.6 million for fiscal 2022, representing an decrease of approximately $0.5 million from the same period of last year. The decrease was consistent with the fact that total GFA sold in fiscal 2023 was significantly decreased from previous year.

 

Construction cost: We outsource the construction of all of our projects to third party contractors, whom we select through a competitive tender process. Our construction contracts provide a fixed payment which covers substantially all labor, materials and equipment costs, subject to adjustments for some types of excess, such as design changes during construction or changes in government-suggested steel prices. Our construction costs consist primarily of the payments to our third-party contractors, which are paid over the construction period based on specified milestones. In addition, we purchase and supply a limited range of fittings and equipment, including elevators, window frames and door frames. Our construction costs for the year ended September 30, 2023 were approximately $0.7 million as compared to approximately $4.9 million for last year, representing a decrease of approximately $4.2 million. The decrease in construction cost was due to less real estate property units sold during fiscal 2023.

 

The following table sets forth the gross profit and gross margin by segment:

 

   For the Year Ended September 30     
   2023   2022         
   Gross   Gross   Gross   Gross       Variance 
   Profit   Margin   Profit   Margin   Variance   % 
Real estate  $(42,025)   (4.2)%  $3,582,342    37.4%  $(3,624,367)   (101.2)%
Battery recycling   7,409    0.9%       %   7,409    100.0%
Total Gross Profit  $(34,616)   (1.9)%  $3,582,342    37.4%  $(3,616,958)   (101.0)%

 

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Gross profit of real estate was approximately negative $0.04 million for the year ended September 30, 2023 as compared to gross profit of approximately $3.6 million in the prior year. The gross margin was negative 4.2% in fiscal 2023 as compared to gross margin of 37.4% in last year mainly attributable to enthusiasm in purchasing houses reduced drastically and the liquidity of real estate industry deteriorated extremely after the end of Covid-19.

 

   For the Year Ended September 30     
   2023   2022         
   Gross   Gross   Gross   Gross       Variance 
Project  Profit   Margin   Profit   Margin   Variance   % 
Yangzhou Pearl Garden Phase I and II  $1,371    15.6%  $    %  $1,371    100.0%
Yangzhou Palace   194,405    19.8%   3,028,858    39.3%   (2,834,453)   (93.6)%
Mingzhu Garden (Mingzhu Nanyuan and Beiyuan) Phase I and II   1,555    31.1%   431,523    40.6%   (429,968)   (99.6)%
Nanyuan II project       %       %       %
Oriental Pearl Garden       %   627,613    77.5%   (627,613)   (100.0)%
Sales Tax   (239,356)       (505,652)       266,296    (52.7)%
Impairment losses on real estate property development completed                       %
Total Gross Profit  $(42,025)   (4.2)%  $3,582,342    37.4%  $(3,624,367)   (101.2)%

 

Operating expenses

 

The following table presents our operating expenses by nature for the periods indicated:

 

   For the years ended
September 30,
 
   2023   2022 
General and administrative expenses  $10,307,380   $31,198,365 
Selling expenses   175,631    361,746 
Impairment of contract assets       5,264,748 
Impairment of real estate property under development   72,255,403    73,624,727 
Impairment of due from local governments for real estate property development completed   27,293,775     
Total operating expenses  $110,032,189   $110,449,586 
Percentage of revenue after sales tax   7,130.2%   1,217.5%

 

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General and administrative expenses were $10,307,380 for fiscal 2023 compared to $31,198,365 for fiscal 2022. The year-on-year decrease for fiscal 2023 was $20,890,985, mainly consisted of a $19.4 million (RMB126.9 million) decrease in share-based compensation to the Consultants in fiscal 2022.

 

Interest expense, net

 

Net interest income was less than $0.1 million for the year ended September 30, 2023 and 2022. 

