DRS 1 filename1.htm

This Draft Registration Statement is confidentially submitted to the U.S. Securities and Exchange Commission pursuant to Section 106(a) of the Jumpstart Our Business Startups Act of 2012 on September 27, 2019,

and is not being filed publicly under the Securities Act of 1933, as amended

Registration No. 333-[●]

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

CN ENERGY GROUP. INC.

(Exact name of registrant as specified in its charter)

British Virgin Islands |  | 2860 |  | Not Applicable
(State or other jurisdiction of incorporation or organization) |  | (Primary Standard Industrial Classification Code Number) |  | (I.R.S. Employer Identification Number)

FPI Center, Room A-901, No. 459 Qianmo Road

Binjiang District, Hangzhou City, Zhejiang Province

PRC
+86-571-87555824

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Hunter Taubman Fischer & Li LLC
1450 Broadway, 26th Floor
New York, NY 10018
(212) 530-2206

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With a Copy to:

Ying Li, Esq. Guillaume de Sampigny, Esq. Hunter Taubman Fischer & Li LLC 1450 Broadway, 26th Floor New York, NY 10018 212-530-2206 | Mitchell S. Nussbaum, Esq. Loeb & Loeb LLP 345 Park Avenue New York, NY 10154 212-407-4000

Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. | x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. | ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. | ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. | ¨
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. |
Emerging growth company | x
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. | ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to Be Registered |  | Amount to Be Registered |  |  | Proposed Maximum Offering Price per Share |  |  | Proposed Maximum Aggregate Offering Price(1) |  |  | Amount of Registration Fee |
Ordinary Shares, no par value |  |  | — |  |  |  | — |  |  | $ |  |  |  | $ |  |
Placement Agent Warrants(2) |  |  | 1 |  |  |  | — |  |  |  | — |  |  |  | — |
Ordinary Shares, no par value, underlying the Placement Agent Warrants(2) |  |  | — |  |  |  | — |  |  | $ |  |  |  | $ |  |
Total |  |  | — |  |  |  | — |  |  | $ |  |  |  | $ |  |

(1) | Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act.
(2) | The Registrant will issue to Network 1 Financial Securities, Inc. (the “Placement Agent”) warrants to purchase a number of Ordinary Shares equal to an aggregate of [●]% of the Ordinary Shares (the “Placement Agent Warrants”) sold in the offering. The exercise price of the Placement Agent Warrants is equal to [●]% of the offering price of the Ordinary Shares offered hereby. Assuming a maximum placement and an exercise price of $[●] per share, we would receive, in the aggregate, $[●] upon exercise of the Placement Agent Warrants. The Placement Agent Warrants are exercisable within [●] years commencing from the effective date of the offering at any time, and from time to time, in whole or in part.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED [●], 2019

Ordinary Shares

(minimum offering amount)

Ordinary Shares

(maximum offering amount)

CN ENERGY GROUP. INC.

This is an initial public offering of our ordinary shares, no par value (“Ordinary Shares”). We are offering our Ordinary Shares on a best efforts basis without a firm commitment by the Placement Agent who has no obligation or commitment to purchase any of our shares. The Placement Agent must sell the minimum number of shares offered ([●] Ordinary Shares), if any are sold, and are only required to use their best efforts to sell the shares offered. See “Plan of Distribution.” Prior to this offering, there has been no public market for our Ordinary Shares. We expect the initial public offering price will be $[●] per Ordinary Share. We have reserved the symbol “CNEY” for purposes of listing our Ordinary Shares on NYSE American and plan to apply to list our Ordinary Shares on NYSE American. One of the conditions to our obligation to sell any securities through the Placement Agent is that, upon the closing of the offering, the Ordinary Shares would qualify for listing on NYSE American.

We do not intend to close this offering unless we sell at least the minimum number of Ordinary Shares, at the price per Ordinary Share set forth above, to result in sufficient proceeds to list our Ordinary Shares on NYSE American. The offering may terminate on the earlier of (i) any time after the minimum offering amount of our Ordinary Shares is raised, or (ii) [180] days from the effective date of the registration statement, unless extended by us and the Placement Agent for an additional [60] days. If we can successfully raise the minimum offering amount within the offering period, the proceeds from the offering will be released to us after deducting certain escrow fees. The proceeds from the sale of the Ordinary Shares in this offering (limited to funds received on our behalf) will be payable to “[●], as Escrow Agent,” and will be deposited in a separate non-interest bearing trust bank account until the minimum offering amount is raised. If we do not raise the minimum offering amount of $[●], we will not conduct a closing of this offering and will return to investors all amounts previously deposited by them in escrow, without interest or deduction.

Investing in our Ordinary Shares involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors” beginning on page 12 to read about factors you should consider before buying our Ordinary Shares.

We are an “emerging growth company” as defined under the federal securities laws and will be subject to reduced public company reporting requirements. Please read the disclosures beginning on page 33 of this prospectus for more information.

|  | Number of Ordinary Shares |  | Initial Public Offering Price |  | Underwriting Discounts and Commissions(1) |  | Proceeds to Our Company Before Expenses(2) |
Minimum |  |  |  | $ |  | $ |  | $ |
Maximum |  |  |  | $ |  | $ |  | $ |

(1) | See “Plan of Distribution” in this prospectus for more information regarding our arrangements with the Placement Agent.

(2) | The total estimated expenses related to this offering are set forth in “Plan of Distribution—Commissions and Expenses.”

In addition to the placement agent commissions listed above and the non-accountable expense allowance described in the footnote, we have agreed to issue share purchase warrants, exercisable commencing 180 days immediately following the closing of this offering for a period of five years after the closing of the offering, to purchase Ordinary Shares equal to 5% of the total number of shares sold in this offering and may be exercisable at a per share price equal to 120% of the public offering price (the “Placement Agent Warrants”). The registration statement of which this prospectus is a part also covers the Placement Agent Warrants and the Ordinary Shares issuable upon the exercise thereof. For additional information regarding our arrangement with the Placement Agent, please see “Plan of Distribution” beginning on page 119.

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The Placement Agent expects to deliver the Ordinary Shares to purchasers on , 2019.

Prospectus dated [●], 2019

TABLE OF CONTENTS

| Page
PROSPECTUS SUMMARY | 5
SUMMARY FINANCIAL DATA | 11
RISK FACTORS | 12
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS | 33
ENFORCEABILITY OF CIVIL LIABILITY | 34
USE OF PROCEEDS | 35
DIVIDEND POLICY | 36
EXCHANGE RATE INFORMATION | 37
CAPITALIZATION | 38
DILUTION | 39
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 41
INDUSTRY | 57
BUSINESS | 64
REGULATIONS | 78
MANAGEMENT | 89
PRINCIPAL SHAREHOLDERS | 94
RELATED PARTY TRANSACTIONS | 96
DESCRIPTION OF SHARE CAPITAL | 97
SHARES ELIGIBLE FOR FUTURE SALE | 108
TAXATION | 110
PLAN OF DISTRIBUTION | 117
EXPENSES RELATING TO THIS OFFERING | 123
LEGAL MATTERS | 123
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 123
EXPERTS | 123
WHERE YOU CAN FIND ADDITIONAL INFORMATION | 123
INDEX TO FINANCIAL STATEMENTS | F-1

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About this Prospectus

We and the Placement Agent have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the Ordinary Shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Other Pertinent Information

Unless otherwise indicated or the context requires otherwise, references in this prospectus to:

| · | “China” or the “PRC” are to the People’s Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau for the purposes of this prospectus only;
| · | “CN Energy” are to CN ENERGY GROUP. INC. (also referred to as 中北能源集团有限公司 in Chinese), a company limited by shares organized under the laws of British Virgin Islands;
| · | “CN Energy Development” are to CN Energy Industrial Development Co., Ltd. (also referred to as 中北能源产业发展有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is jointly owned by Zhejiang CN Energy and Manzhouli CN Technology (as defined below);
| · | “Energy Holdings” are to CN Energy’s wholly owned subsidiary, CLEAN ENERGY HOLDINGS LIMITED (also referred to as 清洁能源控股有限公司 in Chinese), a Hong Kong corporation;
| · | “Hangzhou Forasen” are to Hangzhou Forasen Technology Co., Ltd. (also referred to as 杭州富来森科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Khingan Forasen (as defined below);
| · | “Khingan Forasen” are to Greater Khingan Range Forasen Energy Technology Co., Ltd. (also referred to as 大兴安岭富来森能源科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by CN Energy Development;
| · | “Manzhouli CN Energy” are to Manzhouli CN Energy Industrial Co., Ltd. (also referred to as 满洲里市中北能实业有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Energy Holdings;
| · | “Manzhouli CN Technology” are to Manzhouli CN Energy Technology Co., Ltd. (also referred to as 满洲里市中北能科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is jointly owned by Zhejiang CN Energy (as defined below) and Manzhouli CN Energy;
| · | “shares,” “Shares,” or “Ordinary Shares” are to the Ordinary Shares of the Company, no par value;
| · | “Tahe Biopower Plant” are to Greater Khingan Range Forasen Energy Technology Co., Ltd. Tahe Biopower Plant (also referred to as 大兴安岭富来森能源科技有限公司塔河生物发电厂 in Chinese), the branch office of Khingan Forasen;
| · | “we,” “us,” or the “Company” are to one or more of CN Energy, and its subsidiaries, as the case may be;

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| · | “Zhejiang CN Energy” are to Zhejiang CN Energy Technology Development Co., Ltd. (also referred to as 浙江中北能源科技开发有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Energy Holdings; and
| · | “Zhongxing Energy” are to Manzhouli Zhongxing Energy Technology Co., Ltd. (also referred to as 满洲里市众兴能源科技有限公司 in Chinese), a company with limited liability organized under the laws of the PRC, which is wholly owned by Khingan Forasen.

Our business is conducted by Khingan Forasen, our wholly owned indirect subsidiary in the PRC, and its subsidiaries, using Renminbi (“RMB”), the currency of the PRC. Our consolidated financial statements are presented in United States dollars. In this prospectus, we refer to assets, obligations, commitments and liabilities in our consolidated financial statements in United States dollars. All translations from RMB to United States dollars using the exchange rate refer to the exchange rates discussed in “Exchange Rate Information.” We make no representation that the RMB amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements included elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our Ordinary Shares, discussed under “Risk Factors,” before deciding whether to buy our Ordinary Shares.

Overview

Our Company

Through our wholly owned PRC subsidiary, Khingan Forasen, we are a manufacturer and supplier of activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production (“Activated Carbon Production”), and a producer of biomass electricity generated in the process of producing activated carbon (“Biomass Electricity Production”).

Our primary raw materials are forestry residues, little fuelwood, and wood wastes, which we source from our suppliers. Our current facilities are located in Tahe County, Heilongjiang Province, at close proximity to the Greater Khingan Range, where our suppliers are primarily located. We also source raw materials from Inner Mongolia Autonomous Region (“Inner Mongolia”).

Our main product is activated carbon produced to conform to our customers’ specifications. Our activated carbon customers are primarily activated carbon wholesalers, food and beverage producers, industrial manufacturers, pharmaceutical manufacturers, companies engaging in environment protection, and companies engaging in the activated carbon deep processing business. Our customers are all based in the PRC and currently mainly located in Jiangsu Province, Fujian Province, Zhejiang Province, and Shanghai.

The biomass electricity we generate in the process of producing activated carbon is supplied to State Grid Heilongjiang Electric Power Company Limited (“State Grid Heilongjiang”), a subsidiary of State Grid Corporation of China in Heilongjiang Province.

Our revenue is primarily generated through sales of our activated carbon.

For the six months ended March 31, 2019 and 2018, we sold 3,816 and 1,418 tons of activated carbon and 1,159,917 and 1,150,358 kWh of biomass electricity, respectively. For the same period, we had total revenues of $4,768,077 and $1,808,125, and net income of $684,137 and a net loss of $399,461, respectively. The revenues derived from Activated Carbon Production accounted for 97.7% and 91.47% of our total revenues for the six months ended March 31, 2019 and 2018, respectively. The revenues derived from Biomass Electricity Production accounted for 2.3% and 6.29% of our total revenues for the six months ended March 31, 2019 and 2018, respectively.

For the fiscal years ended September 30, 2018 and 2017, we sold 6,200 and 895 tons of activated carbon and 3,872,866 and 2,455,612 kWh of biomass electricity, respectively. For the same years, we had total revenues of $8,091,937 and $1,370,563, and net income of $1,562,618 and a net loss of $811,993, respectively. During fiscal year 2018, we increased our effort to develop the market and seek new customers, and our sales of activated carbon grew rapidly. The revenue derived from Activated Carbon Production accounted for 95% and 76% of our total revenue for the fiscal years ended September 30, 2018 and 2017, respectively. The revenue derived from Biomass Electricity Production accounted for 5% and 17% of our total revenue for the fiscal years ended September 30, 2018 and 2017, respectively.

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Competitive Strengths

We believe that the following competitive strengths have contributed to our success and differentiated us from our competitors:

| · | advanced technology and established relationship with a research center;
| · | strategically placed facilities and lower costs;
| · | high-quality activated carbon products and biomass electricity; and
| · | strong management and professional team with extensive industry experience.

Growth Strategies

Our goal is to become one of China’s leading activated carbon and biomass energy producers. Accomplishing this goal requires the successful implementation of the following strategies:

Corporate Information

Our principal executive offices are located at FPI Center Room A-901, No. 459 Qianmo Road, Binjiang District, Hangzhou City, Zhejiang Province, PRC, and our phone number is +86-571-87555824. Our registered office in the British Virgin Islands is located at Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands, and the phone number of our registered office is +1 284-495-8295. We maintain a corporate website at www.cneny.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this prospectus.

Corporate History and Structure

A reorganization of our legal structure was completed on August 12, 2019 (the “Reorganization”). The Reorganization involved the incorporation of CN Energy, a British Virgin Islands holding company; the incorporation of Energy Holdings, a Hong Kong holding company; the incorporation of Zhejiang CN Energy and Manzhouli CN Energy, two new wholly foreign-owned enterprises (“WFOE”) formed by Energy Holdings under the laws of the PRC; the incorporation of Manzhouli CN Technology, a PRC company, of which 90% of the equity interests are owned by Manzhouli CN Energy, and the remaining 10% by Zhejiang CN Energy; the incorporation of CN Energy Development, a PRC company, of which 70% of the equity interests are owned by Manzhouli CN Technology and the remaining 30% by Zhejiang CN Energy; and the transfer of 100% of the equity interest of Khingan Forasen from its original shareholders to CN Energy Development in exchange for 139,627 ordinary shares of CN Energy.

After the Reorganization, CN Energy, the ultimate holding company, owns 100% of the equity interest of Khingan Forasen, which in turn owns 100% of the equity interest of Hangzhou Forasen and Manzhouli Zhongxing Energy Technology Co., Ltd. (“Zhongxing Energy”).

The following diagram illustrates our corporate structure as of the date of this prospectus and upon completion of this offering based on a proposed maximum number of [●] Ordinary Shares being offered. For more details on our corporate history, please refer to “Business—Corporate History and Structure.”

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Notes:

(1) | Represents 50,000 Ordinary Shares held by Yefang Zhang, the 100% owner of Global Clean Energy Limited, as of the date of this prospectus.

(2) | Represents 20,972 Ordinary Shares held by Wangfeng Yan, the 100% owner of Elk International Capital Limited, as of the date of this prospectus.

(3) | Represents 15,359 Ordinary Shares held by Kaiyu Liu, the 100% owner of Sentong Industrial Limited, as of the date of this prospectus.

(4) | Represents 15,359 Ordinary Shares held by Yiyue Ye, the 100% owner of Xieying Energy Limited, as of the date of this prospectus.

(5) | Represents 11,058 Ordinary Shares held by Jing Wang, the100% owner of Yunda Industrial Limited, as of the date of this prospectus.

(6) | Represents 7,987 Ordinary Shares held by Jingmin Liu, the 100% owner of Xinhe Industrial Limited, as of the date of this prospectus.

For details of each shareholder’s ownership, please refer to the beneficial ownership table in the section captioned “Principle Shareholders.”

Implications of Our Being an “Emerging Growth Company”

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to larger public companies. In particular, as an emerging growth company, we:

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| · | may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or “MD&A;”
| · | are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives, which is commonly referred to as “compensation discussion and analysis”;
| · | are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
| · | are not required to obtain a non-binding advisory vote from our shareholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on frequency” and “say-on-golden-parachute” votes);
| · | are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and chief executive officer pay ratio disclosure;
| · | are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act; and
| · | will not be required to conduct an evaluation of our internal control over financial reporting until our second annual report on Form 20-F following the effectiveness of our initial public offering.

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions until we no longer meet the definition of an emerging growth company. The JOBS Act provides that we would cease to be an “emerging growth company” at the end of the fiscal year in which the fifth anniversary of our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, herein referred to as the Securities Act occurred, if we have more than $1.07 billion in annual revenues, have more than $700 million in market value of our Ordinary Share held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period.

Foreign Private Issuer Status

We are a foreign private issuer within the meaning of the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:

| ● | we are not required to provide as many Exchange Act reports, or as frequently, as a U.S. domestic public company;
| ● | for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
| ● | we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
| ● | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
| ● | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; and
| ● | we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

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THE OFFERING

Ordinary Shares offered by us |  | Minimum: [●] million Maximum: [●] million
Ordinary Shares outstanding before this offering |  | 139,627
Ordinary Shares outstanding after this offering |  | Minimum: [●] million Maximum: [●] million
Price per Ordinary Share |  | $[●] per Ordinary Share.
Best efforts |  | The Placement Agent is selling our Ordinary Shares on a “best efforts” basis. Accordingly, the Placement Agent has no obligation or commitment to purchase any securities. The Placement Agent is not required to sell any specific number or dollar amount of Ordinary Shares but will use its best efforts to sell the Ordinary Shares offered. We do not intend to close this offering unless we sell at least the minimum number of Ordinary Shares, at the price per Ordinary Share set forth on the cover page of this prospectus, to result in sufficient proceeds to list our Ordinary Shares on NYSE American.
Offering period |  | The Ordinary Shares are being offered for a period of [180] days commencing on the effective date of the registration statement, unless extended by us and the Placement Agent for an additional [60] days. If the minimum offering amount ($[●]) is not raised within [180] days (or [240] days) from the effective date of the registration statement, all subscription funds from the escrow account will be returned to investors promptly without interest or deduction of fees. The offering may close or terminate, as the case may be, on the earlier of (i) any time after the minimum offering amount of our Ordinary Shares is raised, or (ii) [180] days (or [240] days if extended) from the effective date of the registration statement although we retain the right to terminate the offering prior to the expiration of the [180]-day (or [240]-day if extended) period. If we raise the minimum offering amount within the offering period, the proceeds from the offering will be released to us.
Escrow account |  | The gross proceeds from the sale of the Ordinary Shares in this offering will be deposited in a non-interest bearing escrow account maintained by the escrow agent, [●], at [●]. All checks will be deposited directly into the escrow account and all wire transfers will be wired directly to the escrow account. The funds will be held in escrow until the escrow bank, [●], has advised us and the escrow agent that it has received a minimum of $[●], the minimum offering, in cleared funds. Unless the offering period is extended by us and the Placement Agent for an additional [60] days, if we do not receive the minimum of $[●] by [●], 2020, all funds will be returned to purchasers in this offering on the next business day after the termination of the offering, without charge, deduction or interest. Prior to [●], 2020, in no event will funds be returned to you unless the offering is terminated. You will only be entitled to receive a refund of your subscription price if we do not raise a minimum of $[●] by [●], 2020 (or [●], if extended). No interest will be paid either to us or to you. See “Plan of Distribution—Escrow Agent and Deposit of Offering Proceeds.”

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Listing |  | We will apply to have our Ordinary Shares listed on NYSE American.
NYSE American symbol |  | “CNEY”
Transfer agent |  | [●]
Use of proceeds |  | We intend to use the proceeds from this offering for working capital and general corporate purposes, including the expansion of our business. To the extent that we are unable to raise the maximum proceeds in this offering, we may not be able to achieve all of our business objectives in a timely manner. See “Use of Proceeds” on page 35 for more information.
Lock-up |  | All of our directors and officers and our [other shareholders] have agreed with the Placement Agent, subject to certain exceptions, not to sell, transfer, or dispose of, directly or indirectly, any of our Ordinary Shares or securities convertible into or exercisable or exchangeable for our Ordinary Shares for a period of 180 days after the effective date of this registration statement. See “Shares Eligible for Future Sale” and “Plan of Distribution” for more information.
Risk factors |  | The Ordinary Shares offered hereby involve a high degree of risk. You should read “Risk Factors,” beginning on page 12 for a discussion of factors to consider before deciding to invest in our Ordinary Shares.

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SUMMARY FINANCIAL DATA

The following tables set forth selected historical statements of operations for the fiscal years ended September 30, 2018 and 2017, and balance sheet data as of September 30, 2018 and 2017, which have been derived from our audited consolidated financial statements for those periods. The following summary consolidated financial data for the six months ended March 31, 2019 and 2018, have been derived from our unaudited condensed consolidated interim financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in the prospectus.

(All amounts in U.S dollars)

Statements of Operations Data:

|  | For the Six Months Ended March 31, 2019 |  |  | For the Six Months Ended March 31, 2018 |
Revenues |  | $ | 4,768,077 |  |  | $ | 1,808,125 |
Gross profit |  | $ | 1,411,701 |  |  | $ | (409,164 | )
Operating expenses |  | $ | 970,980 |  |  | $ | 158,614 |
Income from operations |  | $ | 440,721 |  |  | $ | (567,778 | )
Provision for Income taxes |  | $ | 21,526 |  |  | $ | (108,050 | )
Net income (loss) |  | $ | 684,137 |  |  | $ | (399,461 | )

|  | For the Year Ended September 30, 2018 |  |  | For the Year Ended September 30, 2017 |
Revenues |  | $ | 8,091,937 |  |  | $ | 1,370,563 |
Gross profit |  | $ | 1,817,453 |  |  | $ | (277,808 | )
Operating expenses |  | $ | 762,175 |  |  | $ | 741,830 |
Income from operations |  | $ | 1,055,278 |  |  | $ | (1,019,638 | )
Provision for Income taxes |  | $ | 112,629 |  |  | $ | (113,113 | )
Net income (loss) |  | $ | 1,562,618 |  |  | $ | (811,993 | )

Balance Sheet Data:

|  | As of March 31, 2019 |  |  | As of September 30, 2018 |
Current assets |  | $ | 10,382,405 |  |  | $ | 12,406,833 |
Total assets |  | $ | 22,636,839 |  |  | $ | 24,348,545 |
Current liabilities |  | $ | 4,496,488 |  |  | $ | 7,308,344 |
Total liabilities |  | $ | 4,496,488 |  |  | $ | 7,308,344 |
Total shareholders’ equity |  | $ | 18,140,351 |  |  | $ | 17,040,201 |

|  | As of September 30, 2018 |  |  | As of September 30, 2017 |
Current assets |  | $ | 12,406,833 |  |  | $ | 12,606,682 |
Total assets |  | $ | 24,348,545 |  |  | $ | 26,574,165 |
Current liabilities |  | $ | 7,308,344 |  |  | $ | 10,518,490 |
Total liabilities |  | $ | 7,308,344 |  |  | $ | 10,518,490 |
Total shareholders’ equity |  | $ | 17,040,201 |  |  | $ | 16,055,675 |

11

RISK FACTORS

An investment in our Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Ordinary Shares to decline, resulting in a loss of all or part of your investment. The risks described below and in the other information in this prospectus referenced above are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Ordinary Shares if you can bear the risk of loss of your entire investment.

Risks Related to Our Business

Our financial results could be materially and adversely affected by an interruption of supply of raw materials.

We are dependent on a variety of raw materials (including forestry residues, little fuelwood, and wood wastes) that support our manufacturing activities. Our ability to meet our customers’ needs depends heavily on an uninterrupted supply of these materials. Although we source strategic raw materials from multiple suppliers whenever possible and have instituted back-up procedures or contracted with a secondary supplier for any raw material that is sourced primarily from one location or supplier, production problems, lack of capacity, breach of contractual obligations by our third-party suppliers, changes in their financial or business condition or planned and unplanned shutdowns of their production facilities that affect their ability to supply us with raw materials that meet our specifications, or at all, could disrupt our ability to supply products to our customers. In addition, interruptions in raw material supply caused by events outside our suppliers’ control, such as wildfires, labor disputes, or transportation disruptions, could also disrupt our ability to meet customer demand. These supply disruptions could cause us to miss deliveries and breach our contracts, which could damage our relationships with our customers and subject us to claims for damages under our contracts. If any of these events were to occur for more than a temporary period, we may not be able to make arrangements for transition supply and qualified replacement suppliers on terms acceptable to us or at all, which could have a material adverse effect on our business and financial results.

Increases in the prices of raw materials could materially and adversely affect our financial results.

If the prices we have to pay for raw materials under our existing supply contracts or under replacement supply contracts increase, we could face significantly higher production costs. Although our long-term supply contracts typically provide for a specific price, increases in raw material prices could adversely affect our ability to renew these contracts on similar terms or at all. Similarly, increases in raw material prices could adversely affect our ability to enter into shorter-term supply agreements at favorable prices. We may not be able to pass the whole price increase through to our customers, which could have a material adverse effect on our financial results.

A majority of our activated carbon sales are currently derived from a small number of customers. If any of these customers experiences a material business disruption, we would likely incur substantial losses of revenues.

For the six months ended March 31, 2019, we had 23 activated carbon customers, with three major customers accounting for 24%, 11% and 10% of our activated carbon sales during the period. For the fiscal year ended September 30, 2018, one major customer accounted for approximately 44% of our total sales. For the fiscal year ended September 30, 2017, three different customers accounted for approximately 60%, 17% and 13% of our total sales, respectively. Our major customers may change as we adjust marketing strategies, and any material business disruption affecting our major customers or any decrease in sales to our major customers may negatively impact our operations and cash flows if we fail to increase our sales to other customers.

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We have sourced our raw materials primarily from a limited number of suppliers. If we lose one or more of the suppliers, our operation may be disrupted, and our results of operations may be adversely and materially impacted.

For the six months ended March 31, 2019, we sourced 19%, 17%, and 15% of our raw materials from our top three suppliers, respectively. For the fiscal year ended September 30, 2018, we sourced 22%, 21%, and 12% of our raw materials from our top three suppliers, respectively; for the fiscal year ended September 30, 2017, we sourced 22%, 21%, and 20% of our raw materials from our top three suppliers, respectively. If we lose one or more of these suppliers and are unable to swiftly engage new suppliers, our production operation may be disrupted or even suspended, and we may not be able to deliver products to our customers on time. We may also have to pay a higher price to source from a different supplier on short notice. While we are actively searching for and negotiating with new suppliers, there is no guarantee that we will be able to locate appropriate new suppliers in our desired timeline. As a result, our results of operations may be adversely and materially impacted.

A disruption or delay in production at our existing production facilities could have a material adverse effect on our financial results.

If our production facilities were to cease production unexpectedly in whole or in part, our sales and financial results could be materially and adversely affected. Such a disruption could be caused by a number of different events, including:

| · | maintenance outages;
| · | prolonged power failures;
| · | equipment failures or malfunctions;
| · | fires, floods, tornadoes, earthquakes, or other catastrophes;
| · | potential unrest or terrorist activities;
| · | labor difficulties; or
| · | other construction, design, or operational problems, including those related to the granting, or the timetable for granting, of permits.

If any of these or other events were to result in a material disruption of our current manufacturing operations, production of our products may be delayed and our ability to meet our production capacity targets and satisfy customer requirements may be materially adversely affected or we may be required to recognize impairment charges, any of which could have a material adverse effect on our financial results. In addition, a prolonged shutdown of any of our production facilities could cause us to miss deliveries and breach our contracts, which could damage our relationships with our customers and subject us to claims for damages under our contracts. Any of these events could have a material adverse effect on our business and financial results.

We may incur delays and budget overruns with respect to facilities under construction. Any such delays or cost overruns may have a material adverse effect on our operating results.

We are currently constructing new facilities in Manzhouli City. Such construction projects entail significant risks that can give rise to delays or cost overruns, including the following:

| ● | insufficient capital to complete construction;
| ● | shortage of material or skilled labor;
| ● | unforeseen engineering, environmental, or geological problems;
| ● | work stoppages;
| ● | weather interference;
| ● | floods, typhoons, and other natural disasters;
| ● | delays or failures in obtaining the requisite construction licenses, permits, and certificates;
| ● | unanticipated cost increases; and
| ● | legal or political challenges.

The anticipated costs and construction periods are based upon budgets, conceptual design documents, and construction estimates prepared by us in consultation with our architects and contractors. Construction, equipment, staffing requirements, and problems or difficulties in obtaining and maintaining any of the requisite licenses, permits, allocations, or authorizations from regulatory authorities can increase the costs or delay the construction or commencement of production or otherwise affect the planned design and features of the facilities. We cannot be sure that we will not exceed the budgeted costs of these facilities or that the facilities will commence production within the contemplated time frame, if at all. Budget overruns and delays with respect to the construction of new facilities could have a material adverse impact on our results of operations.

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Uncertainties as to the future of existing and planned environmental and health and safety laws and regulations, as well as delays of or changes to these laws and regulations, could have a material adverse effect on demand for our products.