 

Income taxes

 

PRC Taxes

 

Our Company is governed by the Enterprise Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. For the years ended September 30, 2023 and 2022, the Company is subject to income tax rate of 25% on taxable income. Although the possibility exists for reinterpretation of the application of the tax regulations by higher tax authorities in the PRC, potentially overturning the decision made by the local tax authority, the Company has not experienced any reevaluation of the income taxes for prior years. The PRC tax rules are different from the local tax rules and the Company is required to comply with local tax rules. The difference between the two tax rules will not be a liability of the Company. There will be no further tax payments for the difference. For the years ended September 30, 2023, the Company’s effective income tax rate was 0%.

 

Net income

 

We reported net loss of approximately $110.1million for the year ended September 30, 2023, as compared to the net loss approximately $108.1 million for fiscal 2022 due to aforementioned.

 

Other comprehensive income

 

We operate primarily in the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi (“RMB”). The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

 

Translation adjustments amounted to approximately $1.1 million and negative $11.4million for the years ended September 30, 2023 and 2022, respectively. The balance sheet amounts with the exception of equity at September 30, 2023 were translated at RMB7.2960 to 1.00 USD as compared to 7.1135 RMB to 1.00 USD at September 30, 2022. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the years ended September 30, 2023 and 2022 were 7.0533 RMB to 1.00 USD and 6.5532 RMB to 1.00 USD, respectively.

 

Liquidity and Capital Resources

 

Cash Flow

 

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Year ended September 30, 2023 as compared to year ended September 30, 2022

 

Comparison of cash flows results for the fiscal year ended September 30, 2023 and fiscal year ended September 30, 2022 are summarized as follows:

 

    For the years ended
September 30,
       
    2023     2022     Variance  
Net cash (used in) provided by operating activities   $ (5,481,098 )   $ (757,507 )   $ (4,723,591 )
Net Cash Used in Investing Activities    $       (26,936,915     26,936,915  
Net cash (used in) provided by financing activities   $ 5,307,470     $ 28,936,915     $ (23,629,445
Effect of changes of foreign exchange rate on cash   $ (1,516,859 )   $ (339,505   $ (1,177,354 )
Net (decrease) in cash   $ (1,690,487   $ 902,988     $ (2,593,475

 

Operating activities

 

Net cash used in operating activities during fiscal 2023 was approximately $5.5 million, consisting of net loss of approximately $110.1 million, net changes in our operating assets and liabilities, which mainly included a decrease in real estate property completed of approximately $2.6 million due to the sales of real estate properties, a $4.7 million increase in other payables to suppliers and an increase of $1.5 million in accrued expenses. 

 

Financing activities

 

Net cash provided by financing activities during fiscal 2023 was $5.3 million while net cash provided by financing activities during fiscal 2022 was $28.9 million.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

As an industry practice, the Company provides guarantees to PRC banks with respect to loans procured by the purchasers of the Company’s real estate properties for the total mortgage loan amount until the completion of obtaining the “Certificate of Ownership” of the properties from the government, which generally takes six to twelve months. Because the banks provide loan proceeds without getting the “Certificate of Ownership” as loan collateral during the six to twelve months’ period, the mortgage banks require the Company to maintain, as security for the Company’s obligations under such guarantees, restricted cash of at least 5% of the mortgage proceeds. If a purchaser defaults on its payment obligations, the mortgage bank may deduct the delinquent mortgage payment from the security deposit and require the Company to pay the excess amount if the delinquent mortgage payments exceed the security deposit. If the delinquent mortgage payments exceed the security deposit, the banks may require us to pay the excess amount. If multiple purchasers default on their payment obligations at around the same time, we will be required to make significant payments to the banks to satisfy our guarantee obligations. If we are unable to resell the properties underlying defaulted mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses. The Company has made necessary reserves in its restricted cash account to cover any potential mortgage defaults as required by the mortgage lenders. The Company has not experienced any delinquent mortgage loans and has not experienced any losses related to this guarantee. As of September 30, 2023 and September 30, 2022, our outstanding guarantees in respect of our customers’ mortgage loans amounted to approximately $24.2 million and $24.9 million, respectively. As of September 30, 2023 and September 30, 2022, the amount of security deposits provided for these guarantees was approximately $1.7 million and $1.8 million, respectively, and the Company believes that such reserves are sufficient.

 

Inflation

 

Inflation has not had a material impact on our business and we do not expect inflation to have a material impact on our business in the near future.

 

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Critical Accounting Policies and Management Estimates

 

Revenue recognition

 

The Company adopted FASB ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on October 1, 2018 using the modified retrospective approach. Under ASC 606, Revenue from Contracts with Customers, revenue is recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration that the Company expects to be entitled to for those goods and services. The Company determines revenue recognition through the following steps:

 

  identification of the contract, or contracts, with a customer;

 

  identification of the performance obligations in the contract;

 

  determination of the transaction price, including the constraint on variable consideration;

 

allocation of the transaction price to the performance obligations in the contract; and

 

  recognition of revenue when (or as) the Group satisfy a performance obligation.

 

The Company currently operates in three segments, the real estate development business and battery recycling. The Company engages in real estate development through the VIE, Guangsha, in mainland China, and is transitioning itself from its real estate development business to a new energy corporation and has appointed a CEO in its Delaware subsidiary to lead and operate the green energy business.

 

Most of the Company’s revenue is derived from real estate sales of condominiums and commercial property in the PRC. The majority of the Company’s contracts contain a single performance obligation involving significant real estate development activities that are performed together to deliver a real estate property to customers. Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. The control of the asset may transfer over time or at a point in time. For the sales of individual condominium units in a real estate development projects, the Company has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation (“percentage completion method”). Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset.

 

Under percentage completion method, revenue and profit from the sales of long-term real estate development properties is recognized by the percentage of completion method on the sale of individual units when all the following criteria are met:

 

  a. Construction is beyond a preliminary stage.

 

  b. The buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit or interest.

 

  c. Sufficient units have already been sold to assure that the entire property will not revert to rental property.

 

  d. Sales prices are collectible.

 

  e. Aggregate sales proceeds and costs can be reasonably estimated.

 

If any of the above criteria is not met, proceeds shall be accounted for as deposits until the criteria are met.

 

Under the percentage of completion method, revenues from individual real estate condominium units sold under development and related costs are recognized over the course of the construction period, based on the completion progress of a project. The progress towards complete satisfaction of the performance obligation is measured based on the Company’s efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of reporting period as a percentage of total estimated costs for each contract. In relation to any project, revenue is determined by calculating the ratio of incurred costs, including land use rights costs and construction costs, to total estimated costs and applying that ratio to the contracted sales amounts. Cost of sales is recognized by determining the ratio of contracted sales during the period to total estimated sales value and applying that ratio to the incurred costs. Current period amounts are calculated based on the difference between the life-to-date project totals and the previously recognized amounts.

 

61

 

 

Any changes in significant judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized. Changes in total estimated project costs or losses, if any, are recognized in the period in which they are determined.

 

Revenue from the sales of completed real estate condominium units is recognized at the time of the closing of an individual unit sale. This occurs when the customer obtains the physical possession, the legal title, or the significant risks and rewards of ownership of the assets and the Company has present right to payment and the collection of the consideration is probable. For municipal road construction projects, fees are generally recognized at the time of the projects are completed.

 

Contract balances

 

Timing of revenue recognition may differ from the timing of billing and cash receipts from customers. The Company records a contract asset when revenue is recognized prior to invoicing, or a contract liability when cash is received in advance of recognizing revenue. A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets include billed and billable receivables, which are the Company’s unconditional rights to consideration other than to the passage of time. Contract liabilities include cash collected in excess of revenues. Customer deposits are excluded from contract liabilities.

 

The Company has elected to apply the optional practical expedient for costs to obtain a contract which allows the Company to immediately expense sales commissions (included under selling expenses) because the amortization period of the asset that the Company otherwise would have used is one year or less. Contract assets and liabilities are generally classified as current based on our contract operating cycle.