Our strategic growth initiatives rely significantly upon the enactment of restrictive environmental and health and safety laws and regulations, particularly those that would require industrial facilities to reduce the quantity of air and water pollutants they release. If stricter regulations are delayed, are not enacted as proposed, are enacted but subsequently repealed or amended to be less strict or are enacted with prolonged phase-in periods, demand for our products could be materially and adversely affected and we may not be able to meet sales growth and return on invested capital targets, which could materially and adversely affect our financial results.

For example, a significant market driver for our activated carbon products and biomass electricity is the State Council of the PRC (the “State Council”)’s Notice on Issuing the Work Plan for Greenhouse Gas Emission Control During the 13th Five-Year Plan Period (the “Work Plan”), which supports the development of clean energy, including biomass electricity, and restricts the emission of industrial pollutants. Although the Work Plan would potentially promote the use of activated carbon products, we are unable to predict with certainty when and how this Work Plan will affect demand for our products. Changes to, or delays in implementing, the Work Plan could reduce or delay an expected increase in future demand for our products, which could have a material adverse effect on our business and financial results.

On the other hand, increased costs to utilities and other potential customers in complying with environmental regulations could limit production and reduce or delay an expected increase in demand for our products, which could also have a material adverse effect on our business and financial results.

Disclosure of our trade secrets and other proprietary information, or a failure to adequately protect these or our other intellectual property rights, could result in increased competition and have a material adverse effect on our business and financial results.

Our ability to compete effectively depends in part on our ability to obtain, maintain, and protect our trade secrets, proprietary information, and other intellectual property rights. We rely on a combination of trade secret, patent, trademark, and copyright laws, as well as contractual restrictions and physical security measures, to protect our proprietary information and other intellectual property rights.

Where we believe patent protection is not appropriate or obtainable, we rely on trade secret laws and practices to protect our proprietary technology and processes, including physical security, limited dissemination and access and confidentiality agreements with our employees, customers, consultants, business partners, potential licensees and others, to protect our trade secrets and other proprietary information. However, trade secrets are difficult to protect, and courts outside the PRC may be less willing to protect our trade secrets. There can be no assurance that our protective measures will effectively prevent disclosure or unauthorized use of proprietary information or provide an adequate remedy in the event of misappropriation, infringement, or other violations of our proprietary information and other intellectual property rights.

Existing laws afford only limited protection for our intellectual property rights. Despite our efforts, we may not be able to protect some of our technology, or the protection that we receive may not be sufficient. We face additional risks that our protective measures, including our patents and trademarks, could prove to be inadequate, including:

| · | the steps we take to prevent circumvention, misappropriation, or infringement of our proprietary rights may not be successful;
| · | confidentiality agreements may be intentionally or unintentionally breached, be deemed unenforceable, or not provide adequate recourse against the disclosing party;
| · | intellectual property laws may not sufficiently support our proprietary rights or may change in the future in a manner adverse to us;
| · | patent or trademark rights may not be granted or construed as we expect, or may be challenged, narrowed, or invalidated;
| · | intellectual property protection, including patents, may lapse or expire which may result in key technology becoming widely available which may hurt our competitive position;
| · | effective protection of intellectual property rights may be unavailable or limited in some countries in which we operate or plan to do business;
| · | third parties may independently develop or obtain comparable information and technology, and in some jurisdictions, obtain intellectual property protection for such technology; and
| · | third parties may commercialize our products in countries in which we do not have adequate intellectual property protection.

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From time to time, we may seek to enforce our intellectual property and proprietary rights against third parties. Policing unauthorized use of intellectual property can be difficult and expensive. We may not be successful in our attempts to enforce our intellectual property rights against third parties. Any such litigation may result in substantial diversion of financial and management resources and, if decided unfavorably to us, could have a material adverse effect on our business and financial results.

Third parties may claim that our products or processes infringe their intellectual property rights, which may cause us to pay unexpected litigation costs or damages or prevent us from selling our products.

It is our intention to avoid infringing, misappropriating, or otherwise violating the intellectual property rights of others. However, we cannot be certain that the conduct of our business or our products or processes do not infringe or otherwise violate these rights. From time to time, we may become subject to legal proceedings, including allegations and claims of alleged infringement or misappropriation by us of the patents and other intellectual property rights of third parties. As our business expands and faces increasing competition, the number of such claims may grow. In addition, attempts to enforce our own intellectual property claims may subject us to counterclaims that our intellectual property rights are invalid, unenforceable, or are licensed to the party against whom we are asserting the claim or that we are infringing that party’s alleged intellectual property rights.

Legal proceedings involving intellectual property rights, regardless of merit, are highly uncertain and can involve complex legal and scientific analyses, can be time consuming, expensive to litigate or settle, and can significantly divert resources. Our failure to prevail in such matters could result in loss of intellectual property rights or judgments awarding substantial damages and injunctive or other equitable relief against us. If we were to be held liable or discover or be notified that our products or processes potentially infringe or otherwise violate the intellectual property rights of others, we may face a loss of reputation, may not be able to exploit some or all of our intellectual property rights or technology, and may need to obtain licenses from third parties or substantially re-engineer our products or processes in order to avoid infringement. We might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer our products or processes successfully or cost effectively and these efforts may cause us to delay or stop selling and marketing our products or processes.

Any of the foregoing may require considerable effort and expense, result in substantial increases in operating costs, delay or inhibit sales, and may preclude us from effectively competing in the marketplace, which in turn could have a material adverse effect on our business and financial results.

Compliance with environmental and other laws and regulations could result in significant costs and liabilities.

The operation and expansion of our manufacturing facilities are subject to strict environmental laws and regulations at the state, provincial, and local level in various jurisdictions, and, over the next several years, we expect that we and the industry in general will become subject to new or more stringent environmental requirements. These laws and regulations generally require us to obtain and comply with various environmental registrations, licenses, permits, inspections, and other approvals. Under certain environmental, health, and safety laws, we could be held responsible for any and all liabilities and consequences arising out of past or future releases of hazardous materials, human exposure to these substances, and other environmental damage, in some cases, without regard to fault. The discovery of contamination at any of our current site or at locations at which we dispose of waste may expose us to clean-up expenditures and other damages imposed by government agencies. In addition, private parties may have the right to pursue legal action to enforce compliance as well as to seek damages for non-compliance with such laws and regulations or for personal injury or property damage. Currently, we do not carry insurance that covers environmental risks and costs. Although we intend to procure environmental insurance in the future, such insurance may not cover all environmental risks and costs or may not provide sufficient coverage in the event an environmental claim is made against us.

15

Our operations emit carbon dioxide and other greenhouse gases. Currently there are no industrial standards in the PRC specifying the emission of pollutants for activated carbon production. We are subject to the PRC environmental laws and regulations on air pollution prevention in general. A number of other legislative and regulatory measures to address greenhouse gas emissions, including the Kyoto Protocol and the Draft Emission Standards of Activated Carbon Industrial Pollutants, are in various phases of implementation or discussion. The systems and measures could result in increased costs for us to install new controls to reduce hazardous air emissions from our facilities, to purchase air emissions credits or allowances, or to monitor and inventory greenhouse gas emissions from our operations.

Even though we devote considerable efforts to comply with environmental laws, regulations, and permits, there can be no assurance that our operations will at all times be in compliance with them. The enactment of new environmental laws and regulations, the more stringent interpretation or enforcement of existing requirements, or the imposition of liabilities under environmental laws could force us to incur costs for compliance, capital upgrades, or liabilities relating to damage claims or limit our current or planned operations, any of which could have a material adverse effect on our business and financial results.

Our operations are subject to various litigation risks that could increase our expenses and have a material adverse effect on our business and financial results.

The nature of our operations exposes us to possible litigation claims, including environmental damage and remediation, intellectual property, workers’ compensation and other employee-related matters, insurance coverage, and property rights and easements. Any claim could be adversely decided against us, which could have a material adverse effect on our business and financial results. Similarly, the costs associated with defending claims could dramatically increase our expenses as litigation is often very expensive, divert management’s attention, and impact our profitability. If we become involved in any litigation, we may be forced to direct our resources to defending or prosecuting the claim, which in turn could have a material adverse effect on our business and financial results.

We may not be able to keep up with competitive changes affecting the activated carbon industry.

The activated carbon industry is characterized by evolving industry and end-market standards, changing regulation, frequent enhancements to existing products and technologies, introduction of new products and changing customer demand, all of which can result in unpredictable product transitions, shortened lifecycles and increased importance of being first to market with new products. The success of our new products depends on their initial and continued acceptance by our customers. If we are not able to anticipate changes or develop and introduce new and enhanced products that are accepted by our customers on a timely basis and compete with new technologies, our ability to remain competitive may be adversely affected. In addition, we may experience difficulties in the research, development, production, or marketing of new products, which may delay us in bringing new products to market and prevent us from recouping or realizing a return on our investments. Any of the foregoing could have a material adverse effect on our business and financial results.

The activated carbon industry is highly competitive, and if we are unable to compete effectively with existing competitors, or with new entrants, our business and financial results could be materially and adversely affected.

We compete in the PRC market with producers and importers of activated carbon. Our business faces significant competition from other PRC producers of activated carbon, some of which may from time to time have revenues and capital resources exceeding ours, which they may use to develop more advanced or more cost-effective technologies, increase market share, or leverage their distribution networks. In addition, new competitors and alliances may emerge to take market share away from us. Our competitive position in the market in which we operate depends upon the relative strength of these competitors in the market and the relative resources they devote to competing in the market. We could experience reduced sales and loss of market share, which could lead to lower prices and decreased revenues, gross margins and profits, any of which could have a material and adverse effect on our results of operations.

16

Development of competitive technologies could materially and adversely affect our business and financial results.

Activated carbon is utilized in various applications as a cost-effective solution to address our customers’ needs. If other competitive technologies or alternative processes or combinations of technologies or processes, such as alternate sorbents, resins, certain types of membranes, ozone, and ultraviolet, are advanced to the stage at which they could compete on a cost-effective basis with activated carbon technologies, we could experience a decline in demand for our products, which could have a material adverse effect on our business and financial results.

Competitive technologies and new regulations may also affect our customers, and therefore us. For example, a shift away from coal-burning technology due to environmental trends and regulations or new technologies could diminish future demand for our activated carbon products, which could have a material adverse effect on our business and financial results.

If we cannot manage our growth effectively and efficiently, our results of operations or profitability could be adversely affected.

Our revenue for the six months ended March 31, 2019, was $4,768,077, an increase of 164% from $1,808,125 for the six months ended March 31, 2018. Our revenue for the fiscal year ended September 30, 2018, was $8,091,937, an increase of 490% from $1,370,563 for the fiscal year ended September 30, 2017. We intend to continue to expand our operations. This expansion has placed, and will continue to place, substantial demands on our managerial, operational, technological, and other types of resources. Our planned expansion will also place significant demands on us to maintain the quality of our products to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the quality of our products. In order to manage and support our growth, we must continue to improve our existing operational, administrative, and technological systems and our financial and management controls, and recruit, train, and retain additional qualified activated carbon and biomass electricity industries professionals as well as other administrative and sales and marketing personnel, particularly as we expand into new markets and launch new business initiatives. We may not be able to effectively and efficiently manage the growth of our operations, recruit and retain qualified personnel, and integrate new expansion into our operations. As a result, our quality of products may deteriorate and our results of operations or profitability could be adversely affected.

If we fail to hire, train, and retain qualified managerial and other employees, our business and results of operations could be materially and adversely affected.

We place substantial reliance on the activated carbon and biomass electricity market experience and knowledge of our senior management team as well as their relationships with other industry participants. Mr. Zhengyu Wang, our chief executive officer and chairman, is particularly important to our future success due to his substantial experience and reputation in the activated carbon and biomass electricity markets. We do not carry, and do not intend to procure, key person insurance on any of our senior management team. The loss of the services of one or more members of our senior management team due to their departure, or otherwise, could hinder our ability to effectively manage our business and implement our growth strategies. Finding suitable replacements for our current senior management could be difficult, and competition for such personnel of similar experience is intense. If we fail to retain our senior management, our business and results of operations could be materially and adversely affected.

The market for engineers and other individuals with the required technical expertise to succeed in our business is highly competitive. There may be a limited supply of qualified individuals in some of the cities in China where we have operations and other cities into which we intend to expand. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our rapid growth while maintaining consistent quality of services across our operations in various geographic locations. We must also provide continuous training to our managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of our operations and can meet our demand for high-quality products. If we fail to do so, the quality of our products may decrease in one or more of the markets where we operate, which in turn, may cause a negative perception of our brand and adversely affect our business.

The lease agreement of one of our leased properties has not been registered with the relevant PRC government authorities as required by PRC laws, which may expose us to potential fines.

Under PRC laws, all lease agreements are required to be registered with the local land and real estate administration bureau. Although failure to do so does not in itself invalidate the leases, the lessees may not be able to defend these leases against bona fide third parties and may also be exposed to potential fines if they fail to rectify such non-compliance within the prescribed time frame after receiving notice from the relevant PRC government authorities. The penalty ranges from RMB1,000 to RMB10,000 for each unregistered lease, at the discretion of the relevant authority. As of the date of this prospectus, we have registered the lease agreement for our headquarters but not the lease agreement of the leased properties of Tahe Biopower Plant with the relevant PRC government authorities. In the event that any fine is imposed on us for our failure to register our lease agreement, we may not be able to recover such losses from the lessors. However, as the fines, if any, will be minor, our business and financial results will not be materially affected.

17

We depend on third parties for certain construction, maintenance, engineering, transportation, warehousing, and logistics services.

We contract with third parties, typically for a period of six to 18 months, for certain services relating to the design, construction, and maintenance of various components of our production facilities and other systems. If these third parties fail to comply with their obligations, we may experience delay in the completion of new facilities or expansions of existing facilities or the facilities may not operate as intended, which may result in delays in the production of our products and materially and adversely affect our ability to meet our production capacity targets and satisfy customer requirements or we may be required to recognize impairment charges. In addition, production delays could cause us to miss deliveries and breach our contracts, which could damage our relationships with our customers and subject us to claims for damages under our contracts. Any of these events could have a material adverse effect on our business and financial results.

We also rely primarily on third parties for the transportation of the products we manufacture. Our contracts with these third parties are usually for one to two years. If any of the third parties that we use to transport products are unable to deliver the goods we manufacture in a timely manner, we may be unable to sell these products at full value, or at all, which could cause us to miss deliveries and breach our contracts, which could damage our relationships with our customers and subject us to claims for damages under our contracts. Any of these events could have a material adverse effect on our business and financial results.

Future acquisitions may have an adverse effect on our ability to manage our business.

We may acquire businesses, technologies, services, or products which are complementary to our core activated carbon and biomass electricity businesses. Future acquisitions may expose us to potential risks, including risks associated with: the integration of new operations, services and personnel; unforeseen or hidden liabilities; the diversion of resources from our existing business and technology; our potential inability to generate sufficient revenue to offset new costs; the expenses of acquisitions; or the potential loss of or harm to relationships with both employees and customers resulting from our integration of new businesses.

Any of the potential risks listed above could have a material and adverse effect on our ability to manage our business, our revenues, and net income. We may need to raise additional debt funding or sell additional equity securities to make such acquisitions. The raising of additional debt funding by us, if required, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on our assets, that would restrict our operations. The sale of additional equity securities could result in additional dilution to our shareholders.

Risks Relating to Doing Business in the PRC

A severe or prolonged slowdown in the Chinese economy could materially and adversely affect our business and our financial condition.

The rapid growth of the Chinese economy has slowed down since 2012 and such slowdown may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China; the withdrawal of these expansionary monetary and fiscal policies could lead to a contraction. There are also concerns about the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the Chinese economy would likely materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.

18

Changes in the policies of the PRC government could have a significant impact upon our ability to operate profitably in the PRC.

We currently conduct all of our operations and all of our revenue is generated in the PRC. Accordingly, economic, political, and legal developments in the PRC will significantly affect our business, financial condition, results of operations, and prospects. Policies 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.

The tariffs by the U.S. government and the trade war between the U.S. and China, and on a larger scale, internationally, may dampen global growth. If the U.S. government, in the future, subjects the products that we produce to tariffs, our business operations and revenues may be negatively impacted.

The U.S. government has recently, among other actions, imposed new or higher tariffs on specified products imported from China to penalize China for what it characterizes as unfair trade practices and China has responded by imposing new or higher tariffs on specified products imported from the United States. Based on our analysis of the list of products affected by the tariffs, we expect that the tariffs will not have a material direct impact on our business operations, as currently, we are based in the PRC, and deliver products to customers exclusively located within the PRC market. The imposed tariffs, however, may cause the depreciation of the RMB currency and a contraction of certain PRC industries that will likely be affected by the tariffs. As such, there may be potential decrease in the spending powers of activated carbon and biomass energy customers, which in turn, may lead to a contraction of the PRC activated carbon and biomass energy market. As such, we may have access to fewer business opportunities and our operation may be negatively impacted. In addition, future actions or escalations by either the United States or China that affect trade relations may cause global economic turmoil and potentially have a negative impact on our business and we cannot provide any assurances as to whether such actions will occur or the form that they may take.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

China’s economy has experienced increases in labor costs in recent years. China’s overall economy and the average wage in China are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products, our profitability and results of operations may be materially and adversely affected.

In addition, pursuant to the PRC Labor Contract Law, or the “Labor Contract Law,” that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. Besides, pursuant to the Labor Contract Law and its amendments, dispatched employees are intended to be a supplementary form of employment and the fundamental form should be direct employment by enterprises and organizations that require employees.

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.

19

We are not in compliance with the PRC’s regulations relating to employee benefit plans, and as a result, we may be subject to penalties if we are not able to remediate the non-compliance.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of their employees up to a maximum amount specified by the local government from time to time at locations where they operate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Tahe Biopower Plant has not paid adequate social insurance for all its employees, and our PRC subsidiaries have not made adequate housing provident fund payments for all their employees. The relevant PRC authorities may order us to make up the contributions to these plans. In addition, failure to make adequate social insurance payments on time may subject us to 0.05% late fees per day starting from the date of underpayment and fines equal to one to three times the underpaid amount. For failure to make adequate housing provident fund payments as required, we may be fined RMB10,000 to RMB50,000. If we are subject to late fees or fines in relation to underpaid employee benefits, our financial condition and results of operations may be adversely affected. However, the risk of regulatory penalty that the relevant authorities may impose on our PRC subsidiaries in relation to our failure to make adequate contributions to the employee benefit plans for all our employees as required is remote, because the relevant local authorities confirmed in writing that no records of violation were found on our PRC subsidiaries for social insurance plan and/or housing provident fund contributions.

Because we are a British Virgin Islands corporation and all of our business is conducted in the PRC, you may be unable to bring an action against us or our officers and directors or to enforce any judgment you may obtain.

We are incorporated in the British Virgin Islands and conduct our operations primarily in China. All of our assets are located outside of the United States and the proceeds of this offering will primarily be held in banks outside of the United States. In addition, almost all of our directors and officers reside outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe we have violated your rights, either under United States federal or state securities laws or otherwise, or if you have a claim against us. Even if you are successful in bringing an action of this kind, the laws of the British Virgin Islands and of China may not permit you to enforce a judgment against our assets or the assets of our directors and officers. See “Enforceability of Civil Liabilities.”

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or otherwise expose us or our PRC resident shareholders to liabilities or penalties.

In July 2014, the State Administration of Foreign Exchange (“SAFE”) promulgated the Circular on Issues Concerning Foreign Exchange Administration over the Overseas Investment and Financing and Roundtrip Investment by Domestic Residents via Special Purpose Vehicles, or the “SAFE Circular 37,” which replaced the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles. According to the SAFE Circular 37, PRC residents or entities are required to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle, known as “SPV,” undergoes material events relating to any changes of basic information (such as change of such PRC residents or entities, name and operation term), increase or decrease of investment amount, transfer or exchanges of shares, and mergers or divisions.

As of the date of this prospectus, most of our beneficial owners have completed the registration as required by the SAFE Circular 37. We have urged all PRC residents or entities who directly or indirectly hold shares in our company and who are currently known to us as being PRC residents to make the necessary applications, filings, and amendments as required under the SAFE Circular 37 and other related rules. We attempt to comply, and attempt to ensure that our shareholders and beneficial owners who are subject to these rules comply with the relevant requirements. We cannot, however, provide any assurances that all of our shareholders or beneficial owners who are PRC residents will comply with our request to comply with the SAFE Circular 37 requirements, nor can we assure that we will be inform of the identities of all the current and future PRC residents or entities holding direct or indirect interest in our company. Failure by any of such shareholders or beneficial owners to comply with relevant requirements under these regulations could subject us to fines or sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to pay dividends or make distributions to us and limit our ability to increase our investment in our PRC subsidiaries, which could adversely affect our business and prospects.

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Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owner of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary fillings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirement we may have, and any limitation on the ability of our subsidiaries to make payments to us and any tax we are required to pay could have a materially adverse effect on our ability to conduct our business.

We are a British Virgin Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

Under PRC laws and regulations, our PRC subsidiaries, Zhejiang CN Energy and Manzhouli CN Energy, as wholly foreign-owned enterprises in the PRC, may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

In response to the persistent capital outflow and the Renminbi's depreciation against U.S. dollar in the fourth quarter of 2016, the People's Bank of China (“PBOC”) and SAFE have implemented a series of capital control measures, including stricter vetting procedures for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. For instance, PBOC issued the Circular on Further Clarification of Relevant Matters Relating to Offshore RMB Loans Provided by Domestic Enterprises, or “PBOC Circular 306,” on November 26, 2016, which provides that offshore RMB loans provided by a domestic enterprise to offshore enterprises with which it has an equity relationship shall not exceed 30% of the domestic enterprise’s most recent audited owner’s equity. PBOC Circular 306 may constrain our PRC subsidiaries’ ability to provide offshore loans to us. The PRC government may continue to strengthen its capital controls, and our PRC subsidiaries’ dividends and other distributions may be subjected to tighter scrutiny in the future. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See also “—Under the PRC Enterprise Income Tax Law, or the ‘EIT Law,’ we may be classified as a ‘resident enterprise’ of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.”

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PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

Any funds we transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises, or “FIEs,” in China, capital contributions to our PRC subsidiaries Zhejiang CN Energy and Manzhouli CN Energy, which are FIEs, are subject to the approval of or filing with the Ministry of Commerce of the PRC ( “MOFCOM”) or its local counterparts and registration with a local bank authorized by SAFE. There is, in effect, no statutory limit on the amount of capital contribution that we can make to our PRC subsidiaries. The reason is that there is no statutory limit on the amount of registered capital for our PRC subsidiaries, and we are allowed to make capital contributions to our PRC subsidiaries by subscribing for their initial registered capital and increased registered capital, provided that the PRC subsidiaries complete the relevant filing and registration procedures.

On the other hand, any foreign loan provided by us to our PRC subsidiaries is required to be registered with SAFE or its local branches or filed with SAFE in its information system, and our PRC subsidiaries may not procure foreign loans which exceed the difference between its total investment amount and registered capital (the “Current Foreign Debt Mechanism”) or, as an alternative, only procure loans subject to the calculation approach and limitations as provided in the PBOC’s Circular on Matters concerning the Macro-Prudential Management of Full-Covered Cross-Border Financing, or “PBOC Notice No. 9” (the “PBOC Notice No. 9 Mechanism”), which shall not exceed 200% of the net asset of the relevant PRC subsidiary. According to PBOC Notice No. 9, after a transition period of one year since its promulgation, PBOC and SAFE will determine the cross-border financing administration mechanism for the FIEs after evaluating the overall implementation of PBOC Notice No. 9. As of the date hereof, neither PBOC nor SAFE has promulgated and made public any further rules, regulations, notices, or circulars in this regard. It is uncertain which mechanism will be adopted by PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC subsidiaries. Currently, our PRC subsidiaries have the flexibility to choose between the Current Foreign Debt Mechanism and the PBOC Notice No. 9 Mechanism. However, if a more stringent foreign debt mechanism becomes mandatory, our ability to provide loans to our PRC subsidiaries may be significantly limited, which may adversely affect our business, financial condition, and results of operations.

We currently do not have any immediate plans to utilize the proceeds from this offering to make capital contribution into our PRC subsidiaries or provide any loan to our PRC subsidiaries. See “Use of Proceeds.” If we seek to make capital contribution into our PRC subsidiaries or provide any loan to our PRC subsidiaries in the future, we may not be able to obtain the required government approvals or complete the required registrations on a timely basis, if at all. If we fail to receive such approvals or complete such registrations, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of Foreign-Invested Enterprises, or “SAFE Circular 19,” effective as of June 1, 2015, as amended by Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement under the Capital Account, or “SAFE Circular 16,” effective on June 9, 2016. SAFE Circular 19 and SAFE Circular 16 allow FIEs to settle their foreign exchange capital at their discretion, but prohibit FIEs from using the RMB fund converted from their foreign exchange capitals for expenditure beyond their business scopes, providing entrusted loans, or repaying loans between non-financial enterprises. As a result, we are required to apply RMB funds converted from the net proceeds we received from this offering within the business scopes of our PRC subsidiaries. Violations of these Circulars could result in severe monetary or other penalties. Although we currently do not have any immediate plans to convert the net proceeds of this offering to RMB, SAFE Circular 19 and SAFE Circular 16 could potentially limit our ability to use RMB converted from the net proceeds of this offering to fund the establishment of new entities in China by our PRC subsidiaries or to invest in or acquire any other PRC companies through our PRC subsidiaries, which may adversely affect our business, financial condition, and results of operations.

Because our business is conducted in RMB and the price of our Ordinary Shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.

Our business is conducted in the PRC, our books and records are maintained in RMB, which is the currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and dollar affect the value of our assets and the results of our operations, when presented in United States dollars. The value of the RMB against the United States dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. Further, our Ordinary Shares offered by this prospectus are offered in United States dollars, we will need to convert the net proceeds we receive into RMB in order to use the funds for our business. Changes in the conversion rate between the United States dollar and the RMB will affect the amount of proceeds we will have available for our business.

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Under the PRC Enterprise Income Tax Law, or the “EIT Law,” we may be classified as a “resident enterprise” of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.

The EIT Law and its implementing rules provide that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” under PRC tax laws. The implementing rules promulgated under the EIT Law define the term “de facto management bodies” as a management body which substantially manages, or has control over the business, personnel, finance and assets of an enterprise. In April 2009, the State Administration of Taxation, or the “SAT,” issued a circular known as “SAT Circular 82” (partially abolished on December 29, 2017), which provides certain specific criteria for determining whether the “de facto management bodies” of a PRC-controlled enterprise that is incorporated offshore are located in China. There are, however, no further detailed rules or precedents governing the procedures and specific criteria for determining “de facto management body.” Although our board of directors and management are located in the PRC, it is unclear if the PRC tax authorities would determine that we should be classified as a PRC “resident enterprise.”

If we are deemed as a PRC “resident enterprise,” we will be subject to PRC enterprise income tax on our worldwide income at a uniform tax rate of 25%, although dividends distributed to us from our existing PRC subsidiaries and any other PRC subsidiaries which we may establish from time to time could be exempt from the PRC dividend withholding tax due to our PRC “resident recipient” status. This could have a material and adverse effect on our overall effective tax rate, our income tax expenses and our net income. Furthermore, dividends, if any, paid to our shareholders may be decreased as a result of the decrease in distributable profits. In addition, if we were considered a PRC “resident enterprise”, any dividends we pay to our non-PRC investors, and the gains realized from the transfer of our Ordinary Shares may be considered income derived from sources within the PRC and be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty). It is unclear whether holders of our Ordinary Shares would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. This could have a material and adverse effect on the value of your investment in us and the price of our Ordinary Shares.

There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our Hong Kong subsidiary may not qualify to enjoy certain treaty benefits.

Under the PRC EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC and the Notice of the SAT on Issues Regarding the Implementation of Dividend Provisions in Tax Treaties, or the “SAT Circular 81,” issued by the SAT, such rate may be reduced to 5% if the PRC enterprise is at least 25% held by a Hong Kong enterprise for at least 12 consecutive months prior to the distribution of the dividends and is determined by the relevant PRC tax authority to have satisfied other conditions and requirements under the China-Hong Kong special arrangement and other applicable PRC laws. Furthermore, under the SAT’s Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties effective in August 2015, non-resident taxpayers shall determine whether they are qualified to enjoy the preferential tax treatment under the tax treaties and file relevant report and materials with the tax authorities. See “Taxation—People’s Republic of China Taxation.” We have determined that we are qualified to enjoy the preferential tax treatment. However, we cannot assure you that our determination will not be challenged by the relevant PRC tax authority or we will be able to complete the necessary filings with the relevant PRC tax authority and enjoy the preferential withholding tax rate of 5% under the China-Hong Kong special arrangement with respect to dividends to be paid by our PRC subsidiaries to Energy Holdings, our Hong Kong subsidiary.

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We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or “SAT Bulletin 7,” as amended in 2017. Pursuant to this bulletin, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.

There is uncertainty as to the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implications of certain future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our Company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our Company is transferee in such transactions under SAT Bulletin 7. For transfer of shares in our Company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

If we become directly subject to the scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price, and reputation.

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism, and negative publicity by investors, financial commentators, and regulatory agencies, such as the SEC. Much of the scrutiny, criticism, and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism, and negative publicity, the publicly traded stock of many U.S. listed Chinese companies sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism, and negative publicity will have on us, our business, and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation will be costly and time consuming and distract our management from developing our business. If such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our stock.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC reports and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by China Securities Regulatory Commission, a PRC regulator that is responsible for oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of us, our SEC reports, other filings or any of our other public pronouncements.