 

The Company provides “mortgage loan guarantees” only with respect to buyers who make down-payments of 20%-50% of the total purchase price of the property. The period of the mortgage loan guarantee begins on the date the bank approves the buyer’s mortgage and we receive the loan proceeds in our bank account and ends on the date the “Certificate of Ownership” evidencing that title to the property has been transferred to the buyer. The procedures to obtain the Certificate of Ownership take six to twelve months (the “Mortgage Loan Guarantee Period”). If, after investigation of the buyer’s income and other relevant factors, the bank decides not to grant the mortgage loan, our mortgage-loan based sales contract terminates and there will be no guarantee obligation. If, during the Mortgage Loan Guarantee Period, the buyer defaults on his or her monthly mortgage payment for three consecutive months, we are required to return the loan proceeds back to the bank, although we have the right to keep the customer’s deposit and resell the property to a third party. Once the Certificate of Property has been issued by the relevant government authority, our loan guarantee terminates. If the buyer then defaults on his or her mortgage loan, the bank has the right to take the property back and sell it and use the proceeds to pay off the loan. The Company is not liable for any shortfall that the bank may incur in this event. To date, no buyer has defaulted on his or her mortgage payments during the Mortgage Loan Guarantee Period and the Company has not returned any loan proceeds pursuant to its mortgage loan guarantees.

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used for, but not limited to, the assumptions and estimates used by management in recognizing development revenue under the percentage of completion method, the selection of the useful lives of property and equipment, provision necessary for contingent liabilities, revenue recognition, taxes and budgeted costs. The Company plans to enter the medical industry through selling medical devices like vitro short-wave radiometer, high-pressure syringe and related consumables. In the future, it also plans to sell high-end medical equipment including gamma knife and apparatus for kidney. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.

 

Real estate property development completed and under development

 

Real estate property consists of finished residential unit sites, commercial offices and residential unit sites under development. The Company leases the land for the residential unit sites under land use right leases with various terms from the PRC government. The cost of land use rights is included in the development cost and allocated to each project. Real estate property development completed and real estate property under development are stated at the lower of cost or fair value.

 

Expenditures for land development, including cost of land use rights, deed tax, pre-development costs, and engineering costs, exclusive of depreciation, are capitalized and allocated to development projects by the specific identification method. Costs are allocated to specific units within a project based on the ratio of the sales area of units to the estimated total sales area of the project (or phase of the project) multiplied by the total cost of the project (or phase of the project).

 

Cost of amenities transferred to buyers is allocated to specific units as a component of total construction cost. The amenity cost includes landscaping, road paving, etc. Once the projects are completed, the amenities are under control of the property management companies.

 

Real estate property development completed and under development are subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the asset is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the asset. The Company reviewed all of its real estate projects for future losses and impairment by comparing the estimated future undiscounted cash flows for each project to the carrying value of such project. For the years ended September 30, 2023, the Company recognized $136.0   million impairment for real estate property under development.

 

62

 

 

Capitalization of Interest

 

Interest incurred during and directly related to real estate development projects is capitalized to the related real estate property under development during the active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest capitalized to real estate property under development is recorded as a component of cost of real estate sales when related units are sold. All other interest is expensed as incurred.

 

Subsequent Events

 

On November 17, 2023, the shareholders approved the Company’s 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan provides for the grant of awards which are distribution options, stock appreciation rights, restricted stock, restricted stock unit awards, stock bonus awards and performance compensation awards to key management employees and nonemployee directors, and nonemployee consultants and advisers of the Company. The Company has reserved a total of 8,360,000 shares of common stock for issuance under the 2023 Plan. On November 30, 2023, we filed with the SEC our registration statement on Form S-8 ( Registration No. 333-275803) to register the issuance.

 

On December 12, 2023, the Company entered into a securities purchase agreement with certain accredited investors to sell $5.95 million of its units, each consisting of one share of its common stock, $0.001 par value per share, one Class A common warrant to purchase one share of common stock and one Class B common warrant to purchase one share of common stock, and pre-funded units, each consisting of one pre-funded warrant, one Class A common warrant to purchase one share of common stock and one Class B common warrant to purchase one share of common stock. The Offering is being made pursuant to an effective shelf registration statement on Form S-3 (File No. 333-270324) previously filed with the U.S. Securities and Exchange Commission which was declared effective on May 2, 2023.

 

Under the terms of the securities purchase agreement, GGE has agreed to sell 35,000,000 units at a per unit purchase price of $0.17. The Class A common warrants will be exercisable immediately upon the increase of the Company’s authorized shares for a term of five years and have an initial exercise price of $0.17 subject to certain reset 30 trading days after the increase of the Company’s authorized shares. The Class B common warrants will be exercisable immediately upon the date of issuance for a term of five years and have an initial exercise price of $0.27. In addition to the customary cashless exercise rights provided in both the Class A common warrants and the Class B common warrants, the Class B common warrants will also provide an alternate cashless exercise allowing the holder to right to exercise at any time, on a cashless exercise basis for a larger number of shares of common stock under certain conditions. The Company agreed to hold a shareholders’ meeting within 120 days of closing of the Offering to increase the authorized share of common stock of the Company. The holders of the warrants agreed not to exercise cashlessly below $1.50 during the first 20 trading days after effectuation of a reverse split of the common stock. The Offering closed on December 14, 2023.

 

On December 5, 2023, the Company terminated a financial advisory agreement, which was originally entered into by and between the Company and Spartan Capital Securities LLC (“Spartan”) on January 15, 2023. Spartan is willing to waive all claims and liabilities against the Company in connection with the financial advisory agreement for a one-time lump sum payment as follows: (i) 1.50% of the gross proceeds raised from the next financing (other than commercial bank loan) of GGE and (ii) $75,000.00 (the “Settlement Payment”). The Settlement Payment shall be paid from the flow of funds of the next financing by wire transfer to Spartan’s bank account.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

63

 

 

Item 8. Financial Statements and Supplementary Data

 

GREEN GIANT INC.

 

TABLE OF CONTENTS

 

Report of Independent Registered Public Accounting Firms F-2
Consolidated Balance Sheets as of September 30, 2023 and 2022 F-4
Consolidated Statements of Operations and Comprehensive Loss for the Years ended September 30, 2023 and 2022 respectively F-5
Consolidated Statements of Stockholders’ Equity for the Years ended September 30, 2023 and 2022 F-6
Consolidated Statements of Cash Flows for the Years ended September 30, 2023 and 2022 F-7
Notes to Consolidated Financial Statements F-8 – F-28

 

F-1

 

 

Report of Independent Registered Public Accounting Firms

 

To the Board of Directors and Shareholders of Green Giant Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Green Giant. Inc and its subsidiaries (collectively the “Company”) as of September 30, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss   consolidated statements of changes in stockholders’ equity, and cash flows for each of the two years   in the period ended September 30, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2023 and 2022, and the consolidated results of its operations and its cash flows for the two years   in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2023, the Company had net assets of $15.7 million in which total assets of $205.1 million and total liability of $189.4 million. The Company incurred operating losses of $110.1 million and had negative operating cash flows of $5.5 million. 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 2. 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 consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matter

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates.

 

F-2

 

 

Going concern

 

As of September 30, 2023, the Company had net assets of $15.7 million in which total assets of $205.1 million and total liability of $189.4 million. The Company incurred operating losses of $110.1 million and had negative operating cash flows of $5.5 million. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  

 

This significant unusual situation is a critical audit matter as it relates to a material disclosure of going concern and involved complex estimation by management and auditor subjective.