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The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval, in which case there would be sanctions against our Company.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the “M&A Rules,” adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas SPV that is formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the China Securities Regulatory Commission, or the “CSRC,” prior to the listing and trading of such SPV’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by a SPV seeking the CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

Our PRC counsel, GFE Law Office (“GFE”), has advised us based on their understanding of the current PRC law, rules, and regulations that the CSRC’s approval is not required for the listing and trading of our shares on NYSE American in the context of this offering, given that:

| · | the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like this offering are subject to this regulation;
| · | we established our PRC subsidiaries, Zhejiang CN Energy and Manzhouli CN Energy, by means of direct investment rather than by merger with or acquisition of PRC domestic companies; and
| · | no explicit provisions in the M&A Rules clearly classifies the acquisition of Khingan Forasen by our wholly indirectly owned PRC subsidiary, CN Energy Development, which is deemed a PRC domestic company under the PRC laws, as a type of transactions falling under the M&A Rules.

Our PRC legal counsel, however, has further advised us that there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. We cannot assure you that relevant PRC governmental agencies, including the CSRC, would reach the same conclusion as we do. If it is determined that the CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek the CSRC approval for this offering. These sanctions may include fines and penalties on our operations in the PRC, limitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the proceeds from this offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our China subsidiaries, or other actions that could have a material and adverse effect on our business, financial condition, results of operations, reputation, and prospects, as well as the trading price of our Ordinary Shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before the settlement and delivery of the Shares that we are offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to the settlement and delivery of the shares we are offering, you would be doing so at the risk that the settlement and delivery may not occur.

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The M&A Rules discussed in the preceding risk factor and recently adopted regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that have or may have impact on the national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Mergers or acquisitions that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the Ministry of Commerce when the threshold under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, or the “Prior Notification Rules,” issued by the State Council in August 2008 is triggered. In addition, the security review rules issued by the Ministry of Commerce that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce or its local counterparts may delay or inhibit our ability to complete such transactions. It is clear that our business would not be deemed to be in an industry that raises “national defense and security” or “national security” concerns. The Ministry of Commerce or other government agencies, however, may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially and adversely affected.

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Risks Relating to this Offering and the Trading Market

There has been no public market for our Ordinary Shares prior to this offering, and you may not be able to resell our Ordinary Shares at or above the price you pay for them, or at all.

Prior to this offering, there has not been a public market for our Ordinary Shares. We plan to apply for the listing of our Ordinary Shares on NYSE American. An active public market for our Ordinary Shares, however, may not develop or be sustained after the offering, in which case the market price and liquidity of our Ordinary Shares will be materially and adversely affected.

We are offering our Ordinary Shares on a best efforts basis and may be unable to sell any shares. Because this is a best efforts offering, there is a possibility that we may not be able to sell the minimum offering amount of Ordinary Shares. In the event that we do not raise the minimum offering amount of Ordinary Shares by [●], 2020, all funds raised will be promptly returned to the investors, without interest or deduction, unless the offering period is extended by us and the Placement Agent for an additional [60] days. If we successfully raise the minimum offering amount of Ordinary Shares, we will be able to execute our business plan as described.

The initial public offering price for our Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.

The initial public offering price for our Ordinary Shares will be determined by negotiations between us and the Placement Agent, and may not bear a direct relationship to our earnings, book value, or any other indicia of value. We cannot assure you that the market price of our Ordinary Shares will not decline significantly below the initial public offering price. The financial markets in the United States and other countries have experienced significant price and volume fluctuations in the last few years. Volatility in the price of our Ordinary Shares may be caused by factors outside of our control and may be unrelated or disproportionate to changes in our results of operations.

You will experience immediate and substantial dilution in the net tangible book value of Ordinary Shares purchased.

The initial public offering price of our Ordinary Shares is substantially higher than the (pro forma) net tangible book value per share of our Ordinary Shares. Consequently, when you purchase our Ordinary Shares in the offering, upon completion of the offering you will incur immediate dilution of $[●] per share, assuming an initial public offering price of $[●]. See “Dilution.” In addition, you may experience further dilution to the extent that additional Ordinary Shares are issued upon exercise of outstanding options we may grant from time to time.

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Substantial future sales of our Ordinary Shares or the anticipation of future sales of our Ordinary Shares in the public market could cause the price of our Ordinary Shares to decline.

Sales of substantial amounts of our Ordinary Shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our Ordinary Shares to decline. An aggregate of 139,627 Ordinary Shares is outstanding before the consummation of this offering and [●] Ordinary Shares will be outstanding immediately after the consummation of this offering if the minimum offering amount is raised, and [●] Ordinary Shares will be outstanding immediately after the consummation of this offering if the maximum offering amount is raised. Sales of these shares into the market could cause the market price of our Ordinary Shares to decline.

We do not intend to pay dividends for the foreseeable future.

We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary Shares if the market price of our Ordinary Shares increases.

If securities or industry analysts do not publish research or reports about our business, or if the publish a negative report regarding our Ordinary Shares, the price of our Ordinary Shares and trading volume could decline.

Any trading market for our Ordinary Shares may depend in part on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade us, the price of our Ordinary Shares would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price of our Ordinary Shares and the trading volume to decline.

The market price of our Ordinary Shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

The initial public offering price for our Ordinary Shares will be determined through negotiations between the Placement Agent and us and may vary from the market price of our Ordinary Shares following our initial public offering. If you purchase our Ordinary Shares in our initial public offering, you may not be able to resell those shares at or above the initial public offering price. We cannot assure you that the initial public offering price of our Ordinary Shares, or the market price following our initial public offering, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our initial public offering. The market price of our Ordinary Shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

| · | actual or anticipated fluctuations in our revenue and other operating results;
| · | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
| · | actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
| · | announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
| · | price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;
| · | lawsuits threatened or filed against us; and
| · | other events or factors, including those resulting from war or incidents of terrorism, or responses to these events.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

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Our management has broad discretion to determine how to use the funds raised in the offering and may use them in ways that may not enhance our results of operations or the price of our Ordinary Shares.

We anticipate that we will use the net proceeds from this offering for working capital and other corporate purposes. Our management will have significant discretion as to the use of the net proceeds to us from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the market price of our Ordinary Shares.

If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.

We expect to qualify as a foreign private issuer upon the completion of this offering. As a foreign private issuer, we will be exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders will be exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States domestic issuers, and we will not be required to disclose in our periodic reports all of the information that United States domestic issuers are required to disclose. While we currently expect to qualify as a foreign private issuer immediately following the completion of this offering, we may cease to qualify as a foreign private issuer in the future, in which case we would incur significant additional expenses that could have a material adverse effect on our results of operations.

Because we are a foreign private issuer and are exempt from certain NYSE corporate governance standards applicable to U.S. issuers, you will have less protection than you would have if we were a domestic issuer.

The NYSE Listed Company Manual requires listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the British Virgin Islands, does not require a majority of our board to consist of independent directors. Thus, although a director must act in the best interests of the Company, it is possible that fewer board members will be exercising independent judgment and the level of board oversight on the management of our company may decrease as a result. In addition, the NYSE Listed Company Manual also requires U.S. domestic issuers to have a compensation committee, a nominating/corporate governance committee composed entirely of independent directors, and an audit committee with a minimum of three members. We, as a foreign private issuer, are not subject to these requirements. The NYSE Listed Company Manual may require shareholder approval for certain corporate matters, such as requiring that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans, certain ordinary share issuances. We intend to comply with the requirements of the NYSE Listed Company Manual in determining whether shareholder approval is required on such matters and to appoint a nominating and corporate governance committee. However, we may consider following home country practice in lieu of the requirements under the NYSE Listed Company Manual with respect to certain corporate governance standards which may afford less protection to investors.

Although as a Foreign Private Issuer we are exempt from certain corporate governance standards applicable to US domestic issuers, if we cannot satisfy, or continue to satisfy, the initial listing requirements and other rules of NYSE American, our securities may not be listed or may be delisted, which could negatively impact the price of our securities and your ability to sell them.

We will seek to have our securities approved for listing on NYSE American upon consummation of this offering. We cannot assure you that we will be able to meet those initial listing requirements at that time. Even if our securities are listed on NYSE American, we cannot assure you that our securities will continue to be listed on NYSE American.

In addition, following this offering, in order to maintain our listing on NYSE American, we will be required to comply with certain rules of NYSE American, including those regarding minimum stockholders’ equity, minimum share price, minimum market value of publicly held shares, and various additional requirements. Even if we initially meet the listing requirements and other applicable rules of NYSE American, we may not be able to continue to satisfy these requirements and applicable rules. If we are unable to satisfy NYSE American criteria for maintaining our listing, our securities could be subject to delisting.

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If NYSE American does not list our securities, or subsequently delists our securities from trading, we could face significant consequences, including:

| · | a limited availability for market quotations for our securities;
| · | reduced liquidity with respect to our securities;
| · | a determination that our Ordinary Shares is a “penny stock,” which will require brokers trading in our Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Ordinary Shares;
| · | limited amount of news and analyst coverage; and
| · | a decreased ability to issue additional securities or obtain additional financing in the future.

Anti-takeover provisions in our amended and restated memorandum and articles of association may discourage, delay, or prevent a change in control.

Some provisions of our amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following:

| · | provisions that authorize our board of directors to issue shares with preferred, deferred or other special rights or restrictions without any further vote or action by our shareholders; and
| · | provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings.

Our board of directors may refuse or delay the registration of the transfer of Ordinary Shares in certain circumstances.

Except in connection with the settlement of trades or transactions entered into through the facilities of a stock exchange or automated quotation system on which our Ordinary Shares are listed or traded from time to time, our board of directors may resolve to refuse or delay the registration of the transfer of our Ordinary Shares. Where our directors do so, they must specify the reason(s) for this refusal or delay in a resolution of the board of directors. Our directors may also refuse or delay the registration of any transfer of Ordinary Shares if the transferor has failed to pay an amount due in respect to those Ordinary Shares. If our directors refuse to register a transfer, they shall, as soon as reasonably practicable, send the transferor and the transferee a notice of the refusal or delay in the approved form.

This, however, will not affect market transactions of the Ordinary Shares purchased by investors in the public offering. Where the Ordinary Shares are listed on a stock exchange, the Ordinary Shares may be transferred without the need for a written instrument of transfer, if the transfer is carried out in accordance with the rules of the stock exchange and other requirements applicable to the Ordinary Shares listed on the stock exchange.

If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the “SEC,” as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. As we are an “emerging growth company,” we are expected to first include a management report on our internal controls over financial reporting in our annual report in the second fiscal year end following the effectiveness of our initial public offering. As such, these requirements are expected to first apply to our annual report on Form 20-F for the fiscal year ending on September 30, 2020. Our management may conclude that our internal controls over our financial reporting are not effective. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future, which will significantly increase our operating expenses.

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Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. We planned to remedy our material weaknesses and other control deficiencies in time to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our Ordinary Shares. Furthermore, we anticipate that we will incur considerable costs and devote significant management time and efforts and other resources to comply with Section 404 of the Sarbanes-Oxley Act.

We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.”

Upon consummation of this offering, we will incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and NYSE, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Ordinary Shares that is held by non-affiliates exceeds $700 million as of the prior September 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

Because we are an “emerging growth company,” we may not be subject to requirements that other public companies are subject to, which could affect investor confidence in us and our Ordinary Shares.

For as long as we remain an “emerging growth company,” as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our Ordinary Shares less attractive as a result, there may be a less active trading market for our Ordinary Shares and our share price may be more volatile. See “Implications of Our Being an ‘Emerging Growth Company’” on page 7.

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The laws of the British Virgin Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the BVI Business Companies Act, 2004 as amended from time to time (the “BVI Act”) and the common law of the British Virgin Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands. The common law in the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands and from English common law. For example, under the rule established in the English case known as Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors subject to a number of limited exceptions. Decisions of the Privy Council (which is the final Court of Appeal for British overseas territories such as the British Virgin Islands) are binding on a court in the British Virgin Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the British Virgin Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the British Virgin Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

If we are classified as a passive foreign investment company, United States taxpayers who own our Ordinary Shares may have adverse United States federal income tax consequences.

A non-U.S. corporation such as ourselves will be classified as a passive foreign investment company, which is known as a PFIC, for any taxable year if, for such year, either

| · | At least 75% of our gross income for the year is passive income; or
| · | The average percentage of our assets (determined at the end of each quarter) during the taxable year which produce passive income or which are held for the production of passive income is at least 50%.

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.

If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. taxpayer who holds our Ordinary Shares, the U.S. taxpayer may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements.

Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our 2018 taxable year or for any subsequent year, more than 50% of our assets may be assets which produce passive income, In which case we would be deemed a PFIC, which could have adverse US federal income tax consequences for US taxpayers who are shareholders. We will make this determination following the end of any particular tax year.

For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. taxpayers if we were or are determined to be a PFIC, see “Taxation—United States Federal Income Taxation—Passive Foreign Investment Company” on page 116.

Our pre-IPO shareholders will be able to sell their shares upon completion of this offering subject to restrictions under Rule 144 under the Securities Act.

Our pre-IPO shareholders, the “Beneficial Owners,” may be able to sell their Ordinary Shares under Rule 144 after the completion of this offering. Because these shareholders have paid a lower price per Ordinary Share than participants in this offering, when they are able to sell their pre-IPO shares under Rule 144, they may be more willing to accept a lower sales price than the IPO price. This fact could impact the trading price of the Ordinary Shares following the completion of the offering, to the detriment of participants in this offering. We issued a total of 139,627 Ordinary Shares to the Beneficial Owners on November 23, 2018, and August 22, 2019. Under Rule 144, before the Beneficial Owners can sell their shares, in addition to meeting other requirements, they must meet the required holding period. We do not expect any of the Ordinary Shares to be sold pursuant to Rule 144 during the pendency of this offering.

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Recently introduced economic substance legislation of the British Virgin Islands may adversely impact us or our operations.

The British Virgin Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union (the “EU”) as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Substance Law”) came into force in the British Virgin Islands introducing certain economic substance requirements for British Virgin Islands “relevant entities” which are engaged in certain banking, insurance, fund management, financing and leasing, headquarters, shipping, holding company, intellectual property or distribution and service center business (being “relevant activities”) and are in receipt of gross income arising from relevant activities in any relevant financial period. In the case of business companies incorporated before January 1, 2019, the economic substance requirements will apply in respect of financial years commencing June 30, 2019, onwards.

The economic substance requirements that are imposed include that in-scope companies be directed and managed in the British Virgin Islands, have core income generating activities in the British Virgin Islands, and have an adequate level of employees, expenditures, and premises in the British Virgin Islands. Business companies that carry on holding company business (which means it only holds equity participations in other entities and only earns dividends and capital gains) may be subject to reduced substance requirements.

Based on the Substance Law and announced guidance currently issued, it is anticipated that we will be subject to limited substance requirements applicable to a holding company. At present, it is unclear what we exactly will be expected to do in order to satisfy these requirements, but to the extent we are required to increase our substance in the British Virgin Islands, it could result in additional costs. Although it is presently anticipated that the Substance Law (including the ongoing EU review of the British Virgin Islands’ implementation of such law), will have minimal material impact on us or our operations, as the legislation and guidance are new and remain subject to further clarification, adjustment, interpretation, and the EU review, it is not currently possible to ascertain the precise impact of these developments on us, for example, whether we could also be treated as carrying out “headquarter business” in the British Virgin Islands (despite our headquarters physically being in China). It is therefore possible that we may be subject to additional requirements under the Substance Law in the future. Should that occur, it is our intention to seek appropriate advice and take appropriate steps to ensure that we (to the extent we fall within the scope of the Substance Law) are fully compliant.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that reflect our current expectations and views of future events, all of which are subject to risks and uncertainties. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by the use of words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “will,” “would,” “should,” “could,” “may” or other similar expressions in this prospectus. These statements are likely to address our growth strategy, financial results and product and development programs. You must carefully consider any such statements and should understand that many factors could cause actual results to differ from our forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

| · | assumptions about our future financial and operating results, including revenues, income, expenditures, cash balances and other financial items;
| · | our ability to execute our growth, and expansion, including our ability to meet our goals;
| · | current and future economic and political conditions;
| · | our ability to compete in the highly-competitive activated carbon industry;
| · | our capital requirements and our ability to raise any additional financing which we may require;
| · | our ability to attract clients and further enhance our brand recognition;
| · | our ability to hire and retain qualified management personnel and key employees in order to enable us to develop our business;
| · | our ability to retain the services of Mr. Zhengyu Wang, our chief executive officer and chairman;
| · | trends and competition in the activated carbon and biomass energy industries; and
| · | other assumptions described in this prospectus underlying or relating to any forward-looking statements.

We describe certain material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.

Industry Data and Forecasts

This prospectus contains data related to the activated carbon and biomass energy industries in China. This industry data includes projections that are based on a number of assumptions which have been derived from industry and government sources which we believe to be reasonable. The activated carbon and biomass energy industries may not grow at the rate projected by industry data, or at all. The failure of these industries to grow as anticipated is likely to have a material adverse effect on our business and the market price of our Ordinary Shares. In addition, the rapidly changing nature of the activated carbon and biomass energy industries subjects any projections or estimates relating to the growth prospects or future condition of our industries to significant uncertainties. Furthermore, if any one or more of the assumptions underlying the industry data turns out to be incorrect, actual results may, and are likely to, differ from the projections based on these assumptions.

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ENFORCEABILITY OF CIVIL LIABILITIES

We were incorporated under the laws of the British Virgin Islands because there are certain benefits associated with being a British Virgin Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions, and the availability of professional and support services. The British Virgin Islands, however, has a less developed body of securities laws as compared to the United States and provides significantly less protection for investors than the United States.

Substantially all of our assets are located in the PRC. In addition, almost 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 United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Hunter Taubman Fischer & Li LLC as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Carey Olsen Singapore LLP (“Carey Olsen”), our counsel with respect to the laws of the British Virgin Islands, and GFE, our counsel with respect to PRC law, have advised us that there is uncertainty as to whether the courts of the British Virgin Islands or the PRC would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the British Virgin Islands or the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Carey Olsen, has further advised us that there is currently no statutory enforcement or treaty between the United States and the British Virgin Islands providing for enforcement of judgments. A judgment obtained in the United States, however, may be recognized and enforced in the courts of the British Virgin Islands at common law, without any re-examination on the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Commercial Division of the Eastern Caribbean Supreme Court in the British Virgin Islands, provided such judgment: (i) is given by a foreign court of competent jurisdiction; (ii) is final; (iii) is not in respect of taxes, a fine or a penalty; and (iv) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or public policy of the British Virgin Islands. Furthermore, it is uncertain that British Virgin Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. Carey Olsen has informed us that there is uncertainty with regard to British Virgin Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the British Virgin Islands as penal or punitive in nature.

GFE has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. GFE has advised us further that there are no treaties or other forms of reciprocity between China and the United States for the mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment in China difficult.

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USE OF PROCEEDS

Based upon an assumed initial public offering price of $[●] per Ordinary Share, we estimate that we will receive net proceeds from this offering, after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us, of approximately $[●] if we sell the minimum number of Ordinary Shares and approximately $[●] if we sell the maximum number of Ordinary Shares.

We plan to use the net proceeds we receive from this offering for the following purposes:

|  | Use of Net Proceeds
|  | [●] shares Minimum offering amount |  |  | [●] shares 25% of maximum offering amount |  |  |  | [●] shares 50% of maximum offering amount |  |  |  | [●] shares 75% of maximum offering amount |  |  | [●] shares Maximum offering amount
Construction of Manufacturing Facilities in Manzhouli City |  | $ | [●] |  |  | $ | [●] |  |  |  | $ | [●] |  |  |  | $ | [●] |  |  | $ | [●]
Research and Development |  | $ | [●] |  |  | $ | [●] |  |  |  | $ | [●] |  |  |  | $ | [●] |  |  | $ | [●]
Working Capital |  | $ | [●] |  |  | $ | [●] |  |  |  | $ | [●] |  |  |  | $ | [●] |  |  | $ | [●]

The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

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DIVIDEND POLICY

We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

Subject to the BVI Act and our amended and restated memorandum and articles of association, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further British Virgin Islands statutory restriction on the amount of funds which may be distributed by us by dividend.

If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, Energy Holdings.

Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to Energy Holdings 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 complying with the administrative requirements necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our Ordinary Shares.

Cash dividends, if any, on our Ordinary Shares will be paid in U.S. dollars. Energy Holdings may be considered a non-resident enterprise for tax purposes, so that any dividends our PRC subsidiaries pay to Energy Holdings may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Taxation—People’s Republic of China Taxation.”

In order for us to pay dividends to our shareholders, we will rely on payments made from CN Energy Development to Zhejiang CN Energy and indirectly to Manzhouli CN Energy, and the distribution of such payments to Energy Holdings as dividends from CN Energy Development. Certain payments from CN Energy Development to Zhejiang CN Energy and Manzhouli CN Energy are subject to PRC taxes, including business taxes and value-added taxes. In addition, if CN Energy Development or its subsidiaries or branches incur debt on their own behalves in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. The 5% withholding tax rate, however, does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to any dividends paid by our PRC subsidiaries to its immediate holding company, Energy Holdings. As of the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Energy Holdings intends to apply for the tax resident certificate if and when Zhejiang CN Energy and Manzhouli CN Energy plan to declare and pay dividends to Energy Holdings. See “Risk Factors—There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our Hong Kong subsidiary may not qualify to enjoy certain treaty benefits.”

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EXCHANGE RATE INFORMATION

Our business is conducted in China and all of our revenues are denominated in RMB. Capital accounts of our financial statements are translated into U.S. dollars from RMB at their historical exchange rates when the capital transactions occurred. 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 U.S. dollars at the rates used in translation. The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. Assets and liabilities are translated at the exchange rates as of the balance sheet date.

Balance sheet items, except for equity accounts |  |  | March 31, 2019 |  |  |  | March 31, 2018 |  |  |  | September 30, 2018 |  |  |  | September 30, 2017 |
USD:RMB |  |  | 0.1490:1 |  |  |  | 0.1592:1 |  |  |  | 0.1456:1 |  |  |  | 0.1503:1 |

Items in the statements of operations and comprehensive loss, and statements cash flows are translated at the average exchange rate of the period.

|  |  | Years ended |  |  |  | Six months ended |
|  |  | September 30, 2018 |  |  |  | September 30, 2017 |  |  |  | March 31, 2019 |  |  |  | March 31, 2018 |
USD:RMB |  |  | 0.1530:1 |  |  |  | 0.1468:1 |  |  |  | 0.1464:1 |  |  |  | 0.1542:1 |

37

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2019:

| · | on an unaudited actual basis; and
| · | on an unaudited as adjusted basis to reflect the issuance and sale of the Ordinary Shares by us in this offering at both the minimum offering amount and the maximum offering amount at the initial public offering price of $[●] per Ordinary Share, after deducting the estimated commissions to the Placement Agent and the estimated offering expenses payable by us.

You should read this capitalization table in conjunction with “Selected Consolidated Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and the related notes appearing elsewhere in this prospectus.

|  | March 31, 2019 |
|  | Actual |  |  | As adjusted (Minimum offering amount) |  |  | As adjusted (Maximum offering amount) |
|  | $ |  |  | $ |  |  | $ |
Cash and cash equivalents |  | $ | 2,148,748 |  |  |  |  |  |  |  |
Short-term debt |  | $ | 298,014 |  |  |  |  |  |  |  |
Equity |  |  |  |  |  |  |  |  |  |  |
Share capital no par value, an unlimited number of Ordinary Shares authorized, 139,627 Ordinary Shares issued and outstanding; [●] Ordinary Shares issued and outstanding, as adjusted to reflect the minimum offering, and [●] Ordinary Shares issued and outstanding, as adjusted to reflect the maximum offering |  | $ | 14,005,621 |  |  |  |  |  |  |  |
Additional paid-in capital(1) |  | $ | 7,890,199 |  |  |  |  |  |  |  |
Accumulated deficit |  | $ | (2,939,441 | ) |  |  |  |  |  |  |
Accumulated other comprehensive loss |  | $ | (816,028 | ) |  |  |  |  |  |  |
Total equity |  | $ | 18,140,351 |  |  |  |  |  |  |  |
Total capitalization |  | $ | 18,438,365 |  |  |  |  |  |  |  |

(1) | Pro forma additional paid in capital reflects the net proceeds we expect to receive, after deducting underwriting fee, Placement Agent expense allowance and other expenses. We expect to receive net proceeds of (a) approximately $[●] if minimum offering is raised [●] ($[●] offering, less underwriting fee of $[●] and offering expenses of approximately $[●]) or (b) approximately $[●] if maximum offering is raised ($[●] offering, less underwriting fee of $ [●] and offering expenses of approximately $[●]).

A $1.00 increase (decrease) in the assumed initial public offering price of $[●] per Ordinary Share would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by $[●] million, assuming the number of Ordinary Shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

38

DILUTION

If you invest in our Ordinary Shares, your interest will be diluted for each Ordinary Share you purchase to the extent of the difference between the initial public offering price per Ordinary Share and our net tangible book value per Ordinary Share after this offering. Dilution results from the fact that the initial public offering price per Ordinary Share is substantially in excess of the net tangible book value per Ordinary Share attributable to the existing shareholders for our presently outstanding Ordinary Shares.

Dilution to New Investors if the Minimum Offering Amount is Sold

Our net tangible book value as of March 31, 2019, was $[●], or $[●] per Ordinary Share. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the net tangible book value per Ordinary Share (as adjusted for the offering) from the initial public offering price per Ordinary Share and after deducting the estimated commissions to the Placement Agent and the estimated offering expenses payable by us.

After giving effect to our sale of [●] Ordinary Shares offered in this offering based on the initial public offering price of $[●] per Ordinary Share after deduction of the estimated commissions to the Placement Agent and the estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2019, would have been $[●], or $[●] per outstanding Ordinary Share. This represents an immediate increase in net tangible book value of $[●] per Ordinary Share to the existing shareholders, and an immediate dilution in net tangible book value of $[●] per Ordinary Share to investors purchasing Ordinary Shares in this offering. The as adjusted information discussed above is illustrative only.

Dilution to New Investors if the Maximum Offering Amount is Sold

Our net tangible book value as of March 31, 2019, was $[●], or $[●] per Ordinary Share. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the net tangible book value per Ordinary Share (as adjusted for the offering) from the initial public offering price per Ordinary Share and after deducting the estimated commissions to the Placement Agent and the estimated offering expenses payable by us.

After giving effect to our sale of [●] Ordinary Shares offered in this offering based on the initial public offering price of $[●] per Ordinary Share after deduction of the estimated commissions to the Placement Agent and the estimated offering expenses payable by us, our as adjusted net tangible book value as of March 31, 2019, would have been $[●], or $[●] per outstanding Ordinary Share. This represents an immediate increase in net tangible book value of $[●] per Ordinary Share to the existing shareholders, and an immediate dilution in net tangible book value of $[●] per Ordinary Share to investors purchasing Ordinary Shares in this offering. The as adjusted information discussed above is illustrative only.

The following table illustrates such dilution:

|  | Minimum |  |  | Maximum |
Initial public offering price per Ordinary Share |  | $ |  |  | $ |
Net tangible book value per Ordinary Share as of March 31, 2019 |  | $ |  |  | $ |
As adjusted net tangible book value per Ordinary Share attributable to payments by new investors |  | $ |  |  |  | $ |  |
Pro forma net tangible book value per Ordinary Share immediately after this offering |  | $ |  |  |  | $ |  |
Amount of dilution in net tangible book value per Ordinary Share to new investors in the offering |  | $ |  |  |  | $ |  |

The following table summarizes, on an as adjusted basis as of March 31, 2019, the differences between existing shareholders and the new investors with respect to the minimum number of Ordinary Shares purchased from us, the total consideration paid and the average price per Ordinary Share before deducting the estimated commissions to the Placement Agent and the estimated offering expenses payable by us.

39

|  | Ordinary Shares purchased |  |  | Total consideration |  |  | Average price per Ordinary |
Minimum Offering |  | Number |  |  | Percent |  |  | Amount |  |  | Percent |  |  | Share |
|  | ($ in thousands) |
Existing shareholders |  |  |  |  |  |  |  | % |  | $ |  |  |  |  |  | % |  | $ |  |
New investors |  |  |  |  |  |  |  | % |  | $ |  |  |  |  |  | % |  | $ |  |
Total |  |  |  |  |  |  |  | % |  | $ |  |  |  |  |  | % |  | $ |  |

|  | Ordinary Shares purchased |  |  | Total consideration |  |  | Average price per Ordinary |
Maximum Offering |  | Number |  |  | Percent |  |  | Amount |  |  | Percent |  |  | Share |
|  | ($ in thousands) |
Existing shareholders |  |  |  |  |  |  |  | % |  | $ |  |  |  |  |  | % |  | $ |  |
New investors |  |  |  |  |  |  |  | % |  | $ |  |  |  |  |  | % |  | $ |  |
Total |  |  |  |  |  |  |  | % |  | $ |  |  |  |  |  | % |  | $ |  |

The as adjusted information as discussed above is illustrative only.

40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the “Risk Factors” section.

Overview

CN Energy is a holding company incorporated under the laws of the British Virgin Islands on November 23, 2018. CN Energy, through its subsidiaries, is a manufacturer and supplier of activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production (“Activated Carbon Production”), and a producer of biomass electricity generated in the process of producing activated carbon (“Biomass Electricity Production”).

The reorganization of our legal structure was completed on August 12, 2019. The Reorganization involved the incorporation of CN Energy, a British Virgin Islands holding company; the incorporation of Energy Holdings, a Hong Kong holding company; the incorporation of Zhejiang CN Energy and Manzhouli CN Energy, two new WFOEs formed by Energy Holdings under the laws of the PRC; the incorporation of Manzhouli CN Technology, a PRC company, of which 90% of the equity interests are owned by Manzhouli CN Energy, and the remaining 10% by Zhejiang CN Energy; the incorporation of CN Energy Development, a PRC company, of which 70% of the equity interests are owned by Manzhouli CN Technology and the remaining 30% by Zhejiang CN Energy; and the transfer of 100% of the equity interest of Khingan Forasen from its original shareholders to CN Energy Development in exchange for 139,627 ordinary shares of CN Energy.

As a result of the Reorganization, CN Energy, the ultimate holding company, owns 100% of the equity interest of Khingan Forasen, which in turn owns 100% of the equity interest of Hangzhou Forasen and Zhongxing Energy.

In accordance with Accounting Standards Codification (“ASC”) 805-50-25, the Reorganization has been accounted for as a recapitalization among entities under common control since the same shareholders controlled all these entities prior to the Reorganization. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the Reorganization, those results will be on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings (accumulated deficit) at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

Our primary raw materials are forestry residues, little fuelwood, and wood wastes, which we source from our suppliers. Our current facilities are located in Tahe County, Heilongjiang Province, in close proximity to the Greater Khingan Range, where our suppliers are primarily located. We also source raw materials from Inner Mongolia.

Our main product is activated carbon produced to conform to our customers’ specifications. Our activated carbon customers are primarily activated carbon wholesalers, food and beverage producers, industrial manufacturers, pharmaceutical manufacturers, companies engaging in environment protection, and companies engaging in the activated carbon deep processing business. Our customers are all based in the PRC and currently mainly located in Jiangsu Province, Fujian Province, Zhejiang Province, and Shanghai.

The biomass electricity we generate in the process of producing activated carbon is supplied to State Grid Heilongjiang, a subsidiary of State Grid Corporation of China in Heilongjiang Province.

Our revenue is primarily generated through sales of our activated carbon.

For the six months ended March 31, 2019 and 2018, we sold 3,816 and 1,418 tons of activated carbon and 1,159,917 and 1,150,358 kWh of biomass electricity, respectively. For the same periods, we had total revenues of $4,768,077 and $1,808,125, and net income of $684,137 and a net loss of $399,461, respectively. The revenue derived from Activated Carbon Production accounted for 97.60% and 91.47% of our total revenue for the six months ended March 31, 2019 and 2018, respectively. The revenue derived from Biomass Electricity Production accounted for 2.40% and 6.29% of our total revenue for the six months ended March 31, 2019 and 2018, respectively.

For the fiscal years ended September 30, 2018 and 2017, we sold 6,200 and 895 tons of activated carbon and 3,872,866 and 2,455,612 kWh biomass electricity, respectively. For the same years, we had total revenues of $8,091,937 and $1,370,563, and net income of $1,562,618 and a net loss of $811,993, respectively. The revenue derived from Activated Carbon Production accounted for 94.79% and 76.32% of our total revenue for the fiscal years ended September 30, 2018 and 2017, respectively. The revenue derived from Biomass Electricity Production accounted for 4.72% and 16.86% of our total revenue for the fiscal years ended September 30, 2018 and 2017, respectively.

41

Growth Strategies

Increase the Capacity of Activated Carbon Production. Since the demand for activated carbon in general and orders for our activated carbon products more particularly have been increasing in recent years, facilities at Tahe Biopower Plant have almost reached their full production capacity and we had to outsource some of the production of activated carbon to third-party producers to keep up with the demand for our products. We are currently constructing new manufacturing facilities in Manzhouli City, Inner Mongolia, to increase our capacity of activated carbon production. As of August 2019, we had completed the construction of the groundwork of the factory workshop and over half of the auxiliary buildings.

Expand Customer Base. We plan to explore new markets for our activated carbon products while maintaining our current customer base. We are considering establishing branch offices in various strategic areas, including Beijing, Shanghai, Hebei Province, Jiangsu Province, and Fujian Province. These branch offices would focus on increasing activated carbon product sales to existing customers, provide customer support in those areas, and facilitate the acquisition of potential new customers. By increasing the number of customers and optimizing our transportation and sales network, we aim to reduce the marginal cost of our activated carbon products and increase our profits.

Focus on Products With Growing Demand. Due to the rapid development of industrial technology, stricter environmental protection regulations, and increased attention to food safety, there has been increasing demand for activated carbon used in the water, food, and beverage industries, and activated carbon for pharmaceutical raw materials, intermediates, and finished products. We believe we are well positioned to meet each of these growing areas of demand. We will seek to continue our innovative approach, while ensuring reliability and efficiency in the delivery supply chain, to the extent we are able to continue to access a consistent supply of raw materials, by designing and manufacturing activated carbon products for use in a broad range of applications. While maintaining a diversified customer base and product line, we will seek to focus on our products with growing demand and capitalize opportunities for increasing their sales.

Increase Research and Development Efforts. We plan to increase our research and development efforts by seeking partnerships with research centers of well-known institutes to develop more efficient methods for producing activated carbon and generating biomass energy. We have been working on applying our activated carbon production technology currently used with forestry residues, little fuelwood, and wood wastes to crop residues as well. We are seeking to reduce our reliance on forest resources and therefore expand our network of suppliers to other provinces in the PRC.

Explore New Business Opportunities. We have been monitoring possible business opportunities in the downstream sectors of the activated carbon industry, such as environment restoration, water purification, and air cleaning. In the long term, we plan to strategically establish or acquire companies that use activated carbon as raw materials. We do not plan to use the net proceeds from this offering to fund these long-term plans, and have not entered into any binding agreement for any acquisition nor identified any definite acquisition target. By expanding our business vertically in the activated carbon industry, we hope to increase our pricing power and minimize risks in our Activated Carbon Production business.

Factors Affecting Our Results of Operations

Government policies may impact our business and operating results.

We have not seen any impact of unfavorable government policies upon our business in recent years. However, our business and operating results will be affected by overall economic growth and government policies in the PRC, and our products are currently eligible for certain favorable government tax incentive and other incentives. Unfavorable changes in government policies and these incentives could affect the demand for our products and could materially and adversely affect our results of operations. However, we will seek to make adjustments as required if and when government policies shift.

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Exchange rate fluctuations may significantly impact our business and profitability.

All of our operations are in the PRC. Thus, our revenues and operating results may be impacted by exchange rate fluctuations between RMB and U.S. dollars. For the six months ended March 31, 2019 and 2018, we had an unrealized foreign currency translation gain of $416,013 and $944,696, respectively, because of changes in the exchange rates. For the fiscal years ended September 30, 2018 and 2017, we had an unrealized foreign currency translation loss of $578,092 and an unrealized foreign currency translation gain of $20,697, respectively, because of changes in the exchange rates.

Results of Operations

Comparison of Results of Operations for the Six Months Ended March 31, 2019 and 2018

The following table summarizes our results of operations for the six months ended March 31, 2019 and 2018, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

|  | For the Six Months Ended March 31, |  |  | Variance |
|  | 2019 |  |  | 2018 |  |  | Amount |  |  | % |
Revenues |  | $ | 4,768,077 |  |  | $ | 1,808,125 |  |  | $ | 2,959,952 |  |  |  | 163.70 | %
Cost of revenues |  |  | 3,356,376 |  |  |  | 2,217,289 |  |  |  | 1,139,087 |  |  |  | 51.37 | %
Gross profit (loss) |  |  | 1,411,701 |  |  |  | (409,164 | ) |  |  | 1,820,865 |  |  |  | 445.02 | %
Selling expenses |  |  | 125,121 |  |  |  | 26,081 |  |  |  | 99,040 |  |  |  | 379.74 | %
General and administrative expenses |  |  | 413,428 |  |  |  | 115,528 |  |  |  | 297,900 |  |  |  | 257.86 | %
Research and development expenses |  |  | 432,431 |  |  |  | 17,005 |  |  |  | 415,426 |  |  |  | 2,442.96 | %
Income (loss) from operations |  |  | 440,721 |  |  |  | (567,778 | ) |  |  | 1,008,499 |  |  |  | 177.62 | %
Interest income |  |  | 237 |  |  |  | 140 |  |  |  | 97 |  |  |  | 69.29 | %
Government subsidy income |  |  | 263,832 |  |  |  | 106,610 |  |  |  | 157,222 |  |  |  | 147.47 | %
Other income (expenses), net |  |  | 873 |  |  |  | (46,483 | ) |  |  | 47,356 |  |  |  | 101.88 | %
Income (loss) before income taxes |  |  | 705,663 |  |  |  | (507,511 | ) |  |  | 1,213,174 |  |  |  | 239.04 | %
Provision (benefit) for income taxes |  |  | 21,526 |  |  |  | (108,050 | ) |  |  | 129,576 |  |  |  | 119.92 | %
Net income (loss) |  | $ | 684,137 |  |  | $ | (399,461 | ) |  | $ | 1,083,598 |  |  |  | 271.27 | %

Revenue

Currently, our revenue is mainly derived from the sale of two types of products, activated carbon and biomass electricity generated in the process of producing activated carbon, and, for the period from January 1, 2017, to December 31, 2017, we also generated revenue from a one-time technical service order related to our products. Total revenues for the six months ended March 31, 2019, increased by $2,959,952, or 163.70%, to $4,768,077 from $1,808,125 for the six months ended March 31, 2018. The increase was mainly due to an increase in sales volume of both activated carbon and biomass electricity in the six months ended March 31, 2019.

The following table sets forth the breakdown of our revenue for the six months ended March 31, 2019 and 2018, respectively:

|  | For the Six Months Ended March 31, |  |  | Variance |
|  | 2019 |  |  | % |  |  | 2018 |  |  | % |  |  | Amount |  |  | % |
Activated carbon |  | $ | 4,653,725 |  |  |  | 97.60 | % |  | $ | 1,653,880 |  |  |  | 91.47 | % |  | $ | 2,999,845 |  |  |  | 181.38 | %
Biomass electricity |  |  | 114,352 |  |  |  | 2.40 | % |  |  | 113,790 |  |  |  | 6.29 | % |  |  | 562 |  |  |  | 0.49 | %
Technical services |  |  | - |  |  |  | - |  |  |  | 40,455 |  |  |  | 2.24 | % |  |  | (40,455 | ) |  |  | (100.00 | )%
Total |  | $ | 4,768,077 |  |  |  | 100.00 | % |  | $ | 1,808,125 |  |  |  | 100.00 | % |  | $ | 2,959,952 |  |  |  | 163.70 | %

43

|  | Total revenue for the six months |  |  | QTY sold in the six |  |  | Variance |  |  | % of |  |  | Average unit |  |  |  |
|  | ended March 31, |  |  | months ended March 31, |  |  | in |  |  | QTY |  |  | price |  |  | Price |
Product type |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |  |  | QTY |  |  | variance |  |  | 2019 |  |  | 2018 |  |  | difference |
Activated carbon |  | $ | 4,653,725 |  |  | $ | 1,653,880 |  |  |  | 3,816 | ton |  |  | 1,418 | ton |  |  | 2,398 |  |  |  | 169.11 | % |  | $ | 1,219.54 |  |  | $ | 1,166.28 |  |  | $ | 53.26 |
Biomass electricity |  |  | 114,352 |  |  |  | 113,790 |  |  |  | 1,159,917 | kWh |  |  | 1,150,358 | kWh |  |  | 9,559 |  |  |  | 0.83 | % |  | $ | 0.10 |  |  | $ | 0.10 |  |  | $ | - |
Technical services |  |  | - |  |  |  | 40,455 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |
Total |  | $ | 4,768,077 |  |  | $ | 1,808,125 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

Activated carbon

Revenue from activated carbon for the six months ended March 31, 2019, increased by $2,999,845, or 181.38%, to $4,653,725 from $1,653,880 for the same period of 2018. We sold 3,816 tons of activated carbon in the six months ended March 31, 2019, an increase of 2,398 tons, or 169.11%, as compared with 1,418 tons in the same period of 2018. We increased our effort to develop the market and seek new customers, and, as a result, our sales of activated carbon have continued to grow steadily. Average selling price of activated carbon increased by $53.26, or 4.57%, to $1,219.54 per ton for the six months ended March 31, 2019, from $1,166.28 per ton for the six months ended March 31, 2018. The increase was attributable to strong market demand. The overall increase in our activated carbon sales for the six months ended March 31, 2019, as compared to the same period of 2018 reflected the above combined effect.

Biomass electricity

Revenue from biomass electricity for the six months ended March 31, 2019, increased slightly by $562, or 0.49%, to $114,352 from $113,790 for the six months ended March 31, 2018. The biomass electricity was generated in the process of producing activated carbon and supplied to State Grid Heilongjiang pursuant to a biomass electricity sales agreement, which is renewed annually. We sold 1,159,917 kWh of biomass electricity in the six months ended March 31, 2019, a slight increase of 9,559 kWh, or 0.83%, as compared with 1,150,358 kWh in the same period of 2018. Unit selling price of biomass electricity is set by the State Commodity Price Bureau and has not changed in recent years. For the six months ended March 31, 2019 and 2018, selling price was $0.10 per kWh for biomass electricity.

Technical services

For the six months ended March 31, 2019, revenue from technical services decreased by $40,455, or 100%, to $Nil from $40,455 for the last same period of 2018. We received a one-time technical service order related to our products, for the period from January 1, 2017, to December 31, 2017.

Cost of Revenue

The following table sets forth the breakdown of our cost of revenue for the six months ended March 31, 2019 and 2018, respectively:

|  | Total cost of revenue for the six months |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | ended March 31, |  |  |  |  |  |  |  |  | Average unit |  |  |  |  |  |  |
|  | 2019 |  |  | 2018 |  |  | Variance |  |  | cost |  |  | Variance |
Product type |  | Amount |  |  | % |  |  | Amount |  |  | % |  |  | Amount |  |  | % |  |  | 2019 |  |  | 2018 |  |  | Unit cost |  |  | % |
Activated carbon |  | $ | 3,253,646 |  |  |  | 96.94 | % |  | $ | 2,089,653 |  |  |  | 94.24 | % |  | $ | 1,163,993 |  |  |  | 55.70 | % |  | $ | 852.64 |  |  | $ | 1,473.66 |  |  | $ | (621.02 | ) |  |  | (42.14 | )%
Biomass electricity |  |  | 102,730 |  |  |  | 3.06 | % |  |  | 125,184 |  |  |  | 5.65 | % |  |  | (22,454 | ) |  |  | (17.94 | )% |  | $ | 0.09 |  |  | $ | 0.11 |  |  | $ | (0.02 | ) |  |  | (18.88 | )%
Technical services |  |  | - |  |  |  | - |  |  |  | 2,452 |  |  |  | 0.11 | % |  |  | (2,452 | ) |  |  | (100.00 | )% |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |
Total |  | $ | 3,356,376 |  |  |  | 100.00 | % |  | $ | 2,217,289 |  |  |  | 100.00 | % |  | $ | 1,139,087 |  |  |  | 51.37 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

44

Cost of activated carbon increased by $1,163,993, or 55.70%, to $3,253,646 for the six months ended March 31, 2019, from $2,089,653 for the six months ended March 31, 2018, which was mainly due to the increased sales volume. Average unit cost of activated carbon decreased by $621.02, or 42.14%, to $852.64 per ton in the six months ended March 31, 2019, from $1,473.66 per ton in the six months ended March 31, 2018. The decrease was mainly attributable to large-scale production, which lowered the unit fixed cost of activated carbon, such as depreciation, overhead, and the market price for the main raw material of activated carbon, wood chips.

Cost of biomass electricity decreased by $22,454, or 17.94%, to $102,730 for the six months ended March 31, 2019, from $125,184 for the six months ended March 31, 2018. Average unit cost of biomass electricity decreased by $0.02, or 18.88%, to $0.09 per kWh in the six months ended March 31, 2019, from $0.11 per kWh in the six months ended March 31, 2018. The decrease was mainly attributable to the large-scale production of activated carbon which lowered the allocated fixed cost of biomass electricity.

Gross Profit (Loss)

Total gross profit was $1,411,701 for the six months ended March 31, 2019, an increase of $1,820,865, or 445.02%, from a deficit of $409,164 in the six months ended March 31, 2018. Gross profit margin was 29.61% in the six months ended March 31, 2019, as compared with (22.63)% in the same period of 2018. The increase in gross profit margin by 52.24% was primarily attributable to the decreased average unit cost in the six months ended March 31, 2019.

Our gross profit and gross margin by product types were as follows:

|  | For the Six Months Ended March 31, |  |  | Variance |
|  | 2019 |  |  | 2018 |  |  | Gross |  |  | Gross |
|  |  | Gross profit |  |  |  | Gross profit % |  |  |  | Gross profit |  |  |  | Gross profit % |  |  |  | profit |  |  |  | Profit % |
Activated carbon |  | $ | 1,400,080 |  |  |  | 30.09 | % |  | $ | (435,774 | ) |  |  | (26.35 | )% |  | $ | 1,835,854 |  |  |  | 56.44 | %
Biomass electricity |  |  | 11,621 |  |  |  | 10.16 | % |  |  | (11,394 | ) |  |  | (10.01 | )% |  |  | 23,015 |  |  |  | 20.17 | %
Technical services |  |  | - |  |  |  | - |  |  |  | 38,004 |  |  |  | 93.94 | % |  |  | (38,004 | ) |  |  | (93.94 | )%
Total |  | $ | 1,411,701 |  |  |  | 29.61 | % |  | $ | (409,164 | ) |  |  | (22.63 | )% |  | $ | 1,820,865 |  |  |  | 52.24 | %

Gross profit for activated carbon increased by $1,835,854 to $1,400,080 for the six months ended March 31, 2019, as compared to a deficit of $435,774 for the six months ended March 31, 2018. The increase was mainly due to the increased sales volume of activated carbon. Gross profit margin increased to 30.09% in the six months ended March 31, 2019, from (26.35)% in last same period of 2018. Such an increase was mainly attributable to the combined effect of the significant decrease in our average unit cost, and the slight increase in our average selling price. As we were still at the development stage of our operation and production in the six months ended March 31, 2018, fixed costs such as depreciation and, salaries were relatively high, which resulted in a deficit for the six months ended March 31, 2018.

Gross profit for biomass electricity increased by $23,015 to $11,621 for the six months ended March 31, 2019, as compared to a deficit of $11,394 for the six months ended March 31, 2018. The increase was mainly due to increased sales volume of biomass electricity in the six months ended March 31, 2019. Gross profit margin increased to 10.16% in the six months ended March 31, 2019, from (10.01)% in last same period of 2018. Such an increase was mainly due to the decrease in our average unit cost. As we were still at the development stage of our operation and production in the six months ended March 31, 2018, a large fixed cost, such as depreciation and salaries were distributed to the production of biomass electricity, which resulted in a deficit for the six months ended March 31, 2018.

Gross profit for technical services decreased by $38,004 to $Nil for the six months ended March 31, 2019, as compared to $38,004 for the six months ended March 31, 2018. We recognized the technical service revenue over the service period from January 1, 2017, to December 31, 2017. Therefore, no technical service revenue was recognized during the six months ended March 31, 2019.

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Selling Expenses

Selling expenses were $125,121 for the six months ended March 31, 2019, an increase of $99,040, or 379.74%, from $26,081 in the six months ended March 31, 2018. The increase was consistent with the increase of revenues and was primarily due to an increase of approximately $91,000 in shipping expenses.

General and Administrative Expenses

Our general and administrative expenses were $413,428 for the six months ended March 31, 2019, an increase of $297,900, or 257.86%, from $115,528 in the six months ended March 31, 2018. The increase was consistent with the increase of business entertainment expense and repair expense. In addition, in connection with our public-listing efforts, we incurred more professional fees around $0.1 million.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development projects, including raw materials, equipment parts, salaries and other employee benefits. Research and development expenses increased by $415,426, or 2,442.96%, to $432,431 for the six months ended March 31, 2019, from $17,005 for the six months ended March 31, 2018. During the six months ended March 31, 2019, we hired more professionals and conducted experiments to reform our production equipment to improve the productivity of the equipment. We also used a significant amount of raw material for testing. Therefore, research and development expenses increased significantly in the six months ended March 31, 2019.

Government Subsidy Income

Our government subsidy income was $263,832 for the six months ended March 31, 2019, compared to $106,610 in the six months ended March 31, 2018, including $211,205 and $51,168 VAT refund for the six months ended March 31, 2019 and 2018, respectively. Our government subsidy income was all granted by local governments in recognition of our achievements in various areas. We cannot predict the likelihood or amount of any future subsidies.

Other Income

Other income, net increased by $47,356, to $873 for the six months ended March 31, 2019, from other expenses of $46,483 for the six months ended March 31, 2018. The increase was primarily attributable to an non-recurring expense occurred during the six months ended March 31, 2018.

Provision (benefit) for Income Taxes

For the six months ended March 31, 2019, our income tax increased by $129,576 from income tax benefit of $108,050 for the six months ended March 31, 2018 to income tax expense of $21,526 for the six months ended March 31, 2019. The increase in income tax expense was primarily due to the increased taxable income, and the utilization of the deferred tax assets during the six months ended March 31, 2019.

In November 2016, Khingan Forasen was approved as a High and New Technology Enterprise (“HNTE”), and Khingan Forasen and its branch office, Tahe Biopower Plant, have been entitled to a reduced income tax rate of 15% beginning November 2016, subject to a requirement that they re-apply for HNTE status every three years. In addition, 10% of the revenue of Tahe Biopower Plant can be exempt from income tax for six months ended March 31, 2019 and 2018, because Tahe Biopower Plant meets the requirements of national comprehensive utilization of resources program.

Other comprehensive income

Foreign currency translation adjustments amounted to a gain of $416,013 and $944,696 for the six months ended March 31, 2019 and 2018, respectively. The balance sheet amounts with the exception of equity at March 31, 2019, were translated at RMB1.00 to $0.1490 as compared to RMB1.00 to $0.1456 at September 30, 2018. The equity accounts were stated at their historical rates. The average translation rates applied to the income statements accounts for the six months ended March 31, 2019 and 2018, were RMB1.00 to $0.1464 and RMB1.00 to $0.1542, respectively. The changes in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying change in our business or results of operation.

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The impact attributable to changes in revenue and expenses due to foreign currency translation are summarized as follows.

|  | For the Six Months Ended March 31, 2019 |  | For the Six Months Ended March 31, 2018 |
Impact on revenues |  | $ | 85,338 |  | $ | 58,586 |
Impact on operating expenses |  | $ | 18,346 |  | $ | 10,124 |
Impact on net income (loss) |  | $ | 11,793 |  | $ | (12,944 | )

For the six months ended March 31, 2019, if using RMB1.00 to $0.1490 (the foreign exchange rate as of March 31, 2019) to translate our revenue, operating expense, and net income, our reported revenue, operation expense, and net income would have increased by $85,338, $18,346, and $11,793, respectively.

For the six months ended March 31, 2018, if using RMB1.00 to $0.1592 (the foreign exchange rate as of March 31, 2018) to translate our revenue, operating expense, and net income (loss), our reported revenue, operation expense, and net income (loss) would have increased by $58,586 and $10,124 and increased by $12,944, respectively.

Comparison of Results of Operations for the Fiscal Years Ended September 30, 2018 and 2017

The following table summarizes our results of operations for the fiscal years ended September 30, 2018 and 2017, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

|  | Fiscal Years Ended September 30, |  |  | Variance |
|  | 2018 |  |  | 2017 |  |  | Amount |  |  | % |
Revenues |  | $ | 8,091,937 |  |  | $ | 1,370,563 |  |  | $ | 6,721,374 |  |  |  | 490.41 | %
Cost of revenues |  |  | 6,274,484 |  |  |  | 1,648,371 |  |  |  | 4,626,113 |  |  |  | 280.65 | %
Gross profit (loss) |  |  | 1,817,453 |  |  |  | (277,808 | ) |  |  | 2,095,261 |  |  |  | 754.21 | %
Selling expenses |  |  | 307,742 |  |  |  | 119,731 |  |  |  | 188,011 |  |  |  | 157.03 | %
General and administrative expenses |  |  | 410,710 |  |  |  | 580,161 |  |  |  | (169,451 | ) |  |  | (29.21 | )%
Research and development expenses |  |  | 43,723 |  |  |  | 41,938 |  |  |  | 1,785 |  |  |  | 4.26 | %
Income (loss) from operations |  |  | 1,055,278 |  |  |  | (1,019,638 | ) |  |  | 2,074,916 |  |  |  | 203.50 | %
Interest income |  |  | - |  |  |  | 437 |  |  |  | (437 | ) |  |  | (100.00 | )%
Government subsidy income |  |  | 655,029 |  |  |  | 110,272 |  |  |  | 544,757 |  |  |  | 494.01 | %
Other expenses, net |  |  | (35,060 | ) |  |  | (16,177 | ) |  |  | (18,833 | ) |  |  | 116.73 | %
Income (loss) before income taxes |  |  | 1,675,247 |  |  |  | (925,106 | ) |  |  | 2,600,353 |  |  |  | 281.09 | %
Provision for income taxes |  |  | 112,629 |  |  |  | (113,113 | ) |  |  | 225,742 |  |  |  | 199.57 | %
Net income (loss) |  | $ | 1,562,618 |  |  | $ | (811,993 | ) |  | $ | 2,374,611 |  |  |  | 292.44 | %

Revenue

Currently, our revenue is mainly derived from the sale of two types of products, activated carbon and biomass electricity generated in the process of producing activated carbon, and, for the period from January 1, 2017, to December 31, 2017, we also generated revenue from a one-time technical service order related to our products. Total revenues for the fiscal year ended September 30, 2018, increased by $6,721,374, or 490.41%, to $8,091,937 from $1,370,563 for the fiscal year ended September 30, 2017. The increase was mainly due to an increase in sales volume of both activated carbon and biomass electricity in fiscal year 2018.

The following table sets forth the breakdown of our revenue for the fiscal years ended September 30, 2018 and 2017, respectively:

|  | Fiscal Years Ended September 30, |  |  | Variance |
|  | 2018 |  |  | % |  |  | 2017 |  |  | % |  |  | Amount |  |  | % |
Activated carbon |  | $ | 7,670,000 |  |  |  | 94.79 | % |  | $ | 1,046,036 |  |  |  | 76.32 | % |  | $ | 6,623,964 |  |  |  | 633.24 | %
Biomass electricity |  |  | 381,800 |  |  |  | 4.71 | % |  |  | 231,056 |  |  |  | 16.86 | % |  |  | 150,744 |  |  |  | 65.24 | %
Technical services |  |  | 40,137 |  |  |  | 0.50 | % |  |  | 93,471 |  |  |  | 6.82 | % |  |  | (53,334 | ) |  |  | (57.06 | )%
Total |  | $ | 8,091,937 |  |  |  | 100.00 | % |  | $ | 1,370,563 |  |  |  | 100.00 | % |  | $ | 6,721,374 |  |  |  | 490.41 | %

|  | Total revenue for fiscal years |  |  |  |  |  |  |  |  | Variance |  |  | % of |  |  | Average unit |  |  |  |
|  | ended September 30, |  |  | QTY sold |  |  | QTY sold |  |  | in |  |  | QTY |  |  | price |  |  | Price |
Product type |  | 2018 |  |  | 2017 |  |  | in 2018 |  |  | in 2017 |  |  | QTY |  |  | variance |  |  | 2018 |  |  | 2017 |  |  | Difference |
Activated carbon |  | $ | 7,670,000 |  |  | $ | 1,046,036 |  |  |  | 6,200 | ton |  |  | 895 | ton |  |  | 5,305 |  |  |  | 592.74 | % |  | $ | 1,237.10 |  |  | $ | 1,168.76 |  |  | $ | 68.34 |
Biomass electricity |  |  | 381,800 |  |  |  | 231,056 |  |  |  | 3,872,866 | kWh |  |  | 2,455,612 | kWh |  |  | 1,417,254 |  |  |  | 57.71 | % |  | $ | 0.10 |  |  | $ | 0.09 |  |  | $ | 0.01 |
Technical services |  |  | 40,137 |  |  |  | 93,471 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |
Total |  | $ | 8,091,937 |  |  | $ | 1,370,563 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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Activated carbon

Revenue from activated carbon for the fiscal year ended September 30, 2018, increased by $6,623,964, or 633.24%, to $7,670,000 from $1,046,036 for fiscal year 2017. Such an increase was mainly attributable to the higher sales volume in fiscal year 2018. We sold 6,200 tons of activated carbon in fiscal year 2018, an increase of 5,305 tons, or 592.74%, as compared with 895 tons in fiscal year 2017. During fiscal year 2018, we increased our effort to develop the market and seek new customers, and, as a result, our sales of activated carbon have continued to grow steadily. We acquired 29 new customers, including one of our largest customers in fiscal year 2018, who brought approximately $3.56 million, or 46.40%, of our total revenue from activated carbon for the fiscal year ended September 30, 2018.