 

How we Addressed the Matter in Our Audit

 

Our principal audit procedures included, among others:

 

 Obtain a thorough understanding of management’s process for evaluating the entity’s ability to continue as a going concern. Evaluate the reasonableness of management’s assessment by considering the entity’s current financial condition, obligations due or anticipated in the near future, and other significant factors;

 

Assessing the management’s plans and obtaining sufficient appropriate audit evidence to support the conclusion on the going concern assumption is appropriate;

 

Review the adequacy of the entity’s disclosures concerning its ability to continue as a going concern. Ensure that the disclosures are comprehensive, clear, and provide an accurate picture of the entity’s financial position.

 

Impairment of long-lived assets related to Real estate property under development  

 

At September 30, 2023, the Company’s book value of Real estate property under development was US$76.9 million. As discussed in Note 2 to the consolidated financial statements, real estate property under development is tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

The principal considerations for our determination that performing procedures relating to the impairment of long-lived assets related to Real estate property under development is a critical audit matter are there was significant judgment made by management estimating the discount rate and discounting period. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the significant assumptions in the value in use estimate.

 

How we Addressed the Matter in Our Audit

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These audit procedures included:

 

evaluating the estimation methodology and testing the aforementioned significant assumptions and the completeness, accuracy, and relevance of underlying data used.

 

significant assumptions were compared to current available economic trends data and known regulatory changes and evaluations were made of how changes to such assumptions, and other factors would affect the outcomes. 

 

assess the arithmetical correctness of the valuation model and the completeness of disclosures in the consolidated financial statements.

 

/s/ OneStop Assurance PAC

 

We have served as the Company’s auditors since 2022.

 

Singapore

December 28, 2023

PCAOB Register Number 6732

 

F-3

 

 

GREEN GIANT INC.

CONSOLIDATED BALANCE SHEETS

 

   September 30,   September 30, 
   2023   2022 
ASSETS        
Cash  $93,133   $1,360,217 
Restricted cash   2,584,557    3,007,960 
Contract assets   6,920,884    7,628,770 
Real estate property-development completed   72,132,068    74,772,530 
Inventory   7,272     
Other assets   2,454,530    3,767,190 
Prepayment   26,952,415    26,936,915 
Property, plant and equipment, net   449,395    483,219 
Security deposits   1,726,720    1,771,019 
Real estate property under development   76,857,916    145,300,588 
Due from local government- property development completed   14,913,578    42,358,986 
Total Assets  $205,092,468   $307,387,394 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Construction loans  $105,655,707   $108,366,351 
Accounts payable   10,326,702    10,606,635 
Other payables   18,243,185    13,578,713 
Amount due to related parties   414,466     
Construction deposits   2,953,784    3,029,565 
Contract liabilities   1,910,327    1,989,898 
Customer deposits   19,226,695    19,842,768 
Accrued expenses   12,031,621    10,547,436 
Taxes payable   18,636,024    19,980,358 
Total liabilities   189,398,511    187,941,724 
           
Commitments and Contingencies   
 
    
 
 
Stockholders’ equity*          
Common stock, $0.001 par value, 200,000,000 shares authorized; 55,793,268 and 46,464,929 shares outstanding as at September 30, 2023 and September 30, 2022   55,793    46,464 
Additional paid-in capital   190,119,912    184,821,771 
Statutory surplus   11,095,939    11,095,939 

Accumulated loss

   (177,554,205)   (67,432,727)
Accumulated other comprehensive loss   (8,023,482)   (9,085,777)
Total stockholders’ equity   15,693,957    119,445,670 
Total Liabilities and Stockholders’ Equity  $205,092,468   $307,387,394 

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-4

 

 

GREEN GIANT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED SEPTEMBER 30, 2023 and 2022

 

   2023   2022 
Real estate sales  $993,954   $9,577,405 
Revenue from Battery Recycling   788,582     
Less: Sales tax   239,356    505,652 
Cost of real estate sales   (796,623)   (5,489,411)
Cost of Battery Recycling   (781,173)    
Gross profit   (34,616)    3,582,342 
Operating expenses          
Selling and distribution expenses   175,631    361,746 
General and administrative expenses   10,307,380    31,198,365 
Impairment of contract assets       5,264,748 
Impairment of real estate property under development   72,255,403    73,624,727 
Impairment of due from local governments- property development completed   27,293,775     
Total operating expenses   110,032,189    110,449,586 
Operating loss   (110,066,805)   (106,867,244)
Interest (expense)income, net   (1,013)   5,927 
Other expense, net   (53,660)   (1,263,365)
Income before income taxes   (110,121,478)   (108,124,682)
Provision for income taxes   
 