Average selling price of activated carbon increased by $68.34, or 5.85%, to $1,237.10 per ton for the fiscal year ended September 30, 2018, from $1,168.76 per ton for fiscal year 2017. The increase was attributable to strong market demand and the appreciation of RMB against U.S. dollar.

Biomass electricity

Revenue from biomass electricity for the fiscal year ended September 30, 2018, increased by $150,744, or 65.24%, to $381,800 from $231,056 for fiscal year 2017. Such increase was expected considering that revenue from activated carbon increased by 633.24%. The biomass electricity was generated in the process of producing activated carbon and supplied to State Grid Heilongjiang pursuant to a biomass electricity sales agreement, which is renewed annually. We sold 3,872,866 kWh of biomass electricity in fiscal year 2018, an increase of 1,417,254 kWh, or 57.71%, as compared with 2,455,612 kWh in fiscal year 2017.

Average selling price of biomass electricity is set by the State Commodity Price Bureau. For the fiscal year ended September 30, 2018, average selling price for biomass electricity increased slightly by $0.01, or 10%, to $0.10 per kWh from $0.09 per kWh for fiscal year 2017, which was due to the appreciation of RMB against U.S. dollar. The average exchange rates for the fiscal years ended September 30, 2018 and 2017, were RMB1 to $0.1530 and RMB1 to $0.1468, respectively, representing an increase of 4.22%.

Technical services

For the fiscal year ended September 30, 2018, revenue from technical services decreased by $53,334, or 57.06%, to $40,137 from $93,471 for fiscal year 2017. We received a one-time technical service order related to our products, for the period from January 1, 2017, to December 31, 2017.

Cost of Revenue

The following table sets forth the breakdown of our cost of revenue for the fiscal years ended September 30, 2018 and 2017, respectively:

|  | Total cost of revenue for the fiscal years ended September 30, |  |  |  |  |  |  |  |  | Average unit |  |  |  |  |  |  |
|  | 2018 |  |  | 2017 |  |  | Variance |  |  | cost |  |  | Variance |
Product type |  | Amount |  |  | % |  |  | Amount |  |  | % |  |  | Amount |  |  | % |  |  | 2018 |  |  | 2017 |  |  | Unit cost |  |  | % |
Activated carbon |  | $ | 5,987,791 |  |  |  | 95.43 | % |  | $ | 1,399,921 |  |  |  | 84.93 | % |  | $ | 4,587,870 |  |  |  | 327.72 | % |  | $ | 965.77 |  |  | $ | 1,564.16 |  |  | $ | (598.38 | ) |  |  | (38.26 | )%
Biomass electricity |  |  | 284,260 |  |  |  | 4.53 | % |  |  | 241,448 |  |  |  | 14.65 | % |  |  | 42,812 |  |  |  | 17.73 | % |  | $ | 0.07 |  |  | $ | 0.10 |  |  | $ | (0.03 | ) |  |  | (30.00 | )%
Technical services |  |  | 2,433 |  |  |  | 0.04 | % |  |  | 7,002 |  |  |  | 0.42 | % |  |  | (4,569 | ) |  |  | (65.25 | )% |  |  | n/a |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a |
Total |  | $ | 6,274,484 |  |  |  | 100.00 | % |  | $ | 1,648,371 |  |  |  | 100.00 | % |  | $ | 4,626,113 |  |  |  | 280.65 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

Cost of activated carbon increased by $4,587,870, or 327.72%, to $5,987,791 for the fiscal year ended September 30, 2018 from $1,399,921 for fiscal year 2017, which was mainly due to the increased sales volume. Average unit cost of activated carbon decreased by $598.38, or 38.26%, to $965.77 per ton in fiscal year 2018 from $1,571.98 per ton in fiscal year 2017. The decrease in the average unit cost was mainly attributable to large-scale production, which lowered the unit fixed cost of activated carbon, such as depreciation, overhead, and lower market price for the main raw material of activated carbon, wood chips.

Cost of biomass electricity increased by $42,812, or 17.73%, to $284,260 for the fiscal year ended September 30, 2018, from $241,448 for fiscal year 2017, which was mainly due to increased sales volume. Average unit cost of biomass electricity decreased by $0.03, or 30.00%, to $0.07 per kWh in fiscal year 2018 from $0.10 per kWh in fiscal year 2017. The decrease was mainly attributable to the large-scale production which lowered the unit fixed cost of biomass electricity.

Gross Profit

Total gross profit was $1,817,453 for the fiscal year ended September 30, 2018, an increase of $2,095,261, or 42.73%, from a deficit of $277,808 in fiscal year 2017. Gross profit margin was 22.46% in fiscal year 2018, as compared with (20.27)% in fiscal year 2017. The increase in gross profit margin by 42.73% was primarily attributable to the decreased average unit cost in fiscal year 2018.

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Our gross profit and gross margin by product types were as follows:

|  | Fiscal Years Ended September 30, |  |  | Variance |
|  | 2018 |  |  | 2017 |  |  | Gross profit |  |  | Gross Profit % |
|  | Gross profit |  |  | Gross profit % |  |  | Gross profit |  |  | Gross profit % |  |  |  |  |
Activated carbon |  | $ | 1,682,209 |  |  |  | 21.93 | % |  | $ | (353,885 | ) |  |  | (33.83 | )% |  | $ | 2,036,094 |  |  |  | 55.76 | %
Biomass electricity |  |  | 97,540 |  |  |  | 25.55 | % |  |  | (10,392 | ) |  |  | (4.50 | )% |  |  | 107,932 |  |  |  | 30.05 | %
Technical services |  |  | 37,704 |  |  |  | 93.94 | % |  |  | 86,469 |  |  |  | 92.51 | % |  |  | (48,765 | ) |  |  | 1.43 | %
Total |  | $ | 1,817,453 |  |  |  | 22.46 | % |  | $ | (277,808 | ) |  |  | (20.27 | )% |  | $ | 2,095,261 |  |  |  | 42.73 | %

Gross profit for activated carbon increased by $2,036,094 to $1,682,209 for the fiscal year ended September 30, 2018, as compared to a deficit of $353,885 for fiscal year 2017. The increase was mainly due to the increased sales volume of activated carbon. Gross profit margin increased to 21.93% in fiscal year 2018 from negative 33.83% in fiscal year 2017. Such an increase was mainly attributable to the combined effect of the significant decrease in our average unit cost, and the slight increase in our average selling price. As we were still at the development stage of our operation and production in fiscal year 2017, fixed costs such as depreciation and salaries were relatively high, which resulted in a deficit for the fiscal year ended September 30, 2017.

Gross profit for biomass electricity increased by $107,932 to $97,540 for the fiscal year ended September 30, 2018, as compared to a deficit of $10,392 for fiscal year 2017. The increase was mainly due to increased sales volume of biomass electricity in fiscal year 2018. Gross profit margin increased to 25.55% in fiscal year 2018 from negative 4.50% in fiscal year 2017. Such an increase was mainly due to the decrease in our average unit cost. As we were still at the development stage of our operation and production in fiscal year 2017, a large fixed cost, such as depreciation and salaries, was distributed to the production of biomass electricity, which resulted in a deficit for the fiscal year ended September 30, 2017.

Gross profit for technical services decreased by $48,765 to $37,704 for the fiscal year ended September 30, 2018, as compared to $86,469 for fiscal year 2017. We recognized the technical service revenue over the service period from January 1, 2017, to December 31, 2017. Therefore, technical service revenue was higher in fiscal year 2017 than in fiscal year 2018.

Selling Expenses

Selling expenses were $307,742 for the fiscal year ended September 30, 2018, an increase of $188,011, or 157.03%, from $119,731 in fiscal year 2017. The increase was consistent with the increase of revenues and was primarily due to an increase of approximately $188,000 in shipping expenses. As a percentage of sales, our selling expenses were 4% and 9% of our revenue in fiscal years 2018 and 2017, respectively. The percentage in fiscal year 2017 was higher because we were still at the development stage.

General and Administrative Expenses

Our general and administrative expenses were $410,710 for the fiscal year ended September 30, 2018, a decrease of $169,451, or 29,21%, from $580,161 in fiscal year 2017. The decrease was primarily due to a gain of $152,595 in the sale of property, plant, and equipment during the fiscal year ended September 30, 2018.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development projects, including salaries and other employee benefits. Research and development expenses slightly increased by $1,785, or 4.26%, to $43,723 for the fiscal year ended September 30, 2018, from $41,938 for the fiscal year ended September 30, 2017, which was within the normal fluctuation of business operations.

Government Subsidy Income

Our government subsidy income was $655,029 for the fiscal year ended September 30, 2018, compared to $110,272 in fiscal year 2017, including $540,082 and $Nil VAT refund for the fiscal years ended September 30, 2018 and 2017, respectively. Our government subsidy income was all granted by local governments in recognizing our achievements in various areas. We cannot predict the likelihood or amount of any future subsidies.

Other Expense, net

Other expense, net increased by $18,833, to $35,060 for the fiscal year ended September 30, 2018, from $18,883 for fiscal year 2017. The increase was primarily attributable to an increase in the non-recurring expense during the fiscal year ended September 30, 2018.

Provision (Benefit) for Income Taxes

For the fiscal years ended September 30, 2018 and 2017, our income tax expense increased by $225,742, or (199.57)%, income tax benefit of $113,113 for the fiscal year ended September 30, 2017, to $112,629 for the fiscal year ended September 30, 2018. The increase in income tax expense was primarily due to the increased taxable income during the fiscal year ended September 30, 2018.

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In November 2016, Khingan Forasen was approved as a High and New Technology Enterprise, and Khingan Forasen and its branch office, Tahe Biopower Plant, have been entitled to a reduced income tax rate of 15% beginning November 2016, subject to a requirement that they re-apply for HNTE status every three years. In addition, 10% of the revenue of Tahe Biopower Plant can be exempt from income tax for the fiscal years ended September 30, 2018 and 2017, because Tahe Biopower Plant meets the requirement of national comprehensive utilization of resources program.

Other comprehensive income (loss)

Foreign currency translation adjustments amounted to a loss of $578,092 and gain of $20,697 for the fiscal years ended September 30, 2018 and 2017, respectively. The balance sheet amounts with the exception of equity at September 30, 2018, were translated at RMB1.00 to $0.1456 as compared to RMB1.00 to $0.1503 at September 30, 2017. The equity accounts were stated at their historical rates. The average translation rates applied to the income statements accounts for the fiscal years ended September 30, 2018 and 2017, were RMB1.00 to $0.1530 and RMB1.00 to $0.1468, respectively. The changes in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying change in our business or results of operation.

The impact attributable to changes in revenue and expenses due to foreign currency translation are summarized as follows.

|  | Fiscal Year Ended September 30, 2018 |  |  | Fiscal Year Ended September 30, 2017 |
Impact on revenue |  | $ | (393,999 | ) |  | $ | 32,409 |
Impact on operating expenses |  | $ | (44,540 | ) |  | $ | 17,542 |
Impact on net income (loss) |  | $ | (76,084 | ) |  | $ | (19,201 | )

For the fiscal year ended September 30, 2018, if using RMB1.00 to $0.1456 (the foreign exchange rate as of September 30, 2018) to translate our revenue, operating expense, and net income, our reported revenue, operation expense, and net income would have decreased by $393,999, $44,540, and $76,084, respectively.

For the fiscal year ended September 30, 2017, if using RMB1.00 to $0.1503 (the foreign exchange rate as of September 30, 2017) to translate our revenue, operating expense, and net income (loss), our reported revenue, operation expense, and net income (loss) would have increased by $32,409, $17,542, and $19,201, respectively.

Liquidity and Capital Resources

We are a holding company incorporated in the British Virgin Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.

As of March 31, 2019, and September 30, 2018, we had cash on hand in the amount of $2,148,748 and $1,896,802, respectively, representing an increase of $251,946. The increase was mainly due to the cash inflow generated by operating activities. Total current assets as of March 31, 2019, amounted to $10,382,405, a decrease of $2,024,428 compared to $12,406,833 at September 30, 2018. The decrease was mainly due to the decrease in accounts receivable. Although our revenues increased during the six months ended March 31, 2019, we have increased our efforts in accounts receivable collection, therefore the balance decreased. Current liabilities amounted to $4,496,488 on March 31, 2019, in comparison to $7,308,344 on September 30, 2018. This decrease of current liabilities was mainly attributable to a decrease in accounts payable. As our performance improves, we are able to make more timely payment to our suppliers.

We have historically funded our working capital needs from operations, advance payments from customers, and additional capital contributions from shareholders. Currently, our principal sources of liquidity are our operations. This public offering, if completed, would provide us with additional capital resources. The primary drivers and material factors impacting our liquidity and capital resources include our ability to generate sufficient cash flows from our operations, and whether or not we can successfully complete our initial public offering to ensure our future growth and expansion plans. As of March 31, 2019, we had total assets of approximately $22.6 million, which included cash of approximately $2.1 million, accounts receivable of approximately $1.4 million, advances to suppliers of approximately $3.7 million and inventory of approximately $2.8 million, working capital of approximately $5.9 million, and stockholders’ equity of approximately $18.1 million.

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Working Capital

Total working capital as of March 31, 2019, amounted to $5,885,917, compared to $5,098,489 as of September 30, 2018.

Capital Needs

Our capital needs include our daily working capital needs and capital needs to finance the development of our business. With the uncertainty of the current market, our management believes it is necessary to enhance the collection of outstanding balance of accounts receivable and other receivables, and to be cautious on operational decisions and project selections. As of August 31, 2019, substantially all of our accounts receivable balance as of March 31, 2019 was collected. Our management believes that income generated from our current operations can satisfy our daily working capital needs over the next 12 months. We may also raise additional capital through public offerings or private placements to finance our business development and to consummate any merger or acquisition, if necessary.

Cash Flows

The following table sets forth a summary of our cash flows for the periods indicated:

|  | For the six months ended March 31, |  |  | For the years ended September 30, |
|  | 2019 |  |  | 2018 |  |  | 2018 |  |  | 2017 |
Net cash provided by (used in) operating activities |  | $ | 382,391 |  |  | $ | (1,469,502 | ) |  | $ | (2,916,519 | ) |  | $ | 3,723,203 |
Net cash provided by (used in) investing activities |  |  | (407,982 | ) |  |  | 1,476,168 |  |  |  | 4,830,963 |  |  |  | (1,442,295 | )
Net cash provided by (used in) financing activities |  |  | 228,952 |  |  |  | - |  |  |  | - |  |  |  | (2,226,138 | )
Effect of exchange rate changes on cash |  |  | 48,585 |  |  |  | 4,869 |  |  |  | (95,652 | ) |  |  | 1,345 |
Net increase in cash |  |  | 251,946 |  |  |  | 11,535 |  |  |  | 1,818,792 |  |  |  | 56,115 |
Cash, beginning of period |  |  | 1,896,802 |  |  |  | 78,010 |  |  |  | 78,010 |  |  |  | 21,895 |
Cash, end of period |  | $ | 2,148,748 |  |  | $ | 89,545 |  |  | $ | 1,896,802 |  |  | $ | 78,010 |

Operating Activities

Net cash provided by operating activities was $382,391 for the six months ended March 31, 2019, compared to cash used in operating activities of $1,469,502 in same period of 2018. The increase in net cash provided by operating activities was primarily attributable to the following factors:

| · | Cash provided by net income increased by $1.1 million when comparing the six months ended March 31, 2019, to the same period of 2018;
| · | Cash provided by accounts receivable increased by $2.5 million when comparing the six months ended March 31, 2019, to the same period of 2018. During the six months ended March 31, 2019, we enhanced the collection of accounts receivable. In addition, we preferentially supplied our products to prepayment customers and short credit term customers, so the accounts receivable turn over in the six months ended March 31, 2019 was faster; and
| · | Cash provided by prepaid expenses and other current assets increased by $3.2 million when comparing the six months ended March 31, 2019, to the same period of 2018. The main reason was we fully collected the outstanding balance of due from third parties in the six months ended March 31, 2019.

And offset by the following factors:

| · | Cash provided by inventory decreased by $1.2 million when comparing the six months ended March 31, 2019, to the same period of 2018. Our inventory level fluctuated based on the orders we received and the fluctuation of raw material prices;
| · | Cash provided by advances to suppliers decreased by $1.7 million when comparing the six months ended March 31, 2019, to the same period of 2018. Because we made more prepayments in order to expand our business; and
| · | Cash provided by accounts payable decreased by $2.6 million when comparing the six months ended March 31, 2019, to the same period of 2018. The decreases were mainly due to more payments made to vendors in the six months ended March 31, 2019.

Net cash used in operating activities was $2,916,519 for the fiscal year ended September 30, 2018, compared to cash provided by operating activities of $3,723,203 in fiscal year 2017. The decrease in net cash provided by operating activities was primarily attributable to the following factors:

| · | Cash provided by accounts receivable decreased by $3.7 million when comparing the fiscal year ended September 30, 2018, to the same period of 2017. The main reason was the increase in account receivable balance corresponded to the trend of increase in sales during fiscal year 2018. The credit terms remained the same in fiscal year 2018. Our sales increased by $6.7 million, or 490.41%, in fiscal year 2018;
| · | Cash provided by prepaid expenses and other current assets decreased by $2.5 million when comparing the fiscal year ended September 30, 2018, to the same period of 2017, because we made more prepayments in order to expand our business;
| · | Cash provided by accounts payable decreased by $3.5 million when comparing the fiscal year ended September 30, 2018, to the same period of 2017. The decrease was mainly due to more payment made to vendors in fiscal year 2018;
| · | Cash provided by advances from customers decreased by $2.4 million when comparing the fiscal year ended September 30, 2018, to the same period of 2017. The decrease was associated with decreased prepayment from customers for products, which have not been provided or rendered as of the balance sheet date, and the criteria of revenue recognition have not been met;

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And offset by the following factors:

| · | Cash provided by net income increased by $2.4 million when comparing the fiscal year ended September 30, 2018, to the same period of 2017.
| · | Cash provided by inventory increased by $3.1 million when comparing the fiscal year ended September 30, 2018, to the same period of 2017. Our inventory level fluctuated based on the orders we received and the fluctuation of raw material prices;

Investing Activities

For the six months ended March 31, 2019, net cash used in investing activities amounted to $407,982 as compared to net cash provided by investing activities of $1,476,168 for the same period of 2018. The decrease of approximately $1.9 million was primarily due to payments associated with the acquisition of land use rights and a decrease in collection on loans to related parties for the period indicated.

For the fiscal year ended September 30, 2018, net cash provided by investing activities amounted to $4,830,963 as compared to net cash used in investing activities of $1,442,295 for the same period of 2017. The increase of approximately $6.3 million was primarily due to an increase in collection on loans to related parties.

Financing Activities

Net cash provided by financing activities was $228,952 for the six months ended March 31, 2019. During the six months ended March 31, 2019, we borrowed RMB2 million (equivalent to $292,774) short-term bank loan from Industrial and Commercial Bank of China Tahe Branch as working capital.

Net cash used in financing activities was $2,226,138 for the fiscal year ended September 30, 2017, which was the repayment of related party loans. We paid full balance of related party loans during fiscal year 2017.

Loan Facilities

On March 25, 2019, we entered into a credit loan agreement with Industrial and Commercial Bank of China (“ICBC”) Tahe Branch to borrow RMB2 million (equivalent to $298,014 as of March 31, 2019) as the our working capital with a variable interest rate equals 110% of the prime interest rate set by the People’s Bank of China at the time of borrowing (4.785% as of March 31, 2019). This loan was due upon maturity on September 21, 2019. On September 19, 2019, we renewed this loan with ICBC to borrow RMB 1.98 million (equivalent to $295,034) as working capital with a variable interest rate equals 115% of the prime interest rate set by the People’s Bank of China at the time of borrowing (5.0025% as of September 19, 2019). The new maturity date is March 17, 2020.

Contractual Obligations

We lease one main office space under operating lease through May 9, 2020. The following table summarizes our contractual obligations, which are comprised entirely of operating lease obligations, as of March 31, 2019 and September 30, 2018, and the effect these obligations are expected to have on our liquidity and cash flows in future periods:

12 months ending March 31, |  |  |
2020 |  | $ | 56,108 |
2021 |  |  | 4,694 |
Total |  | $ | 60,802 |

12 months ending September 30, |  |  |
2019 |  | $ | 53,513 |
2020 |  |  | 32,098 |
Total |  | $ | 85,611 |

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that we provide financing, liquidity, market risk or credit support to or engages in hedging or research and development services with us.

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our consolidated financial statements included elsewhere in this report.

Use of Estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include, but are not limited to, the valuation of inventories, advances to suppliers, useful lives of property, plant and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition, and realization of deferred tax assets. Actual results could differ from those estimates.

Revenue Recognition

On October 1, 2016, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective method for contracts that were not completed as of October 1, 2016. The results of applying ASC Topic 606 using the modified retrospective approach were insignificant and did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows, business process, controls, or systems.

Revenues of the Company are mainly from the sale of two types of products, activated carbon and biomass electricity generated in the process of producing activated carbon. For the sale of activated carbon, the Company recognizes revenue when title and risk of loss passes and the customer accepts the products, which generally occurs at delivery. Product delivery is evidenced by warehouse shipping log as well as signed shipping bills from the shipping company, or by receipt document signed by the customer upon delivery, depending on the delivery term negotiated between the Company and customers on a customer-by-customer basis. For the sale of biomass electricity, revenue is recognized over time as the biomass electricity is delivered, which occurs when the biomass electricity is transmitted from the power plant of the Company to the provincial power grid company. The amount is based on the reading of meters, which occurs on a systematic basis throughout each reporting period and represents the market value of the biomass electricity delivered. The Company provided a one-time technical service to one customer who purchased activated carbon from the Company. The revenue of technical service is recognized on a straight-line basis over the service period as earned.

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The transaction price of activated carbon is determined based on fixed consideration in the Company’s customer contracts. Pursuant to the power purchase agreements entered into between the Company and the respective provincial power grid company, the Company’s sales of biomass electricity were made to the power grid company at the tariff rates agreed with the provincial power grid company as approved by the relevant government authorities in the PRC. In determining the transaction price, no significant financing components exist since the timing from when the Company invoices its customers to when payment is received is less than one year.

Revenue is reported net of all value added taxes. The Company generally does not permit customers to return products and historically, customer returns have been immaterial. In the event the Company receives an advance from a customer, such advance is recorded as a liability to the Company. The Company reduces the liability and recognizes revenue after the delivery of goods occurs.

The core principle underlying the revenue recognition ASU is that the Company recognizes revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s sales contracts of activated carbon have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Therefore, the sale of activated carbon is recognized at a point in time. The Company’s sales contracts of biomass electricity have a single performance obligation that represents a promise to transfer to the customer a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. The Company’s performance obligation is satisfied over time as biomass electricity is delivered.

The contract assets and contract liabilities are recorded on the consolidated balance sheets as accounts receivable and advances from customers as of March 31, 2019, and September 30, 2018. For the six months ended March 31, 2019 and 2018, revenue recognized from performance obligations related to prior periods was insignificant. Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant.

The Company has elected the following practical expedients in applying ASC Topic 606:

· | Unsatisfied Performance Obligations – for all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606, and therefore is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
· | Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.
· | Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

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· | Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.
· | Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.
· | Modified Retrospective Method - the Company adopted ASC Topic 606 on October 1, 2016, utilizing the modified retrospective method which allows the Company to not retrospectively adjust prior periods. The Company applied the modified retrospective method only to contracts that were not completed at October 1, 2016, and accounted for the aggregate effect of any contract modifications upon adoption.

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses. We review our accounts receivable on a periodic basis and make general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, customer’s historical payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after efforts at collection prove unsuccessful.

Inventory

We value our inventory at the lower of cost, determined on a weighted average basis, or net realizable value. Costs include the cost of raw materials, freight, direct labor, and related production overhead. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products. We review our inventory periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value. No inventory reserves were recorded as of March 31, 2019 and September 30, 2018.

Income taxes

The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the six months ended March 31, 2019 and 2018. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain.

ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2019, and September 30, 2018. As of March 31, 2019, the tax years ended December 31, 2014, through December 31, 2018 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The main objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (1) public business entities, (2) not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (3) employee benefit plans that file financial statements with the SEC. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities. The Company will adopt this new lease standard within annual reporting period of September 30, 2019 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt this ASU within the annual reporting period of September 30, 2021 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.

In September 2017, the FASB issued ASU 2017-13, Revenue from Contracts with Customers (Topic 606). The main objective of this pronouncement is to clarify the effective date of the adoption of ASC Topic 606 and the definition of public business entity as stipulated in ASU 2014-09. ASU 2014-09 provides that a public business entity and certain other specified entities adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. ASU 2017-13 clarifies that the SEC would not object to certain public business entities electing to use the non-public business entities effective dates for applying ASC Topic 606. ASU 2017-13, however, limits such election to certain public business entities that “otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filings with the SEC”. We adopted this new revenue recognition standard at October 1, 2016, using the modified retrospective method.

In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” which clarifies how to apply certain aspects of the new leases standard. This ASU addresses the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. This ASU has the same effective date and transition requirements as the new leases standard, which is effective for annual periods beginning after December 15, 2018. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which provides a new transition method and a practical expedient for separating components of a contract. This ASU is intended to reduce costs and ease the implementation of the new leasing standard for financial statement preparers. The effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We expect that the adoption of this ASU will not have a material impact on our consolidated financial statements.

We do not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our consolidated financial position, statements of operations, and cash flows.

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INDUSTRY

All the information and data presented in this section have been derived from Frost & Sullivan (Beijing) Inc., Shanghai Branch Co. (“Frost & Sullivan”)’s industry report commissioned by us in June 2019 titled “The PRC Activated Carbon Manufacturing Market and Biomass Energy Market Independent Research” (the “Frost & Sullivan Report”) unless otherwise noted. Frost & Sullivan has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. The following discussion contains projections for future growth, which may not occur at the rates that are projected or at all.

OVERVIEW OF ACTIVATED CARBON MANUFACTURING MARKET IN THE PRC

Definition

Activated carbon is a form of carbon with high absorption ability as it has undergone additional chemical processes. It is primarily manufactured from wood, bamboo, charcoal, and various kinds of fruit shells. The manufacturing process involves crushing, sieving, catalyst activating, rinsing, drying, and screening. It has the ability to perform selective adsorption in various situations in both gas and liquid, in order to achieve decolorization, disinfection, deodorization, decontamination, and purification.

In recent years, with the continuous development of the economy and the consumption upgrade in the PRC, rising consumer awareness on the safety and purity of food, pharmaceuticals, and drinking water has increased the market demand for activated carbon products.

Classifications

Activated carbon products can be primarily classified by appearance, raw materials used, manufacturing processes, and applications.

Types of Activated Carbon
Appearance | Powdered Activated Carbon
Granular Activated Carbon
Fibrous Activated Carbon
Honeycomb Activated Carbon
Composite Activated Carbon
Raw Material | Coal Activated Carbon
Wood Activated Carbon
Activated Carbon from Shell / Core
Petroleum Activated Carbon
Resin Activated Carbon
Other Small Varieties of Activated Carbon Products
Manufacturing Process | Activated carbon by chemical activation
Activated carbon by physical activation
Applications | Gas adsorption activated carbon
Activated carbon adsorption in liquid phase
Activated carbon for catalyst

Source: The Frost & Sullivan Report

Overview of Wood-based Activated Carbon Manufacturing Industry in the PRC

The wood-based activated carbon is a kind of activated carbon made from fuelwood, sawdust, wood block, and other wooden raw materials and processed by popular processes such as physical method, phosphoric acid method, and zinc chloride method. By comparison, coal-based activated carbon is a kind of activated carbon made from coal. Since the raw materials of wood-based activated carbon are renewable and there is less emission of carbon dioxide in the production process, wood-based activated carbon is more environmentally friendly than coal-based activated carbon. The wood-based activated carbon manufacturing industry in the PRC has made remarkable achievements in the past century, especially in the past 20 years of industrial reformation and development. Manufacturing processes have developed from simple flat-plate furnace and smoldering furnace to more advanced production methods, such as rotary furnace, fluidized bed furnace, and other production processes.

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The upstream suppliers of the activated carbon industrial supply chain are activated carbon raw material producers and suppliers, which include suppliers of forestry residues and packaging materials. The midstream suppliers of the supply chain are wood-based activated carbon manufacturers, whereas the downstream consumers are different industries that use activated carbon as raw materials, including the food industry, chemical industry, pharmaceutical industry and many others.

Due to the rapid development of industrial technology, stricter environmental protection regulations, and increased attention to food safety, demand for wood-based activated carbon has increased in many industries, such as the food and beverage, pharmaceutical, metallurgy, environmental engineering, and automobile industries. The production volume of wood-based activated carbon products in the PRC has increased from 108.0 thousand tons in 2013 to 159.1 thousand tons in 2018, a compound annual growth rate (“CAGR”) of 7.8%. It is expected that the production volume will reach 203.2 thousand tons by 2022, representing a CAGR of 6.4% from 2018 to 2022.

Source: The Frost & Sullivan Report

Related Policies and Regulations

Wood-based activated carbon manufacturing industry is an industry supported by various policies such as preferential tax policies of the State.

Policies/Regulations | Issuing department | Issue Date | Details
Catalogue for Guiding Industry Restructuring (2011 edition) (2013 Amendment) | The State Development & Reform Commission | February 2013 | Further processing and product development of forestry residues and sandy shrubs are encouraged.
The 12th Five-Year Plan for Circular Economy Development | The State Council | February 2012 | All industries are encouraged to attach importance to the reuse of wastes generated in production and daily life.
Notice on Adjusting and Improving the Policy of Value-Added Tax on Products and Labor Services for Comprehensive Utilization of Resources | The Ministry of Finance, The State Administration of Taxation | December 2009 | Activated carbon produced from three kinds of agricultural and forestry residues, such as three kinds of residues, sub-small fuelwood and crop straw, which are sold by taxpayers, is levied and refunded 80% immediately by tax authorities.
Law of the People’s Republic of China on Promoting Circular Economy | NPC Standing Committee | August 2008 | The law is enacted to promote the development of circular economy, improve the efficiency of resource utilization, protect and improve the environment, and achieve sustainable development.
Notice on Publishing Preferential Catalogue of Enterprise Income Tax for Comprehensive Utilization of Resources (2008 Edition) | Ministry of Finance, The State Administration of Taxation | August 2008 | Enterprises that use wood-based panels made of sawdust, bark and branches as raw materials to produce activated carbon enjoy preferential income tax according to relevant regulations.

Source: The Frost & Sullivan Report

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The PRC Wood-based Activated Carbon Manufacturing Market

We believe the wood-based activated carbon manufacturing market in the PRC has the following key characteristics:

Rapid Growth Trend. Supported by the robust social and economic development in China, the downstream activated carbon industries continue to expand, especially in the fields of water treatment, air purification, automobile applications, solvent and waste gas recovery which provide a strong growth momentum to the wood-based activated carbon manufacturing market. In addition, with the improvement of people’s living standards and the enhancement of environmental awareness in China, the demand for activated carbon in the food, pharmaceutical, water treatment, and air purification industries is expected to maintain a rapid growth trend.

Rising Awareness in Food Safety. Over the past decades, increasing number of food safety related incidents have caught the attention of the Chinese citizens. Because of the consumption upgrade and abundant food safety information available on the Internet, consumers in China are paying more attention to the issue of food safety, which leads rising demand for activated carbon as food and water filter and purifier by the food manufacturers. The rising standard of living and awareness of food safety in China, in particular in the Tier 1 and 2 cities, are expected to provide a strong growth momentum to the activated carbon industry, in particular wood-based activated carbon in China.

Fierce Competition. Because of an increase in the number of local and international activated carbon producers in China, increasingly fierce competition in the activated carbon manufacturing market in China has fostered industry reformation and optimization. More merger and acquisition activities are expected in the foreseeable future, as smaller and less competitive market players are eliminated whereas strong players that are able to produce activated carbon efficiently are more likely to gain market shares. As the development of activated carbon manufacturing technology in the PRC is slower compared to that in developed economies such as the U.S. and Japan, it is therefore expected that the manufacturers in China will also face fierce international competition which might hinder the development of the overall activated carbon manufacturing market in China in the coming years.

Competitive Landscape of Wood-Based Activated Carbon Manufacturing Industry in the PRC

As of 2018, the wood-based activated carbon manufacturing market in the PRC is highly competitive and fragmented; there are a few manufacturers with annual production capacity of more than 10,000 tons and the rest of industry players are relatively small-scale manufacturers with annual production capacity of thousands of tons or less. The major competitive factors of the manufacturers are price, production capacity, quality, and distribution channels. Wood-based activated carbon manufacturers are mainly located in Fujian, Jiangxi, Zhejiang, Jiangsu, and Northeast China where forestry resources are in abundance. Wood-based activated carbon manufacturers also compete with coal-based activated carbon companies, which are mainly located in coal-rich areas such as Shanxi, Ningxia, and Inner Mongolia.

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Entry Barriers

Technologies and Talent Acquisition. Major activated carbon manufacturers possess advanced technologies and professionals with extensive scientific knowledge and market know-how, allowing these manufacturers to efficiently produce high quality products, develop new products, and respond to swift market movements. New market entrants may find it difficult to develop such level of facilities and technologies or hire professionals to establish their business in the market.

High Capital Investment. As the activated carbon manufacturing industry is considered labor intensive, market entrants need to spend a large amount of capital to hire workers. On the other hand, it is necessary to invest a substantial amount of upfront capital and resources to purchase industrial machineries and raw material as well as to finance research and develop technologies. Therefore, the extensive amount of financial resources required to establish an activated carbon manufacturing business poses as an entry barrier for new market entrants.

Supply of Raw Materials. The activated carbon industry is also resource-intensive. Main raw materials for activated carbon production are mostly carbon-rich, such as coal, wood, fruit shell, coconut shell, walnut shell, apricot shell, jujube shell. An adequate, stable, and high-quality supply of such raw materials is required to guarantee stable and continuing production of activated carbon. For example, to guarantee the supply of raw materials at a reasonable cost, wood-based activated carbon manufacturers must be close to areas with rich forest resources or near timber distribution or processing zones. Limited coal and forest resources in the PRC makes it hard for new entrants to establish a stable raw materials supply system suitable for long-term procurement.

OVERVIEW OF BIOMASS ENERGY MARKET IN THE PRC

Classifications of Biomass Energy

Based on production processes, the technology of biomass can be mainly divided into four types, namely straw direct combustion power generation, biomass combined heat and power (“CHP”), biomass gasification power generation, and mixed fuel power generation.

Straw direct combustion power generation. Straw direct combustion power generation is a process of converting biomass energy into heat and electricity by directly firing straws through a special boiler. Currently, main raw materials for direct combustion power generation are agricultural and forestry biomass fuels, such as straw, forestry residues and other biomass fuels.

Biomass CHP. Biomass CHP refers to using biomass as fuel for power plants. In addition to power generation, biomass CHP technology is able to provide heat by recovering waste heat from the power generation system.

Biomass gasification power generation. Biomass gasification power generation is a process that converts agricultural and industry solid waste into a clean source of electricity by unlocking the energy in these materials. Using advanced thermal conversion technology that involves heat, and finely controlled oxygen supply, the biomass waste is transformed into hydrogen, carbon monoxide, methane and other inert gasses producing electricity and heat without combustion or high carbon emissions commonly associated with more traditional sources of power.

Mixed fuel power generation. Mixed fuel power generation technology means co-firing power generation using biomass and coal using modified material-loading system and combustion system of current coal-fired power plant. Different from the sources of biomass, such as landfill gases, biogases, or solid waste in other countries, the sources of biomass in China are mainly agricultural wastes, thus imported biomass generators cannot directly be used for mixed fuel power generation in China.

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Advantages of Biomass Energy

Renewable. Biomass power is a renewable energy source that can be replenished after use. A lot of biomass fuels, such as wood and straw, can be regrown. As long as efforts are made to maintain the resources used for biomass energy through dedicated replanting, it is a fuel source that has the potential to far outlast traditional fossil fuels.

Carbon Neutrality. Biomass reduces the amount of carbon that is released into the atmosphere, easing the situation of climate change. The only carbon that is released into the atmosphere from biomass fuels is what was absorbed by the plants during their lifecycles. As these plants are replenished, the new ones absorb the same amount of carbon, which creates a carbon neutrality cycle that sees no extra carbon emission.

Less dependency on fossil fuels. The more biomass energy is used, the less we need to depend on the fossil fuels, which are major contributors to climate change and other environmental issues. The great abundance of biomass materials also far exceeds the amount of fossil fuels, making it a more readily available fuel source.

Versatility. Biomass energy is also amongst the most versatile fuels. It can be converted into many different forms of fuel sources, each of which has varied applications. For example, biomass can be processed to create biodiesel for vehicles, and it can also be used to farm methane gas and other biofuels. Moreover, wood can be used to generate heat, while the steam produced by some forms of biomass can also power turbines to create energy.

Market Size Analysis

Although biomass resources, such as firewood and agricultural residues, are abundant and have been a significant source of energy in China, particularly in rural areas, they are primarily used for conventional energy consumption such as cooking and heating. Biomass as a clean and low-cost source for electricity and heat based on modern biomass technologies is in urgent need of development, as reflected by the goal of installing a cumulative biomass power generation capacity (including power generation capacity of waste-to-energy projects) of 15,000 MW by 2020 for biomass power under the 13th Five-Year Plan for Biomass Energy promulgated by the National Energy Administration of China in October 2016. According to Frost & Sullivan, the total cumulative biomass power generation capacity reached 7,009 MW as of December 31, 2017.

The following chart sets forth the cumulative biomass power generation capacity in China:

Cumulative Biomass Power Generation Capacity in China, 2013-2022E

Source: The Frost & Sullivan Report

Drivers for Biomass Energy Industry Development

Favorable policy support. According to the Medium-Term and Long-Term Plan for Renewable Energy promulgated by the National Development and Reform Commission of the PRC (the “NDRC”) in 2007, the PRC government set a goal to install a cumulative power generation capacity of 30.0 GW for biomass power by 2020. In order to encourage development of the biomass power industry, the NDRC issued the Notice on Improving the Pricing Policy Regarding Electricity Generated from Agricultural Waste and Forestry Residue in July 2010, which set a uniform benchmark on-grid tariff of RMB0.75/kWh applicable to all biomass power projects. This is significantly higher than the on-grid tariff for conventional coal electricity, which ranges from RMB0.30/kWh to RMB0.50/kWh, according to Frost & Sullivan. Moreover, local governments have adopted specific policies to support the development of the biomass industry, including subsidies for biomass supply and reduced interest on project financing loans for biomass facilities. According to Frost & Sullivan, development of carbon emission market may provide an additional revenue source to the biomass industry in China in the future. Frost & Sullivan expects such favorable regulatory environment to continue in the future to support the biomass power industry to reach the capacity target.

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Demand for air pollution control and reduction of greenhouse emissions. Air pollution has become a significant public health issue in China and has attracted close attention nationwide. Public awareness and demand for pollution control are particularly acute in regions with high population density and severe pollution, including eastern provinces such as Jiangsu Province, Shandong Province, and Anhui Province. As compared to incineration of biomass raw materials in open fields commonly done in rural China, which has a negative impact on air quality, controlled biomass combustion to produce electricity and heat is a low-emission way of using biomass raw materials. It also produces negligible amounts of sulfur dioxide and nitrous oxide emissions as compared with fossil fuels and is expected to play an important role in controlling air pollution in China.

Construction of rural power grid and development of rural areas. According to Frost & Sullivan, China’s power grid companies have been increasing their investment in grid construction in rural areas during recent years, which may facilitate construction of biomass power plants which are typically located in those areas. In addition, building biomass power facilities could increase living standards, promote industrialization, and generate employment in rural areas. By purchasing agricultural and forestry residues, biomass power plants also provide an additional revenue source for farmers. According to Frost & Sullivan, due to these benefits, local governments that endeavor to improve the income of farmers are expected to continue supporting the construction of additional biomass facilities.

Opportunities and Threats for Biomass Power Industry

Rising Awareness of Biomass Energy. With the limited resources of fossil fuels and negative environmental issues incurred, biomass energy has become increasingly important in the national energy mix. The PRC is the largest energy-consuming country all over the world. However, the supply of fossil fuel and natural gas is relatively insufficient. According to Frost & Sullivan, the per capita possession of fossil fuel and natural gas in the PRC is only 6% of the world average. Thus, there is a huge market potential for biomass energy industry to develop in order to fulfill the energy demand.

Immature Development of Biomass Power Industry Infrastructure. Although a huge amount of unexplored biomass resources provides excellent market potential for biomass power industry, the geographic distribution of biomass fuels is scattered in the PRC. Some areas with abundant biomass resource, such as Yunnan province, currently do not have facilities to explore the biomass resources and logistics system to transport them, leading to a large amount of resources being undeveloped and wasted, and resulting in a low utilization rate.

Competitive Landscape of Biomass Power Industry in the PRC

Since 2010, underpinned by the urgency of environmental protection issues and improving profitability of biomass plants, the number of biomass projects has been increasing every year. The market was dominated by two major biomass power companies focusing in the southern and northern regions of the PRC, respectively. With the rapid development of the biomass power market in the PRC, however, more industry practitioners in the energy sector across the PRC have entered this growing market and thus the market is considered to be increasingly fragmented with no clear dominant player.

Entry Barriers for Biomass Power Industry

Capital barriers. Biomass facilities normally require a large initial capital investment. According to Frost & Sullivan, to achieve an economical scale, a biomass power plant typically requires an initial investment of RMB300 million (____ USD). In addition, most biomass projects are subject to a long payback period of more than 10 years. The application for subsidies for construction is also time-consuming. High initial capital investment requires industry participants to possess substantial capital and strong financing abilities.

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Management expertise. Management’s in-depth expertise and experience in project selection, planning, financing, construction, testing and operation, as well as the ability to assure high levels of operational stability and efficiency and regulatory compliance, are essential to the success of a biomass project. In particular, the fuel price for a biomass power plant is relatively high due to the collection and transportation costs, and due to their smaller scale, biomass power units usually have lower power efficiency than coal-fired units. Therefore, despite high on-grid tariffs, the profitability of biomass power plants varies largely according to the ability of their operators to control supply prices and ensure operational efficiency. As a result, inexperienced players may have difficulties achieving profitability.

Biomass supply. Stable supply of biomass raw materials is critical to the profitability of biomass facilities. As biomass resources are scattered in rural areas where the collection and transportation system are typically underdeveloped, it is costly to establish a supply system. Furthermore, the total output of biomass resources is limited in a given region, and the cost to transport biomass resources from other regions is high. Moreover, once a biomass facility is constructed, additional biomass facilities may not be constructed within a radius of 100km under the Notice on the Administration of the Construction of Biomass Energy Generation Projects promulgated by the NDRC in August 2010. Therefore, the first mover in a particular region will likely prevent entry of other competitors.

Technological barriers. Equipment used in biomass facilities is highly specialized and technology-intensive, and is required to conform to strict standards in the power generation process. Biomass technology is in a developing stage in China, and Chinese biomass power companies still primarily rely on imported technology and equipment. Therefore, cooperation with domestic enterprises with strong research and development capability or with foreign equipment manufacturers is important to enter the market.

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BUSINESS

Overview

Through our wholly owned PRC subsidiary, Khingan Forasen , we are a manufacturer and supplier of activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production (“Activated Carbon Production”), and a producer of biomass electricity generated in the process of producing activated carbon (“Biomass Electricity Production”).

Our primary raw materials are forestry residues, little fuelwood, and wood wastes, which we source from our suppliers. Our current facilities are located in Tahe County, Heilongjiang Province, at close proximity to the Greater Khingan Range, where our suppliers are primarily located. We also source raw materials from Inner Mongolia.

Our main product is activated carbon produced to conform to our customers’ specifications. Our activated carbon customers are primarily activated carbon wholesalers, food and beverage producers, industrial manufacturers, pharmaceutical manufacturers, companies engaging in environment protection, and companies engaging in the activated carbon deep processing business. Our customers are all based in the PRC and currently mainly located in Jiangsu Province, Fujian Province, Zhejiang Province, and Shanghai.

The biomass electricity we generate in the process of producing activated carbon is supplied to State Grid Heilongjiang Electric Power Company Limited (“State Grid Heilongjiang”), a subsidiary of State Grid Corporation of China in Heilongjiang Province.

Our revenue is primarily generated through sales of our activated carbon.

For the six months ended March 31, 2019 and 2018, we sold 3,816 and 1,418 tons of activated carbon and 1,159,917 and 1,150,358 kWh of biomass electricity, respectively. For the same period, we had total revenues of $4,768,077 and $1,808,125, and net income of $684,137 and a net loss of $399,461, respectively. The revenues derived from Activated Carbon Production accounted for 97.7% and 91.47% of our total revenues for the six months ended March 31, 2019 and 2018, respectively. The revenues derived from Biomass Electricity Production accounted for 2.3% and 6.29% of our total revenues for the six months ended March 31, 2019 and 2018, respectively.

For the fiscal years ended September 30, 2018 and 2017, we sold 6,200 and 895 tons of activated carbon and 3,872,866 and 2,455,612 kWh of biomass electricity, respectively. For the same years, we had total revenues of $8,091,937 and $1,370,563, and net income of $1,562,618 and a net loss of $811,993, respectively. During fiscal year 2018, we increased our effort to develop the market and seek new customers, and our sales of activated carbon grew rapidly. The revenue derived from Activated Carbon Production accounted for 95% and 76% of our total revenue for the fiscal years ended September 30, 2018 and 2017, respectively. The revenue derived from Biomass Electricity Production accounted for 5% and 17% of our total revenue for the fiscal years ended September 30, 2018 and 2017, respectively.

Corporate History and Structure

On November 23, 2018, we established a holding company, CN ENERGY GROUP. INC. (“CN Energy”), under the laws of the British Virgin Islands. CN Energy owns 100% of CLEAN ENERGY HOLDINGS LIMITED (“Energy Holdings”), a Hong Kong company incorporated on August 29, 2013.

On January 14, 2019, Zhejiang CN Energy Technology Development Co., Ltd. (“Zhejiang CN Energy”) was incorporated pursuant to PRC laws as a wholly foreign owned enterprise. Energy Holdings holds 100% of the equity interests in Zhejiang CN Energy. On January 24, 2019, Manzhouli CN Energy Industrial Co., Ltd. (“Manzhouli CN Energy”) was incorporated pursuant to PRC laws as a wholly foreign owned enterprise. Energy Holdings holds 100% of the equity interests in Manzhouli CN Energy. On June 10, 2019, Manzhouli CN Energy Technology Co., Ltd. (“Manzhouli CN Technology”) was incorporated as a limited company pursuant to PRC laws. Zhejiang CN Energy and Manzhouli CN Energy currently hold 10% and 90% of the equity interests in Manzhouli CN Technology, respectively.

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On April 18, 2019, we established a wholly owned indirect subsidiary, CN Energy Development, as a limited company pursuant to PRC laws. Zhejiang CN Energy and Manzhouli CN Technology hold 30% and 70% of the equity interests in CN Energy Development, respectively. CN Energy Development holds 100% of the equity interests in Greater Khingan Range Forasen Energy Technology Co., Ltd. (“Khingan Forasen”), a limited company pursuant to PRC laws. Wholly owned subsidiaries of Khingan Forasen include Hangzhou Forasen Technology Co., Ltd. (“Hangzhou Forasen”) and Manzhouli Zhongxing Energy Technology Co., Ltd. (“Zhongxing Energy”), both of which were established as limited companies pursuant to PRC laws.

We operate through Khingan Forasen and its subsidiaries. Khingan Forasen produces activated carbon and biomass electricity through its branch office, Tahe Biopower Plant, which houses our current manufacturing facilities; Hangzhou Forasen is engaged in the marketing of our activated carbon products; Zhongxing Energy is expected to hold our second biopower plant and produce activated carbon and biomass electricity in the future.

The following diagram illustrates our corporate structure as of the date of this prospectus and upon completion of this offering based on a proposed maximum number of [●] Ordinary Shares being offered.

Notes:

| (1) | Represents 50,000 Ordinary Shares held by Yefang Zhang, the 100% owner of Global Clean Energy Limited, as of the date of this prospectus.

| (2) | Represents 20,972 Ordinary Shares held by Wangfeng Yan, the 100% owner of Elk International Capital Limited, as of the date of this prospectus.

| (3) | Represents 15,359 Ordinary Shares held by Kaiyu Liu, the 100% owner of Sentong Industrial Limited, as of the date of this prospectus.

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| (4) | Represents 15,359 Ordinary Shares held by Yiyue Ye, the 100% owner of Xieying Energy Limited, as of the date of this prospectus.

| (5) | Represents 11,058 Ordinary Shares held by Jing Wang, the100% owner of Yunda Industrial Limited, as of the date of this prospectus.

| (6) | Represents 7,987 Ordinary Shares held by Jingmin Liu, the 100% owner of Xinhe Industrial Limited, as of the date of this prospectus.

For details of each shareholder’s ownership, please refer to the beneficial ownership table in the section captioned “Principle Shareholders.”

Competition

All of our activated carbon sales are in the PRC market. Our major competitors are companies that manufacture and sell activated carbon in the PRC market. Our main competitors in Activated Carbon Production include wood-based activated carbon manufacturers, such as Fujian Xinsen Carbon Industry Co., Ltd., and coal-based activated carbon manufacturers, such as Shanxi Xinhua Activated Carbon Co., Ltd., Ningxia Huahui Activated Carbon Company Limited, Shenhua Ningxia Coal Industry Group Co., Ltd., and Xingtai Coal Chemical Co., Ltd. We compete for customers primarily on the basis of activated carbon prices, activated carbon quality and characteristics, transportation costs, customer relationships, and the reliability of supply. The demand for our activated carbon is significantly dependent on the general economy in the PRC.

Since State Grid Corporation of China is the only purchaser of biomass electricity in the PRC and the electricity purchase price is determined by the National Development and Reform Commission of the PRC, there is no competition in terms of the customer or price in the PRC biomass electricity market. We instead focus on reducing our production cost and increasing our production capacity of the biomass electricity. Some other major producers of biomass electricity in the PRC are Sunshine Kaidi New Energy Group Co., Ltd. and National Biological Energy Co., Ltd.

Our Competitive Strengths

We believe we have the following competitive strengths:

Advanced Technology And Established Relationship With a Research Center

We produce activated carbon and biomass electricity from forestry residues, little fuelwood, and wood wastes in a single process through the activated carbon and electricity cogeneration technology we have developed over the years. Compared with traditional methods of producing activated carbon by burning forestry residues, little fuelwood, and wood wastes directly, we believe our technology is more efficient, produces higher-quality activated carbon products as well as biomass electricity, results in less pollution, and yields higher profits after selling our products. As of the date of this prospectus, we developed and own eight patented inventions in the PRC and claim ownership of certain trade secrets and proprietary know-how developed by and used in our business. We cooperated with Huadian Electric Power Science Academy pursuant to a Strategic Cooperation Agreement dated April 3, 2014, to research, develop, and share technologies related to activated carbon and biomass energy, which include improvements to the ignition system and speed control system of electric generators. We are also constantly looking for new cooperative opportunities with additional research centers to further improve our method.

Strategically Placed Facilities And Lower Costs

We strategically placed our current Tahe County facilities in the middle of the Greater Khingan Range, where most of our suppliers are located and where there is abundant supply of forestry residues, little fuelwood, and wood wastes. Our Tahe County facilities are close to multiple roads and only 1.24 miles from the nearest train station, thereby facilitating the transportation of our activated carbon products to customers in East China and South China. Our new facilities under construction, the first stage of which is expected to be operating in June 2020, are located in Manzhouli City, Inner Mongolia, where there are over 100 woodworking factories that could potentially supply us with a large number of wood wastes and which has similarly good transportation infrastructure. Our stable feedstock supply and low transportation cost help us maintain lower general costs than those of our competitors.

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High-Quality Activated Carbon Products And Biomass Electricity

The chemical activation process of activated carbon production uses coal as raw material. Coal often contains impurities, metal salt, and ash, and chemicals used in the chemical activation process may cause secondary pollution to the activated carbon products. Therefore, activated carbon products manufactured through the chemical activation process often are of low quality and can only be used in industrial manufacturing. In contrast, our activated carbon products, manufactured from forestry residues, little fuelwood, and wood wastes and through the physical activation process, are of higher quality than carbon activated products manufactured through the chemical activation process and therefore have a wide range of uses in industries such as pharmaceutical manufacturing, industrial manufacturing, water purification, food and beverage production, and environment protection. The biomass electricity generated in our activated carbon production process offers us an additional revenue source.

Strong Management And Professional Team With Extensive Industry Experience

Our senior management team, led by Mr. Zhengyu Wang, our chief executive officer and chairman, has significant experience in the activated carbon and biomass energy industries. Our management team is comprised of highly skilled and dedicated professionals with wide ranging experience in research, services, product development, business development, and marketing. We believe that our management and professional team will be able to effectively grow our business through continued operating improvement and research.

Our Strategy

Our goal is to become one of China’s leading activated carbon and biomass energy producers. Accomplishing this goal requires the successful implementation of the following strategies:

Increase the Capacity of Activated Carbon Production

Since the demand for activated carbon in general and orders for our activated carbon products more particularly have been increasing in recent years, facilities at Tahe Biopower Plant have almost reached their full operating capacity and we had to outsource some of our orders to third-party producers to keep up with the demand for our products. These third-party producers do not have the same manufacturing processes or quality control as we do, nor do we share technology with them. We mainly purchase activated carbon from these third-party producers to fulfill orders from customers who do not require the wood-based activated carbon we produce. We are currently constructing new manufacturing facilities in Manzhouli City, Inner Mongolia, to increase our capacity of activated carbon production. As of August 2019, we had completed the construction of the groundwork of the factory workshop and over half of the auxiliary buildings.

Expand Customer Base

We plan to explore new markets for our activated carbon products while maintaining our current customer base. We are considering establishing branch offices in various strategic areas, including Beijing, Shanghai, Hebei Province, Jiangsu Province, and Fujian Province. These branch offices would focus on increasing activated carbon product sales to existing customers, provide customer support in those areas, and facilitate the acquisition of potential new customers. By increasing the number of customers and optimizing our transportation and sales network, we aim to reduce the marginal cost of our activated carbon products and increase our profits.

Focus on Products With Growing Demand

Due to the rapid development of industrial technology, stricter environmental protection regulations, and increased attention to food safety, there has been increasing demand for activated carbon used in the water, food, and beverage industries, and activated carbon for pharmaceutical raw materials, intermediates, and finished products. We believe we are well positioned to meet each of these growing areas of demand. We will seek to continue our innovative approach, while ensuring reliability and efficiency in the delivery supply chain, to the extent we are able to continue to access a consistent supply of raw materials, by designing and manufacturing activated carbon products for use in a broad range of applications. While maintaining a diversified customer base and product line, we will seek to focus on our products with growing demand and capitalize opportunities for increasing their sales.

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Increase Research and Development Efforts

We plan to increase our research and development efforts by seeking partnerships with research centers of well-known institutes to develop more efficient methods for producing activated carbon and generating biomass energy. We have been working on applying our activated carbon production technology currently used with forestry residues, little fuelwood, and wood wastes to crop residues as well. We are seeking to reduce our reliance on forest resources and therefore expand our network of suppliers to other provinces in the PRC.

Explore New Business Opportunities

We have been monitoring possible business opportunities in the downstream sectors of the activated carbon industry, such as environment restoration, water purification, and air cleaning. In the long term, we plan to strategically establish or acquire companies that use activated carbon as raw materials. We do not plan to use the net proceeds from this offering to fund these long-term plans, and have not entered into any binding agreement for any acquisition nor identified any definite acquisition target. By expanding our business vertically in the activated carbon industry, we hope to increase our pricing power and minimize risks in our Activated Carbon Production business.

Production Process

Our activated carbon is produced by a process known as activated carbon and electricity cogeneration (“Cogeneration”). In the Cogeneration process, feedstock is sorted and shredded into wood pieces that are 0.4 to 2.4 inches thick, which are dried in a drying oven until the moisture content of the wood pieces is less than 15%. The wood pieces are then loaded into the gasifier, where they are pyrolyzed into charcoal and synthesis gas (or “syngas”). The charcoal is then exposed to oxidizing atmospheres at temperatures above 250 °C in the activation furnace and converted into raw activated carbon. Depending on the specifications of activated carbon products in our customers’ orders, we change different elements of the process, such as the type of wood, spinning speed of the activation furnace, and length of the activation time, in order to produce different types of raw activated carbon. The raw activated carbon is grinded, blended, and packaged into different activated carbon products to be sold to our customers. The syngas is purified and burned in an internal combustion engine, which powers an electric generator that generates biomass electricity. The biomass electricity generated is then transmitted to the power network of State Grid Heilongjiang.

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The simplified Cogeneration process is shown below:

Products

Activated Carbon

Powdered Activated Carbon |  | Granular Activated Carbon

Activated carbon, also called activated charcoal, is a carbonaceous, highly porous adsorptive medium that has a complex structure composed primarily of carbon atoms. The networks of pores in activated carbons are channels created within a rigid skeleton of disordered layers of carbon atoms, linked together by chemical bonds, stacked unevenly, creating a highly porous structure of nooks, crannies, cracks and crevices between the carbon layers. Activated carbon is used in methane and hydrogen storage, air purification, decaffeination, gold purification, metal extraction, water purification, medicine, sewage treatment, air filters in gas masks and respirators, filters in compressed air, teeth whitening, and many other applications.

We derived 97.6% of our revenue from the sale of activated carbon products during the six months ended March 31, 2019. We derived 95% of our revenue from the sale of activated carbon products during the fiscal year ended September 30, 2018. Activated carbon sales accounted for 76% of our revenue for the fiscal year ended September 30, 2017.

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Methylene blue number is often used as an indicator to evaluate the absorptive capacity of activated carbon. Activated carbon with a higher Methylene blue number usually has a higher absorptive capacity. We currently mainly produce the following four categories of activated carbon with different Methylene blue number ranges from forestry residues, little fuelwood, and wood wastes through physical activation process:

| · | medium-quality activated carbon, which has a Methylene blue number of less than 11;
| · | high-quality activated carbon, which has a Methylene blue number of between 11 and 12;
| · | superior-quality activated carbon, which has a Methylene blue number of between 12 and 13; and
| · | customized-quality activated carbon, which has a Methylene blue number of more than 13 and meets other special requirements of our customers.

Our medium-quality and high-quality activated carbon are usually used in industrial manufacturing, water purification, and environmental protection. Our superior-quality and customized-quality activated carbon are usually used in pharmaceutical manufacturing and food and beverage production, where higher absorptive capacity is required.