    
 
 
Net loss   (110,121,478)   (108,124,682)
Other comprehensive income:          
Foreign currency translation adjustment   1,062,295    (11,434,674)
Comprehensive (loss) income  $(109,059,183)  $(119,559,356)
Basic and diluted income per common share*:          
Basic  $(2.00)  $(2.99)
Diluted  $(2.00)  $(2.99)
Weighted average common shares outstanding*:          
Basic   55,144,039    36,189,189 
Diluted   55,144,039    36,189,189 

 

The accompanying notes are an integral part of these consolidated financial statements

 

F-5

 

 

GREEN GIANT INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED SEPTEMBER 30, 2023 AND 2022

 

                  Accumulated     
   Common Stock   Additional
Paid-in
   Statutory   Retained
Earnings
   Other
Comprehensive
     
   Shares*   Amount   Capital   Reserve   (Accumulated loss)   Income (Loss)   Total 
Balance at September 30, 2021   25,617,807   $25,617   $136,535,303   $11,095,939   $40,691,955   $2,348,897   $190,697,711 
Issuance of shares for debt settlement   14,847,122    14,847    28,922,068                28,936,915 
Net income                   (108,124,682)       (108,124,682)
Appropriation to statutory reserve                            
Share-based compensation   6,000,000    6,000    19,364,400                19,370,400 
Foreign currency translation adjustments                       (11,434,674)   (11,434,674)
Balance at September 30, 2022   46,464,929   $46,464   $184,821,771   $11,095,939   $(67,432,727)  $(9,085,777)  $119,445,670 
Private placements   9,328,339    9,329    5,298,141                5,307,470 
Net income                   (110,121,478)       (110,121,478)
Foreign currency translation adjustments                       1,062,295    1,062,295 
Balance at September 30, 2023   55,793,268   $55,793   $190,119,912   $11,095,939   $(177,554,205)  $(8,023,482)  $15,693,957 

 

The accompanying notes are an integral part of these consolidated financial statements

F-6

 

 

GREEN GIANT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2023 and 2022

 

   2023   2022 
Cash flows from operating activities:        
Net loss  $(110,121,478)  $(108,124,682)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation   22,485    24,201 
Impairment   99,549,178    78,889,475 
Allowance for contract assets   1,823,720     
Share based compensation       19,370,400 
Contract assets   707,886    (51,931)
Real estate property development completed   2,640,462    5,503,345 
Real estate property under development   (3,812,731)   (13,039,391)
Prepayment   (15,500)    
Other assets   (511,060)   4,143,409 
Inventory   (7,272)    
Accounts payables   (279,933)   (6,439,990)
Amount due to related parties   414,466     
Other payables   4,664,472    8,357,875 
Contract liabilities   (79,571)   305,561 
Customer deposits   (616,073)   2,067,231 
Construction deposits        
Accrued expenses   1,484,185    9,482,260 
Taxes payables   (1,344,334)   (1,245,270)
Net cash (used in) operating activities   (5,481,098)   (757,507)
           
Cash Flows from Investing Activities:          
Prepayment for energy equipment       (26,936,915)
Net Cash (used in) Investing Activities       (26,936,915)
           
Cash flow from financing activities:          
Proceeds from private placements   5,307,470    28,936,915 
Net cash provide by financing activities   5,307,470    28,936,915 
           
Effect of changes in foreign exchange rate on cash   (1,516,859)   (339,505)
Net increase (decrease) in cash   (1,690,487)   902,988 
Cash, restricted cash, beginning of year   4,368,177    3,465,189 
Cash, restricted cash, end of year