The following table shows the sales for our four categories of activated carbon in the fiscal years ended September 30, 2018 and 2017, and the six months ended March 31, 2019:

|  | Six months ended March 31, 2019 |  |  | Fiscal year ended September 30, 2018 |  |  | Fiscal year ended September 30, 2017 |
Category of Activated Carbon |  | Amount Sold (Ton) |  |  | Revenue ($) |  |  | Revenue Percentage |  |  | Amount Sold (Ton) |  |  | Revenue ($) |  |  | Revenue Percentage |  |  | Amount Sold (Ton) |  |  | Revenue ($) |  |  | Revenue Percentage |
Medium-Quality |  |  | 0.00 |  |  |  | 0.00 |  |  |  | 0.00 | % |  |  | 987.72 |  |  |  | 1,189,133 |  |  |  | 14.60 | % |  |  | 117.51 |  |  |  | 156,290 |  |  |  | 13.39 | %
High-Quality |  |  | 1196.87 |  |  |  | 1,397,822 |  |  |  | 30.00 | % |  |  | 3106.6 |  |  |  | 4,000,498 |  |  |  | 49.13 | % |  |  | 90.97 |  |  |  | 119,276 |  |  |  | 10.22 | %
Superior-Quality |  |  | 2165.81 |  |  |  | 2,624,644 |  |  |  | 56.33 | % |  |  | 1678.13 |  |  |  | 2,270,804 |  |  |  | 27.89 | % |  |  | 486.1 |  |  |  | 631,578 |  |  |  | 54.11 | %
Customized-Quality |  |  | 472.50 |  |  |  | 636,941 |  |  |  | 13.67 | % |  |  | 427.38 |  |  |  | 681,912 |  |  |  | 8.37 | % |  |  | 200.83 |  |  |  | 260,146 |  |  |  | 22.29 | %

Biomass Electricity

Biomass electricity is electricity generated from biomass. Biomass is organic material that comes from plants and animals, and it is a renewable source of energy. Biomass contains stored energy from the sun. Plants absorb the sun’s energy in a process called photosynthesis. When biomass is burned, the chemical energy in biomass is released as heat. Biomass can be burned directly or converted to liquid biofuels or biogas that can be burned as fuels.

We generate biomass electricity in the process of manufacturing activated carbon as described above.

Feedstock

The primary restriction on production and growth in the activated carbon industry is the availability and pricing of feedstock, which is the raw material used to produce activated carbon. A wide range of feedstock may be used to produce activated carbon, including:

| · | coal, such as lignite, brown coal, bituminous coal, and anthracite coal;
| · | forestry residues and little fuelwood, generated by operations such as thinning of plantations, clearing for logging roads, extracting stem-wood for pulp and timber, and natural attrition;

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| · | wood wastes, such as sawdust, off-cuts, trims, and shavings from wood industries including saw millings and plywood;
| · | crop residues, such as straw, stem, stalk, leaves, husk, shell, peel, pulp, and, stubble from cereals, cotton, groundnut, jute, legumes, coffee, tea, and fruits; and
| · | peat.

We currently use forestry residues, little fuelwood, and wood wastes as feedstock. We used 24,597.19 tons of forestry residues, little fuelwood, and wood wastes in the six months ended March 31, 2019. We used 70,576.98 tons and 8,994.71 tons of forestry residues, little fuelwood, and wood wastes in the fiscal years ended September 30, 2018 and 2017, respectively. In response to high demand for activated carbon, we have been experimenting with alternative feedstock as raw materials in the Cogeneration process.

In order to meet orders from our customers, sometimes we also purchase activated carbon from other producers before shipping it to customers. In the six months ended March 31, 2019, we purchased 297 tons, 345 tons, and 405 tons of activated carbon from Zhongneng Haixia (Fujian) Development Co., Ltd., Hangzhou Bisheng Information Technology Co., Ltd., and Zhongjin Boda (Hangzhou) Industrial Co., Ltd., respectively. In the fiscal year ended September 30, 2018, we purchased 250 tons of activated carbon from Zhongneng Haixia (Fujian) Development Co., Ltd. We did not purchase any activated carbon from other producers in the fiscal year ended September 30, 2017. These third-party producers do not have the same manufacturing processes or quality control as we do, nor do we share technology with them. We mainly purchase activated carbon from these third-party producers to fulfill orders from customers who do not require the wood-based activated carbon we produce.

Suppliers

Most of our current forestry residues, little fuelwood, and wood wastes suppliers are individuals who collect or purchase these materials from woodworking factories and tree plantations. We also source forestry residues, little fuelwood, and wood wastes from Tahe Forestry Bureau and wood processing factories in Manzhouli City. In order to meet orders from our customers, sometimes we also purchase activated carbon from other producers before shipping it to customers. For the six months ended March 31, 2019, our top 10 suppliers in terms of purchasing value contributed 90% of our raw materials sourced, with the top five suppliers providing 19%, 17%, 15%, 13%, and 11% of our raw materials, respectively. For the fiscal year ended September 30, 2018, our top 10 suppliers in terms of purchasing value contributed 86% of our raw materials sourced, with the top five suppliers providing 22%, 21%, 12%, 11%, and 10% of our raw materials, respectively. For the fiscal year ended September 30, 2017, our top 10 suppliers in terms of purchasing value contributed 90% of our raw materials sourced, with the top five suppliers providing 22%, 21%, 20%, 12%, and 8% of our raw materials, respectively. See “Risk Factors—Risks Related to Our Business—We have sourced our raw materials primarily from a limited number of suppliers. If we lose one or more of the suppliers, our operation may be disrupted, and our results of operations may be adversely and materially impacted.”

We enter into supply orders in the ordinary course of business with our forestry residues, little fuelwood, and wood wastes suppliers, pursuant to a form of long-term supply order. Pursuant to our supply orders, which usually do not have an expiration date, our suppliers will provide us with a certain quantity of forestry residues, little fuelwood, and wood wastes for a fixed price until the supply orders are amended or terminated. The price is negotiated with our suppliers on an order-by-order basis and depends on the moisture content and type of wood, and the number of impurities. While the fixed price of short-term orders does not entirely protect us against volatility in feedstock prices, typically we have been able to and believe that we will continue to be able to transfer the volatility to our customers by renegotiating the prices of our finished products. We also continue to search for additional suppliers to maintain the consistency of our supply and control the costs of our raw materials.

For information about our suppliers of raw activated carbon, please see “—Feedstock.”

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Customers

Our activated carbon products customers primarily include activated carbon wholesalers, food and beverage producers, industrial manufacturers, and pharmaceutical manufacturers that use our activated carbon as filters in their production processes, companies engaging in environment protection, and companies engaging in the activated carbon deep processing business. Our top activated carbon customers for the six months ended March 31, 2019, included China National Forest Product Company Limited (“China Forest”), Fujian Yuanli Active Carbon Co., Ltd. (“Fujian Yuanli”), Huainan Jiahe New Material Co., Ltd. (“Huainan Jiahe”), Liyang Zhuojun Environmental Protection Technology Co., Ltd. (“Liyang Zhuojun”), and Liyang Sanniu Activated Carbon Co., Ltd. (“Liyang Sanniu”), which collectively accounted for 62% of our total activated carbon sales for that period. China Forest accounted for 24% of our total activated carbon sales for the six months ended March 31, 2019. Our top activated carbon customers for the fiscal year ended September 30, 2018, included Huainan Jiahe, Fujian Yuanli, Liyang Zhuojun, Shaoxing Guangyuan Environmental Protection Co., Ltd., and Jiangsu Jinfengkaida Environmental Protection Technology Co., Ltd., which collectively accounted for 67% of our total activated carbon sales for that fiscal year. Huainan Jiahe accounted for 44% of our total activated carbon sales for the fiscal year ended September 30, 2018. We had three activated carbon customers for the fiscal year ended September 30, 2017, namely Fujian Yuanli, Harbin Tesineng Technology Co., Ltd., and Hebei Dejian Environmental Protection Technology Co., Ltd., with Fujian Yuanli accounting for 79% of our total activated carbon sales for that fiscal year. From the commencement of our operations on December 2012, to March 31, 2019, a total of 43 activated carbon customers have purchased activated carbon products from us. The total number of our activated carbon customers increased from three for the fiscal year ended September 30, 2017, to 31 for the fiscal year ended September 30, 2018. The total number of our activated carbon customers for the six months ended March 31, 2019, was 23. We chose to focus on customers with consistent orders and large activated carbon purchases, reducing the costs of customer maintenance and making it easier to manage our customer relations. As a result, although the number of our activated carbon customers decreased during this period, our total activated carbon sales increased. 17 of our current 23 activated carbon customers are located in Jiangsu Province. See “Risk Factors—Risks Related to Our Business—A majority of our activated carbon sales are currently derived from a small number of customers. If any of these customers experiences a material business disruption, we would likely incur substantial losses of revenues.”

The only purchaser of our biomass electricity is State Grid Heilongjiang, a subsidiary of State Grid Corporation of China in Heilongjiang Province. We enter into a biomass electricity sales agreement with State Grid Heilongjiang, and the agreement is renewed annually. State Grid Heilongjiang purchased 1,159,917 MWh biomass electricity from us in the six months ended March 31, 2019, and 4,240 MWh and 3,900 MWh biomass electricity from us in the fiscal years ended September 30, 2018 and 2017, respectively.

Marketing and Sales

We maintain our activated carbon marketing and sales forces in-house in our corporate office with two employees, who are responsible for sales, transportation and distribution, as well as quality control and contract administration. Through market analyses, we identified potential customers that had high demand for activated carbon but were having difficulties finding suppliers, such as Huainan Jiahe and Liyang Zhuojun. By focusing on these potential customers and tailoring our activated carbon products to their specific needs, we were able to increase the number of our activated carbon customers. By offering customized activated carbon of specific iodine adsorption number, Methylene blue number, and other characteristics relevant to our customers, we are able to serve a diverse customer base. Our marketing and sales personnel are hard-working, full of passion, and responsive, and we offer them trainings in marketing and sales, management, and activated carbon products and technology.

We do not devote marketing and sales effort to our biomass electricity business since State Grid Corporation of China is the only purchaser of biomass electricity in the PRC.

Pricing & Backlog

To date, we price our activated carbon products on an order-to-order basis, primarily based on the Methylene blue number of the activated carbon product, adjusted for its other characteristics. The prices of our activated carbon products range from $1,111.5 to $1,692.2 per ton.

For our activated carbon products, we usually enter into sales agreements with a customer after agreeing on the specific product characteristics of the activated carbon such as iodine adsorption number and Methylene blue number and making sure that we have sufficient raw materials and different grades of activated carbon. We typically enter into separate activated carbon sales agreements, instead of a long-term supply agreement, for orders we receive from our activated carbon customers. This allows us to be flexible in pricing and adjust prices of our activated carbon products as the prices of our raw materials and the market demand for activated carbon change. The sales agreements typically lay out the quantity, price, specifics, packaging requirements, shipping method and delivery date, and other agreed-upon provisions of the order.

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It usually takes us approximately 22 hours to produce the activated carbon product specified in an order, depending on the amount of activated carbon ordered, the supply of raw materials, and the specific product characteristics, among other factors. After our activated carbon products are produced, it usually takes us three to five days to transport them by rail and by road to the sites of our customers; the transportation time could be delayed by two to three days if there is bad weather. The balance is due within 15 days of the date when the customer accepts the shipment. If a customer fails to make payment on time, late interest of 3% per day is levied on the outstanding balance until payment is received in full. We rely on our long-term business relationships with our customers when collecting payments and do not currently encounter any difficulties in collecting payments.

The price of our biomass electricity is determined by the National Development and Reform Commission of the PRC and the current purchase price is RMB0.75 (approximately $0.11) per kWh. We enter into an annual supply agreement with State Grid Heilongjiang and the agreement specifies, among other things, the amount of electricity we need to produce in each month and price of the electricity.

Awards and Recognition

We have received the following honors, awards, and certifications for our quality products and scientific research efforts:

2012

| · | Chinese Scientific and Technological Innovation Middle and Small-Sized Enterprises Top 100

2014

| · | Catalogue of Advanced and Applicable Technologies for Comprehensive Utilization of Renewable Resources (Second Class)
| · | Electric Power Business License for Power Generation (this license enables us to conduct power generation business)

2016

| · | China High and New Technology Enterprise Certificate (this certificate entitles us to preferential enterprise income tax rates of 15% rather than 25%)

Facilities

Our current manufacturing facilities are located in Tahe Biopower Plant in Tahe County, Heilongjiang Province. We have the rights to use the land and factory buildings from May 1, 2009, to April 30, 2029, with no rent pursuant to a lease agreement entered into with Tahe Forestry Bureau on April 21, 2009. According to the lease agreement, we can only use the land and factory buildings for the operations of Tahe Biopower Plant and cannot transfer the lease to a third person; otherwise, the lease agreement will be terminated. Tahe Biopower Plant has a building area of 199,199 square feet and one production line, which runs 24 hours per day and 300 days per year. Its annual operating capacity for manufacturing activated carbon is approximately 7,800 tons. We produced 2,614 tons of activated carbon and were about 67% at capacity during the six months ended March 31, 2019. We produced 7,594 tons of activated carbon and were about 97% at capacity during the fiscal year ended September 30, 2018.

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Facilities of Tahe Biopower Plant

Since we have almost reached the full operating capacity of facilities in Tahe Biopower Plant, we are currently constructing new facilities in Manzhouli City, Inner Mongolia, to expand our operating capacity. We plan to invest a total of RMB250 million (approximately $36.19 million) and construct the new facilities in two stages, the first of which is expected to be completed by June 2020. The new facilities are designed to have an annual capacity for manufacturing activated carbon of approximately 10,000 tons. In November 2018, we purchased a tract of land that is 279,861 square feet for the first construction stage of our Manzhouli City facilities. As of August 2019, we had completed the construction of the groundwork of the factory workshop and over half of the auxiliary buildings, and our total capital expenditure on the new facilities was RMB6,677,500 (approximately $931,753).

We currently maintain our headquarters in FPI Center Room A-901, No. 459 Qianmo Road, Binjiang District, Hangzhou City, Zhejiang Province, PRC. We lease about 4,039 square feet of office space in our headquarters pursuant to a lease agreement we entered into with Hangzhou Focused Photonics Technology Park Limited on June 8, 2018. The lease period is from May 10, 2018, to May 9, 2020 (unless otherwise terminated by either party), and the rent for two years is RMB738,248 (approximately $106,902). We have the priority for lease renewal under the same conditions when the lease agreement expires. We believe our facilities are sufficient for our business operation.

Our headquarters in Hangzhou

R&D

Research and Development (“R&D”) expenses include salaries, material, contract, and other outside service fees, facilities and overhead costs. In accordance to the FASB’s accounting standards for R&D costs, we expense the costs associated with the R&D activities when incurred. The R&D expenses are included in general and administrative expenses and totaled $432,431 for the six months ended March 31, 2019, and $43,723 and $41,938 for the fiscal years ended September 30, 2018 and 2017, respectively.

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We currently have four employees in our R&D department. On December 10, 2018, we entered a one-year agreement with Professor Jianbin Zhou of Nanjing Forestry University, pursuant to which Professor Zhou agreed to serve as our Chief Scientist and advise on technical development strategies, train the employees in the R&D department, and evaluate the technical aspects of new projects. Professor Zhou is an expert in the field of biomass energy and carbon materials, and we hope to cooperate with him and his research team to improve our Cogeneration process and explore the application of technologies related to biomass energy. We plan to renew the agreement with Professor Zhou.

We expect to invest part of the net proceeds of this offering to retain more qualified employees and update our R&D equipment. See “Use of Proceeds.” We expect to work closely with leading universities and R&D institutes that specialize in activated carbon and biomass energy to develop new technologies for more efficient and cost-effective activated carbon and biomass energy production. We will also continue to search for alternative feedstock to enhance the availability of raw materials and reduce costs of feedstock for activated carbon production.

Intellectual Property

We evaluate on a case-by-case basis how best to use patents, trademarks, copyrights, trade secrets, and other available intellectual property protection in order to protect our products and our critical investments in R&D, manufacturing, and marketing. We focus on securing and maintaining patents for certain inventions such as equipment used in the production of activated carbon and generation of biomass electricity, while maintaining other inventions such as process improvements as trade secrets, derived from our market-based business model, in an effort to maximize the value of our product portfolio and manufacturing capabilities and reinforce our competitive advantage. Our policy is to seek appropriate intellectual property protection for significant product and process developments in the major areas where the relevant products are manufactured or sold. Patents may cover products, processes, intermediate products and product uses. Patents extend for varying periods in accordance with the date of patent application filing and the legal life of patens in the various countries in which the patents are registered. The protection afforded, which may also vary from country to country, depends upon the type of subject matter covered by the patent and the scope of the claims of the patent. We maintain appropriate information security policies and procedures reasonably designed to ensure the safeguarding of confidential information including, where appropriate, data encryption, access controls and employee awareness training.

As of the date of this prospectus, we own eight patented inventions:

Patent Description |  | Holder |  | Patent Type |  | Approval |  | Expiration |  | Patent Number
Furnace capable of continuous gasification and carbonization with rotary rake and moving bed |  | Khingan Forasen |  | Utility Model |  | May 18, 2011 |  | August 7, 2020 |  | ZL201020291065.3
Equipment for continuously gasifying biomass moving bed while removing tar |  | Khingan Forasen |  | Utility Model |  | May 9, 2012 |  | February 12, 2021 |  | ZL201120042547.X
A tube-type heat exchanger |  | Khingan Forasen |  | Utility Model |  | June 5, 2013 |  | October 24, 2022 |  | ZL201220575752.7
Methods and equipment for continuously gasifying biomass moving bed while removing tar |  | Khingan Forasen |  | Invention |  | February 12, 2014 |  | February 12, 2031 |  | ZL201110041890.7
Feeding equipment for biomass gasifier |  | Hangzhou Forasen |  | Utility Model |  | October 8, 2014 |  | May 19, 2024 |  | ZL201420261667.2
A gas processing device for biomass gasifier |  | Hangzhou Forasen |  | Utility Model |  | December 3, 2014 |  | June 15, 2024 |  | 201420320604.X
Equipment for continuously carbonizing and gasifying wood |  | Hangzhou Darwo Software Co., Ltd., Hangzhou Forasen |  | Utility Model |  | January 14, 2015 |  | June 18, 2024 |  | ZL201420350213.2
A dust-removing and explosion-preventing device for activated-carbon rotary furnace |  | Hangzhou Forasen |  | Utility Model |  | August 31, 2016 |  | November 22, 2025 |  | ZL201520936930.8

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We currently own two trademarks, “CNENY” and “中北能” (China North Energy), in the PRC.

In addition to our registered intellectual property portfolio, we also claim ownership of certain trade secrets and proprietary know-how developed by and used in our business.

We own the internet domain name “cneny.com.”

Employees

As of the date of this prospectus, we have 162 employees. The following table sets forth the number of our employees by area of business as of the date of this prospectus:

|  | Number of Employees |  |  | % of Total |
Management |  |  | 3 |  |  |  | 2 |
Finance |  |  | 10 |  |  |  | 6 |
R&D |  |  | 4 |  |  |  | 2 |
Administration |  |  | 18 |  |  |  | 11 |
Marketing and Sales |  |  | 2 |  |  |  | 1 |
Quality Control and Statistics |  |  | 8 |  |  |  | 5 |
Production |  |  | 117 |  |  |  | 72 |
Total |  |  | 162 |  |  |  | 100 |

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Generally, we enter into standard employment contracts with our officers, managers, and other employees. According to these contracts, all of our employees are prohibited from engaging in any other employment during the period of their employment with us. The employment contracts with officers, managers, and employees are subject to renewal in three years and, if renewed, last another five years before becoming at-will employment contracts. We also enter into non-compete agreements with our employees to protect our trade secrets; the non-compete agreements prohibit competition with us during the employees’ employment and within two years after leaving our company. None of our employees is a member of a labor union and we consider our relationship with our employees to be good.

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Since the demand from our customers is usually weaker around the Chinese New Year, which is in the first quarter of a year, our sales in the first quarter are often lower than those of other quarters.

Environmental Matters

We have taken measures to reduce pollution caused by our activated carbon production and biomass electricity generation, such as installing dust collectors to collect dust created in our activation process. We have been in compliance with state and local laws and regulations relating to the environment to date and it has not had a material effect upon our capital expenditures, earnings, or competitive position and we do not anticipate any material adverse effects in the future based on the nature of our future operations.

Industry Development

By attending local and national industry associations, we take the responsibility of helping develop our industry. Some of our involvement with industry associations are listed below:

Association |  | Position |  | Period |  | Activities
All-China Environment Federation |  | Member Entity |  | November 2018 to November 2023 |  | Attend various industry meetings and share and communicate industry information of activated carbon and biomass electricity industries.
China Association of Circular Economy |  | Committee Member Entity |  | April 2013 to present |  | Attend meetings and discuss experience in renewable resource project development

Legal Proceedings

We are currently not a party to any material legal proceeding. From time to time, however, we may be subject to various claims and legal actions arising in the ordinary course of business.

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REGULATIONS

PRC Regulations Encouraging Our Businesses

Production of activated carbon and production of biomass electricity by using forestry residues are activities supported by various policies of the PRC government. For example, under the 12th Five-Year Plan for Circular Economy Development issued by the State Council in February 2012, all industries are encouraged to attach importance to the reuse of wastes generated in production and daily life. Pursuant to the Catalogue for Guiding Industry Restructuring (2011 Version), promulgated by the State Development and Reform Commission (“SDRC”), last amended on February 16, 2013, and effective on May 1, 2013, the deep processing and product development of forestry residues and wood wastes, and technology development and machinery manufacturing for biomass power generation are both listed in the “Encouraged” category. Also, the Law of the PRC on Promoting Circular Economy promulgated by the Standing Committee of National People’s Congress (“SCNPC”) on August 29, 2008, effective on January 1, 2009, and amended on October 26, 2018, encourages enterprises to utilize forestry residues and wood wastes, and to develop and produce biomass energy. Further, our activated carbon and electricity cogeneration machinery and core technology have been listed as one of the advanced applicable technology in the Catalogue of Advanced Applicable Technology for the Comprehensive Utilization of Renewable Resources (Second), issued by the Ministry of Industry and Information Technology of the PRC on January 22, 2014, and effective on the same day.

PRC Regulations Relating to Biomass Electricity Production

Power Generation

Pursuant to the Electric Power Law of the PRC, promulgated by SCNPC on August 27, 2009, and last amended on December 29, 2018, the Regulation on Electric Power Supervision promulgated by the State Council on May 1, 2005, and the Provisions on the Administration of Electric Power Business Licenses, promulgated by the State Electricity Regulatory Commission (“SERC”) (now reorganized as the National Energy Administration (“NEA”)) on December 1, 2005, and amended on May 30, 2015, any individual or entity engaging in the business of electric power is required to obtain an electric power business license, which can be further categorized into three types of license, namely power generation, power distribution, and power supply. Any public power plant, any self-prepared power plant as incorporated into a power network, such as our PRC subsidiary Khingan Forasen, and any other enterprises as prescribed by SERC is required to obtain an electric power business license for power generation. Khingan Forasen obtained its electric power business license for power generation on September 9, 2014, for a term of 20 years, through which its branch office Tahe Biopower Plant is able to conduct our power generation business.

Grid Connection

Biomass electricity that we generate in the process of producing activated carbon is partially used by our facility and also supplied to electric power companies. The supply of biomass electricity is subject to the Rules on Operation of Power Grids (for Trial Implementation), promulgated by SERC on November 3, 2006 and effective on January 1, 2007, and other local rules promulgated by the Northeast China Energy Regulatory Bureau of NEA, including the Detailed Implementation Rules on Power Plant Grid-Connection Administration in the Northeast Area, which became effective on March 1, 2009, and the Detailed Implementation Rules on the Grid-Connection Power Plant Assistance Services Administration in Northeast Area, which became effective on March 1, 2009. In addition, pursuant to the Renewable Energy Law of the PRC (the “Renewable Energy Law”), promulgated by SCNPC on February 28, 2005, amended on December 26, 2009, and effective on April 1, 2010, biomass energy is a type of renewable energy, the development and usage of which is a priority in energy development for China. Further, under the Renewable Energy Law, power companies shall enter into grid-connection agreements to purchase the electricity at full price from renewable energy power plants that have been constructed according to the renewable energy development and usage plan, and that have obtained administrative approval or have registered their records with electricity authorities. As of the date of this prospectus, we have made filings with local electricity authority for information of our Tahe Biopower Plant construction project, and we have entered into a grid-connection agreement and electricity purchase agreements with State Grid Heilongjiang Electric Power Company Limited.

Pursuant to the Trial Rules of the Administration for the Price and Allocation of Cost of Renewable Energy Generation which was promulgated by SDRC on January 4, 2006, and became effective retrospectively on January 1, 2006, the price of biomass electricity is determined by the government. Renewable energy generation projects enjoy certain subsidy for 15 years starting from the date of operation. Facilities of Tahe Biopower Plant has been in operation since April 2014 and enjoyed a subsidy of RMB0.376 (approximately $0.054) per kWh.

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PRC Regulations Relating to Environmental Protection

Currently there are no industrial standards in the PRC specifying the emission of pollutants for activated carbon production in effect. We are subject to the PRC environmental protection laws and regulations in general.

Pursuant to the Environmental Protection Law of the PRC (the “Environmental Protection Law”) promulgated by SCNPC on December 26, 1989, amended on April 24, 2014, and effective on January 1, 2015, any entity which discharges or will discharge pollutants during its course of operations or other activities must implement effective environmental protection safeguards and procedures to control and properly treat waste gases, waste water, waste residues, dust, malodorous gases, radioactive substances, noise and vibrations, electromagnetic radiation, and other hazards produced during such activities. Further, the PRC government also enacted various laws and regulations regarding various pollution prevention, including the Air Pollution Prevention and Control Law of the PRC promulgated by SCNPC on August 29, 1995, and last amended and effective on October 26, 2018, and the Water Pollution Prevention and Control Law of the PRC promulgated by SCNPC on May 11, 1984, last amended on June 27, 2017, and effective on January 1, 2018, together with the Environmental Protection Law, the “Environment Laws.” Environmental protection authorities impose various administrative penalties on persons or enterprises in violation of the Environment Laws. Such penalties include warnings, fines, orders to rectify within the prescribed period, orders to cease construction, orders to restrict or suspend production, orders to make recovery, orders to disclose relevant information or make an announcement, imposition of administrative action against relevant responsible persons, and orders to shut down enterprises. Any person or entity that pollutes the environment resulting in damage could also be held liable under the Tort Law of the PRC. In addition, environmental organizations may also bring lawsuits against any entity that discharges pollutants detrimental to the public welfare.

On October 27, 2016, the State Council circulated the Notice on Issuing the Work Plan for Greenhouse Gas Emission Control During the 13th Five-Year Plan Period (the “Work Plan”), which set out the key objectives to reduce, by 2020, carbon dioxide emissions per GDP unit by 18% of the 2015 emission level. In particular, the Work Plan requires that the cumulative decreasing number of carbon dioxide emissions shall be more than 110 billion tons, and that the chemical oxygen demand and ammonia emissions, and the nitrogen oxide and ammonia emissions decrease by 10% and 15%, respectively, of the 2015 emission level.

On March 2, 2018, the Ministry of Ecology and Environment of the PRC circulated the Draft Emission Standards of Activated Carbon Industrial Pollutants (the “Standards”) for public comments, the commenting period of which ended on April 8, 2018. While the Standards have not been passed, once it is enacted, our production of activated carbon will be subject to high standards on pollution emissions. See “Risk Factors—Risks Related to Our Business—Compliance with environmental and other laws and regulations could result in significant costs and liabilities.”

PRC Regulations Relating to Work Safety and Fire Control

Work Safety

Under relevant construction safety laws and regulations, including the Work Safety Law of the PRC which was promulgated by the SCNPC on June 29, 2002, last amended on August 31, 2014, and effective as of December 1, 2014, production and operating business entities must establish objectives and measures for work safety and improve the working environment and conditions for workers in a planned and systematic way. A work safety protection scheme must also be set up to implement the work safety job responsibility system. In addition, production and operating business entities must arrange work safety training and provide the employees with protective equipment that meets the national standards or industrial standards. As of the date of this prospectus, we have established internal work safety procedures to ensure the work environment and conditions for our workers in the PRC.

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Fire Control

Pursuant to the Fire Protection Law of the PRC, which was promulgated by the SCNPC on April 29, 1998, and amended on October 28, 2008, and on April 23, 2019, and the Provisions on Supervision and Administration of Fire Protection of Construction Projects, which was promulgated by the Ministry of Public Security of the PRC on April 30, 2009, implemented on May 1, 2009, and later amended on July 17, 2012, and became effective on November 1, 2012, the construction entity of a large-scale crowded venue (including the construction of a manufacturing factory that is over 2,500 square meters) and other special construction projects must apply for fire prevention design review with fire control authorities, and complete fire assessment inspection and acceptance procedures after the construction project is completed. The construction entity of other construction projects must complete the filing for fire prevention design and the fire safety completion inspection and acceptance procedures within seven business days after obtaining the construction work permit and passing the construction completion inspection and acceptance. If the construction entity fails to pass the fire safety inspection before such venue is put into use, or fails to conform to the fire safety requirements after such inspection, it shall be subject to (i) orders to suspend the construction of the projects, use of such projects, or operation of relevant business; and (ii) a fine ranging between RMB30,000 and RMB300,000.

PRC Regulations Relating to Land and the Development of Construction Projects

Land Use Rights

Under the Interim Regulations on Assignment and Transfer of the Rights to Use the State-owned Urban Land, promulgated by the State Council on May 19, 1990, a system of assignment and transfer of the right to use state-owned land was adopted. A land user must pay land premiums to the state as consideration for the assignment of the right to use a land site within a certain term, and the land user who obtained the right to use the land may transfer, lease out, mortgage, or otherwise commercially exploit the land within the term of use. Under the Interim Regulations on Assignment and Transfer of the Rights to the Use of the State-Owned Urban Land and the Law of the PRC on Urban Real Estate Administration, the local land administration authority may enter into an assignment contract with the land user for the assignment of land use rights. The land user is required to pay the land premium as provided in the assignment contract. After the full payment of the land premium, the land user must register with the land administration authority and obtain a land use rights certificate which evidences the acquisition of land use rights. In December 2018, we made full payment of the land premium for the assignment of the use rights of the land where our Manzhouli facilities will be located, and obtained the land use rights certificate for a term starting on November 16, 2018, and ending on November 16, 2068.

Planning of a Construction Project

For the construction of our Manzhouli facilities, pursuant to the Regulations on Planning Administration regarding Assignment and Transfer of the Rights to Use the State-Owned Land in Urban Areas promulgated by the Ministry of Construction in December 1992 and amended in January 2011, a construction land planning permit shall be obtained from the municipal planning authority with respect to the planning and use of land. According to the Urban and Rural Planning Law of PRC promulgated by the SCNPC on October 28, 2007, and last amended on April 23, 2019, a construction work planning permit must be obtained from the competent urban and rural planning government authority for the construction of any structure, fixture, road, pipeline, or other engineering projects within an urban or rural planning area. After obtaining a construction work planning permit, subject to certain exceptions, a construction enterprise must apply for a construction work commencement permit from the construction authority under the local government at the county level or above in accordance with the Administrative Provisions on Construction Permit of Construction Projects promulgated by the Ministry of Housing and Urban-Rural Development (the “MOHURD”) on June 25, 2014, and amended on September 28, 2018. Failure to obtain such permits will subject the construction enterprise to penalties including suspension or termination of the construction and demolition of the constructed structures, as well as fines up to 10% of costs of the construction project.

Pursuant to the Administrative Measures for Reporting Details Regarding Acceptance Examination upon Completion of Buildings and Municipal Infrastructure promulgated by the Ministry of Construction on April 4, 2000, and amended on October 19, 2009, and the Provisions on Acceptance Examination upon Completion of Buildings and Municipal Infrastructure promulgated and implemented by the MOHURD on December 2, 2013, upon the completion of a construction project, the construction enterprise must submit an application to the competent department in the local government at the county level or above where the project is located, for examination upon completion of building and for filing purpose, and to obtain the filing form for acceptance and examination upon completion of construction project. Failure to apply for examination may be subject to fines between RMB200,000 to RMB500,000; and failure to submit its filing form for acceptance may be subject to fines between RMB10,000 to RMB50,000.

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As of the date of this prospectus, we have obtained the construction planning permit and commenced the construction of infrastructure of our Manzhouli facilities. Because the constructible season during a year is usually short in Manzhouli City for the reason of cold weather, we have been permitted by the local government to commence the infrastructure construction prior to obtaining the construction work commencement permit, and to apply for the requisite licenses, permits, and certificates once the final construction planning and price are determined. However, any failures in obtaining such required licenses, permits, or certificates at various phrases of the construction could subject us to fines and penalties including suspension of our construction, which may have a material effect on our financial and operational conditions. See “Risk Factors—Risks Related to Our Business—We may incur delays and budget overruns with respect to facilities under construction. Any such delays or cost overruns may have a material adverse effect on our operating results.”

PRC Regulations Relating to Foreign Investment

On June 28, 2017, the MOFCOM, and the National Development Reform Committee (“NDRC”) jointly promulgated the Guidance Catalogue of Industries for Foreign Investment (Revised in 2017), or the “Catalogue,” which came into effect on July 28, 2017. On June 28, 2018, the MOFCOM and NDRC further promulgated the Special Administrative Measures for Market Access of Foreign Investment (Negative List), or the “Negative List,” to amend the Catalogue. The Catalogue (as amended by the Negative List) lists the industries and economic activities in which foreign investment in the PRC is encouraged, restricted, or prohibited. Any industry not listed in the Catalogue is a permitted industry. Pursuant to the Catalogue (as amended by the Negative List), the production and sale of activated carbon as well as the production of biomass electricity are permitted industries.

The establishment, operation, and management of corporate entities in the PRC is governed by the PRC Company Law, which was initially promulgated by the SCNPC on December 29, 1993, and came into effect on July 1, 1994, and was last amended on October 26, 2018, and became effective on the same day. The PRC Company Law generally governs two types of companies—limited liability companies and joint stock limited companies. The PRC Company Law shall also apply to foreign-invested companies. Where laws on foreign investment have other stipulations, such stipulations shall prevail. The establishment procedures, approval or record-filing procedures, registered capital requirements, foreign exchange matters, accounting practices, taxation and labor matters of a wholly foreign-owned enterprise are regulated by the Wholly Foreign-Owned Enterprise Law of the PRC, or the “WFOE Law,” promulgated on April 12, 1986, and amended on October 31, 2000, and September 3, 2016, and the Rules for the Implementation of the WFOE Law, promulgated on December 12, 1990, and amended on April 12, 2001, and February 19, 2014. According to the amendments to the WFOE law in 2016, for a wholly foreign-owned enterprise which the special entry management system does not apply to, its establishment, operation duration and extension, separation, merger or other major changes shall be reported for record. Pursuant to the Provisional Administrative Measures for Record-filing Administration of the Establishment and Change of Foreign-Invested Enterprises, or the “Provisional Measures,” promulgated by MOFCOM on October 8, 2016 (as amended), establishment and modifications of foreign invested enterprises which are not subject to the approval under the special entry management measures shall be filed with the delegated commercial authorities.

On March 15, 2019, NPC passed the new Foreign Investment Law of the PRC (the “FIL”), which is to become effective on January 1, 2020. The FIL sets out the definitions of foreign investment and the framework for promotion, protection and administration of foreign investment activities. Once effective, the FIL will replace the three existing PRC laws on foreign investment, namely the Law on Sino-Foreign Equity Joint Ventures (the “EJV Law”), the Law on Sino-Foreign Contractual Joint Ventures (the “CJV Law”), and the WFOE Law (together with the EJV Law and the CJV Law, the “Three FDI Laws”). Pursuant to the FIL, starting on January 1, 2020, the organization form, corporate structure, and operating rules of newly established FIEs will be subject to the PRC Company Law and the PRC Partnership Enterprise Law, depending on their form of business organization. For existing FIEs established under the Three FDI Laws, such as our WFOEs Zhejiang CN Energy and Manzhouli CN Energy, their corporate structure may remain unchanged for five years. Upon the expiration of the five-year transition period, all FIEs will be governed by the PRC Company Law or the PRC Partnership Enterprise Law. We believe that the FIL will have very limited impact on our WFOEs’ corporate governance, as the organizational form and corporate structure of WFOEs have been governed by the PRC Company Law since 2006.

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PRC Regulations Relating to Foreign Exchange

General Administration of Foreign Exchange

The principal regulations governing foreign currency exchange in China are the PRC Foreign Exchange Administration Regulations, which were promulgated on January 29, 1996, and most recently amended on August 5, 2008, issued by SAFE and other relevant PRC government authorities. Pursuant to the PRC Foreign Exchange Administration Regulations, RMB is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of RMB into other currencies and remittance of the converted foreign currency outside the PRC for capital account items, such as direct equity investments, loans, and repatriation of investment, requires the prior approval from SAFE or its local office.

Payments for transactions that take place within the PRC must be made in RMB. Unless otherwise approved, PRC companies may not repatriate foreign currency payments received from abroad or retain the same abroad. FIEs may retain foreign exchange in accounts with designated foreign exchange banks under the current account items subject to a cap set by SAFE or its local office. Foreign exchange proceeds under the current accounts may be either retained or sold to a financial institution engaged in settlement and sale of foreign exchange pursuant to relevant SAFE rules and regulations. For foreign exchange proceeds under the capital accounts, approval from SAFE is generally required for the retention or sale of such proceeds to a financial institution engaged in settlement and sale of foreign exchange.

Since 2012, SAFE has promulgated several circulars to substantially amend and simplify the current foreign exchange procedure. Pursuant to the Circular of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, or “SAFE Circular 59,” promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012, and was further amended on May 4, 2015, approval of SAFE is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to direct investments. SAFE Circular 59 also simplified foreign exchange-related registration required for foreign investors to acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for FIEs. The Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, or “SAFE Circular 13,” effective from June 1, 2015, cancelled the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplified the procedure of foreign exchange-related registration. Pursuant to SAFE Circular 13, the investors shall register with banks for direct domestic investment and direct overseas investment.

The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or “SAFE Circular 19,” which was promulgated by SAFE on March 30, 2015, and became effective on June 1, 2015, provides that an FIE may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to SAFE Circular 19, for the time being, FIEs are allowed to settle 100% of their foreign exchange capital on a discretionary basis; an FIE shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary FIE makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise must first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered. SAFE later promulgated the Circular on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or “SAFE Circular 16,” effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 or Circular 16 could result in administrative penalties such as restrictions on foreign exchange activities of such enterprises.

According to the Provisional Measures, the Administrative Rules on the Company Registration which was promulgated by the State Council on June 24, 1994, became effective on July 1, 1994, and was most recently amended on February 6, 2016, and other laws and regulations governing the foreign invested enterprises and company registrations, the establishment of a foreign invested enterprise and any capital increase and other major changes in a foreign invested enterprise shall be registered with the State Administration for Market Regulation (the “SAMR”) or its local counterparts, and shall be filed via the foreign investment comprehensive administrative system, or the “FICMIS,” if such foreign invested enterprise does not involve special access administrative measures prescribed by the PRC government.

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Pursuant to SAFE Circular 13 and other laws and regulations relating to foreign exchange, when setting up a new foreign invested enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the FIE, including without limitation any increase in its registered capital or total investment, the foreign invested enterprise must register such changes with the bank located at its registered place after obtaining approval from or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon acceptance of the registration application.

Based on the foregoing, if we intend to provide funding to our wholly foreign owned subsidiaries through capital injection at or after their establishment, we must register the establishment of and any subsequent capital increase in our wholly foreign owned subsidiaries with the SAMR or its local counterparts, file such via the FICMIS, and register such with the local banks for the foreign exchange related matters. Once the FIL becomes effective, pursuant to Article 21 of the FIL, foreign investors will be free to remit profits, capital gains, income from asset disposal, or intellectual property royalties into and out of China in accordance with PRC laws. While there have not been any detailed rules issued on this regard, we do not expect that foreign investors will be able to freely remit funds into or out of China without any limitation. However, we do expect that foreign investors will enjoy more convenience when remitting their profits out of China.

Loans by Foreign Companies to their PRC Subsidiaries

A loan made by foreign investors as shareholders in a foreign invested enterprise is considered to be a foreign debt in China and is regulated by various laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debts Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of External Debt, and the Administrative Measures for Registration of Foreign Debts, together, the “Foreign Debts Provisions.” Under the Foreign Debts Provisions, a shareholder loan in the form of a foreign debt made to its PRC subsidiary does not require the prior approval of SAFE. However, such a foreign debt must be registered with and recorded by SAFE or its local branches within 15 business days after entering into the foreign debt contract. Further, the balance of the foreign debts of a foreign invested enterprise shall not exceed the difference between the total investment and the registered capital of the foreign invested enterprise, or the “Total Investment and Registered Capital Balance.”

On January 12, 2017, PBOC issued PBOC Notice No. 9, which sets out the statutory upper limit on the foreign debts for PRC non-financial entities, including both FIEs and domestic-invested enterprises. Pursuant to PBOC Notice No. 9, the foreign debt upper limit for both foreign-invested and domestic-invested enterprise is calculated as twice the amount of the net asset of such enterprises. As to net assets, the companies shall take the net assets value stated in their latest audited financial statement. PBOC Notice No. 9 does not supersede the Foreign Debts Provisions. Pursuant to PBOC Notice No. 9, PBOC and SAFE shall reevaluate the calculation method for FIEs and determine what the applicable calculation method would be. As of the date of this prospectus, neither PBOC nor SAFE has issued and made public any further rules, regulations, notices, or circulars in this regard. It is uncertain which mechanism will be adopted by PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC subsidiaries. Under current practice, the relevant authorities are likely to allow FIEs, such as our PRC subsidiaries, to choose the calculation method either under the Foreign Debts Provisions or PBOC Notice No. 9 until any new regulation is issued. After the FIL becomes effective, however, it is uncertain whether the concept of “total investment” will still exist and whether the foreign debt quota will still be subject to the total Investment and Registered Capital Balance of an FIE or it will be replaced by the new mode introduced under PBOC Notice No. 9. As of the date of this prospectus, our PRC subsidiaries do not have any foreign debts owed to their foreign investor Energy Holdings.

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Dividend Distribution

The principal laws and regulations regulating the distribution of dividends by FIEs in the PRC include the PRC Company Law and the WFOE Law and its implementation regulations. Under the current regulatory regime in the PRC, FIEs in the PRC may pay dividends only out of their retained earnings, if any, determined in accordance with the PRC accounting standards and regulations. A PRC company is required to set aside at least 10% of its after-tax profits as statutory reserve funds, until the cumulative amount of such reserve funds reaches 50% of its registered capital, unless laws regarding foreign investment provide otherwise. A PRC company shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

PRC Regulations Relating to Offshore Investments by PRC Residents

SAFE promulgated the SAFE Circular 37 in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore SPV undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.

The SAFE Circular 37 was issued to replace Circular 75 (the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Round-trip Investments via Overseas Special Purpose Vehicles). SAFE further enacted the Notice on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment effective from June 1, 2015, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a SPV fails to fulfill the required SAFE registration, the PRC subsidiaries of that SPV may be prohibited from distributing profits to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the SPV may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. As of the date of this prospectus, most of our beneficial owners have completed the registration as required by the SAFE Circular 37.

PRC Regulations on Mergers and Acquisitions and Overseas Listing

On August 8, 2006, six PRC governmental and regulatory agencies, including the MOFCOM and the CSRC, promulgated the Rules on Acquisition of Domestic Enterprises by Foreign Investors, or the “M&A Rules,” governing the mergers and acquisitions of domestic enterprises by foreign investors, which became effective on September 8, 2006, and was revised on June 22, 2009. The M&A Rules, among other things, require that if an overseas company established or controlled by PRC companies or individuals, or “PRC Citizens,” intends to acquire equity interests or assets of any other PRC domestic company affiliated with PRC Citizens, such acquisition must be submitted to the MOFCOM for approval. The M&A Rules also requires that an offshore special vehicle, or a SPV formed for overseas listing purposes and controlled directly or indirectly by the PRC companies or individuals, shall obtain the approval of the CSRC prior to overseas listing and trading of such SPV’s securities on an overseas stock exchange. See “Risk Factors— Risks Relating to Doing Business in the PRC—The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, and, if required, we cannot assure you that we will be able to obtain such approval, in which case there would be sanctions against our Company.”

PRC Regulations Relating to Taxation

Enterprise Income Tax

On March 16, 2007, the SCNPC promulgated the EIT Law which came into effect on January 1, 2008, and was later amended on February 24, 2017, and December 29, 2018, and on December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law which was amended and became effective on April 23, 2019. Under the EIT Law, both resident enterprises and non-resident enterprises are subject to tax in the PRC. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within the PRC. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside the PRC, but have established institutions or premises in the PRC, or have no such established institutions or premises but have income generated from inside the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment or premises in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises set up by them, enterprise income tax is set at the rate of 20% with respect to their income sourced from inside the PRC.

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Value-Added Tax

The Provisional Regulations of the PRC on Value-Added Tax were promulgated by the State Council on December 13, 1993, came into effect on January 1, 1994, and were last amended on November 19, 2017, and the Detailed Rules for the Implementation of the Provisional Regulations of the PRC on Value-Added Tax was promulgated by the Ministry of Finance on December 15, 2008, effective on January 1, 2009, and amended on October 28, 2011 (collectively, the “VAT Laws”). On November 19, 2017, the State Council promulgated the Decisions on Abolishing the Provisional Regulations of the PRC on Business Tax and Amending the Provisional Regulations of the PRC on Value-Added Tax, or the “Order 691.” According to the VAT Laws and the Order 691, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair and replacement services, sales of services, intangible assets, real property, and the importation of goods within the territory of the PRC are the taxpayers of value-added taxes. The valued-added tax rates generally applicable are simplified as 13%, 9%, 6%, and 0%, and the value-added tax rate applicable to the small-scale taxpayers is 3%.

Tax Incentives

On January 29, 2016, the PRC Ministry of Science and Technology, the Ministry of Finance, and the SAT jointly enacted the Administrative Measures for Certification of High and New Technology Enterprises (2016 Amendment) (the “Measures for High-Tech Enterprises”), which repealed the previous measures issued in 2008, and became effective retroactively on January 1, 2016. Under the EIT Law and the Measures for High-Tech Enterprises, certain qualified high-tech companies may benefit from a preferential tax rate of 15% if they own core intellectual properties and their business fall into certain industries that are strongly supported by the PRC government and recognized by certain departments of the State Council. Khingan Forasen was granted the high and new technology enterprise (“HNTE”) qualification effective on November 15, 2016, for a three-year term, and enjoys a preferential enterprise income tax rate of 15% during this period. There can be no assurance, however, that Khingan Forasen will continue to meet the qualifications and successfully renew its HNTE qualification upon its expiry. In addition, there can be no guaranty that relevant governmental authorities will not revoke Khingan Forasen’s HNTE status in the future.

Since the 1980s, the PRC has incentivized the “comprehensive utilization of resources,” which means using nonhazardous wastes as inputs to production, to create environmental benefits by avoiding disposal impacts, mitigating manufacturing impacts, and conserving undeveloped resources. Pursuant to the Notice on the Issues Concerning the Implementation of the Catalogue of Comprehensive Utilization of Resources Entitling Enterprises to Income Tax Preferences issued by the Ministry of Finance and the SAT on September 23, 2008, effective retrospectively on January 1, 2008, the EIT Law, and other relevant rules and regulations, incomes gained by an enterprise from producing products that are in compliance with the relevant national or industrial standards by using resources listed in the catalogue as main raw materials, are subject to a 10% reduction in calculating its taxable income. Khingan Forasen’s production of biomass electricity enjoys such a tax incentive. Further, according to the Notice of the Ministry of Finance and the SAT on Issuing the Catalogue of Value-Added Tax Preferences for Products and Labor Services for Comprehensive Utilization of Resources Incomes (the “Comprehensive Utilization of Resources Catalogue”) promulgated on June 12, 2015, and effective on the same day, taxpayers who are engaged in the sale of products made by themselves and the provision of services through comprehensive utilization of resources as listed in the Comprehensive Utilization of Resources Catalogue may enjoy the benefit of an immediate refund upon their payments of value-added taxes. Khingan Forasen’s use of forestry residues in the productions of biomass electricity and activated carbon, which are both listed in the Comprehensive Utilization of Resources Catalogue referred above, allows Khingan Forasen to enjoy a 70% to 100% refund upon its payment of value-added taxes each time.

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Dividend Withholding Tax

The EIT Law provides that since January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.

Pursuant to an Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Incomes, or the “Double Tax Avoidance Arrangement,” and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%.

However, based on the SAT Circular 81 promulgated on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such a reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. The SAT further released several circulars including the Notice on How to Understand and Recognize the “Beneficial Owner” in Tax Treaties (the “SAT Circular 601) which listed seven unfavorable factors for the determination of “beneficial owner,” and the Announcement on the Recognition of the “Beneficial Owner” in Tax Treaties (the “SAT Announcement 30”) which provided a safe harbor rule for qualified non-tax residents to enjoy treaty benefits on dividends. Nevertheless, taxpayers and local-level tax authorities in China encountered numerous technical and practical problems when dealing with beneficial owner related cases due to lack of clearer guidance.

The SAT Circular 601 and the SAT Announcement 30 were abolished by the Circular on Relevant Questions Regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018, by the SAT and became effective on April 1, 2018 (the “SAT Circular 9”). According to the SAT Circular 9, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors will be taken into account and analyzed according to the actual circumstances of the specific cases, including without limitation, whether the applicant is obligated to pay more than 50% of his or her income in 12 months to residents in a third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties grants tax exemption on relevant incomes or levies tax at an extremely low rate. The SAT Circular 9 further provides that applicants who intend to prove their status of the “beneficial owner” shall submit the relevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’ Enjoyment of the Treatment under Tax Agreements.

Tax on Indirect Transfer

On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or “SAT Bulletin 7.” Pursuant to SAT Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure. According to the SAT Bulletin 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable taxes will subject the transferor to default interest. The SAT Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of the SAT Bulletin 7. The SAT Bulletin 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiary where non-resident enterprises, being the transferors, were involved. See “Risk Factors— Risks Relating to Doing Business in the PRC— We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”

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PRC Regulations Relating to Intellectual Property Rights

Patent Law

According to the Patent Law of the PRC (2008 Amendment), the State Intellectual Property Office is responsible for administering patent law in the PRC. The patent administration departments of provincial, autonomous region, or municipal governments are responsible for administering patent law within their respective jurisdictions. The Chinese patent system adopts a first-to-file principle, which means that when more than one person files different patent applications for the same invention, only the person who files the application first is entitled to obtain a patent of the invention. To be patentable, an invention or a utility model must meet three criteria: novelty, inventiveness, and practicability. A patent is valid for 20 years in the case of an invention and 10 years in the case of utility models and designs.

Trademarks

Registered trademarks are protected under the Trademark Law of the PRC, promulgated by SCNPC on August 23, 1982, last amended on April 23, 2019, and effective on November 1, 2019, and the Implementation Regulations of the Trademark Law of the PRC, promulgated by the State Council on August 3, 2002, and amended on April 29, 2014. Trademarks are registered with the Trademark Office of the State Administration for Industry and Commerce. Where registration is sought for a trademark that is identical or similar to another trademark that has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of the former trademark could be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.

Domain Names

The Ministry of Industry and Information Technology (the “MIIT”) promulgated the Administration Measures of Internet Domain Names (the “Domain Name Measures”) on August 24, 2017, which came into force on November 1, 2017. China Internet Network Information Center promulgated the Implementing Rules on Registration of Domain Names (2012 Amendment) on May 28, 2012, which became effective on the next day, and the Measures on National Top Level Domain Name Disputes Resolution on November 21, 2014, which became effective on the same day. Pursuant to these laws, regulations, and administrative rules, domain names registrations are processed through domain names service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

See “Risk Factors—Risks Related to Our Business—Disclosure of our trade secrets and other proprietary information, or a failure to adequately protect these or our other intellectual property rights, could result in increased competition and have a material adverse effect on our business and financial results.”

PRC Regulations Relating to Labor and Social Welfare

Labor Protection

The Labor Contract Law of the PRC, or the “Labor Contract Law,” which was promulgated on January 1, 2008, and amended on December 28, 2012, is primarily aimed at regulating rights and obligations in employer and employee relationship, including the establishment, performance and termination of labor contracts. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and must be paid to employees in a timely manner. See “Risk Factors— Risks Relating to Doing Business in the PRC—Increases in labor costs in the PRC may adversely affect our business and our profitability.”

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Social Insurance and Housing Fund

As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004, and amended in 2010, the Provisional Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for Old-Aged Pension Insurance of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999, and the Social Insurance Law of the PRC implemented on July 1, 2011, and last amended on December 29, 2018, employers are required to provide their employees in the PRC with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance, and medical insurance. These payments are made to local administrative authorities. Any employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a prescribed time limit and be subject to a late fee. If the employer still fails to rectify the failure to make the relevant contributions within the prescribed time, it may be subject to a fine ranging from one to three times the amount overdue.

On July 20, 2018, the General Office of the CPC Central Committee and the General Office of the State Council jointly issued the Reform Plan of the State Tax and Local Tax System, which specified that starting January 1, 2019, local tax authorities would become the administration authority for social insurance, and such payments shall be made to the local tax authorities. On November 16, 2018, the State Administration of Taxation released the Notice of Certain Measures on Further Supporting and Serving the Development of Private Economy, which provided that the policy for social insurance shall remain stable and the State Administration of Taxation will pursue to lower the social insurance contribution rates with the relevant authorities, and ensure the overall burden of social insurance contribution on enterprises will be lowered. With regard to the arrearages of contributors, including private enterprises, for the previous years, centralized settlement shall not be organized or implemented without authorization. On November 22, 2018, NDRC, PBOC, and 26 other regulatory departments jointly circulated the Notice of the Memorandum of Understanding Regarding the Implementation of Joint Discipline on Severe Discredited Enterprises and Relevant People in the of Social Insurance, which confirmed that the relevant authorities would publicize an enterprise’s severe discredit in social insurance payments through official website, limit its government financial support, and limit its opportunities in participation of government projects.

In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended in 2002, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.

See “Risk Factors—Risks Relating to Doing Business in the PRC—We are not in compliance with the PRC’s regulations relating to employee benefit plans, and as a result, we may be subject to penalties if we are not able to remediate the non-compliance.”

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MANAGEMENT

Set forth below is information concerning our directors, executive officers, and other key employees.

The following individuals are members of the Board and executive management of the Registrant.

Name |  | Age |  | Position(s)
Zhengyu Wang |  | 51 |  | Chief Executive Officer, Chairman of the Board, and Director
Ye Ren |  | 32 |  | Chief Financial Officer
Mei Cai |  | 40 |  | Director
Hongcai Li |  | 45 |  | Independent Director
Wenbiao Zhang |  | 52 |  | Independent Director
Ningfang Liang |  | 46 |  | Independent Director

The following is a brief biography of each of our executive officers and directors:

Mr. Zhengyu Wang has been our chief executive officer, chairman of the Board, and director since August 2019. Mr. Wang founded Hangzhou Forasen in March 2006 and has served as its executive director and general manager since November 2012. Mr. Wang has also served as the executive director and general manager of our other Chinese subsidiaries since their incorporation. Mr. Wang has been the director of Farmmi, Inc. (“Farmmi”), a Nasdaq-listed company, since February 2017 and the executive director of almost all of Farmmi’s Chinese subsidiaries since their incorporation, except that he has served as the executive director of Zhejiang FLS Mushroom Co., Ltd. since September 2016. Mr. Wang is also the manager or general manager of Farmmi (Hangzhou) Enterprise Management Co., Ltd., Lishui Farmmi Technology Co., Ltd., Hangzhou Suyuan Agriculture Technology Co., Ltd., Hangzhou Nongyuan Network Technology Co., Ltd. from their incorporation to July 2017. Mr. Wang has been its chairman and chief executive officer of Zhejiang Forasen Group Co., Ltd. since September 2006 and the executive director and general manager of Forasen Holding Group Co., Ltd. since September 2013. Mr. Wang has been the chairman and chief executive officer of Tantech Holdings Ltd. (“Tantech”), a Nasdaq listed company engaging in the development and manufacture of bamboo-based charcoal products and new energy vehicles, since July 2014 and the executive director and/or general manager of various subsidiaries of Tantech and charcoal business related companies, including Lishui Tantech Energy Technology Co., Ltd., Zhejiang Tantech Bamboo Technology Co., Ltd., Zhejiang Tantech Bamboo Charcoal Co., Ltd., Zhejiang Tantech Energy Technology Co., Ltd., Zhejiang Babiku Charcoal Co., Ltd., Lishui Zhongzhu Charcoal Co., Ltd., Hangzhou Tanbo Technology Co., Ltd., Zhejiang Tantech Industrial Co., Ltd., Shanghai Jiamu Investment Management Co., Ltd., Hangzhou Jiyi Investment Management Co., Ltd., Hangzhou Wangbo Investment Management Co., Ltd. Mr. Wang has also been the chairman of Daxing’anling Hualin Investment Management Co., Ltd. since November 2011, Hangzhou Nanlin Energy Technology Co., Ltd.’s general manager since March 2012 and executive director from March 2012 to September 2016, the executive director of Zhejiang Tesiyang New Energy Complete Equipment Co., Ltd. since March 2016, the executive director and general manager of Harbin Forasen Energy Technology Co., Ltd. since December 2013 and the executive director and general manager of Hangzhou Xinying Industrial Co., Ltd. since December 2013. Mr. Wang obtained his bachelor’s degree in Biochemistry and Microbiology from Hangzhou University (now a part of Zhejiang University) in 1990.

Ms. Ye Ren has been our chief financial officer since August 2019 and is responsible for supervising our finance team, reviewing and approving financial and accounting transactions, and IPO financial regulation compliance. From April 2017 to July 2018, Ms. Ren served as the Deputy Finance Manager of Zhejiang Yongning Pharmaceutical Co., Ltd., where she was responsible for department budget and internal control. From December 2014 to March 2017, Ms. Ren served as an assistant of the chief financial officer of Tantech. From October 2013 to November 2015, Ms. Ren served as a senior auditor of Pan-China Certificated Public Accountants LLP. Ms. Ren obtained her bachelor’s degree in Business Administration from George Fox University in 2010 and her master’s degree in Accountancy from the University of South Carolina in 2013.

Ms. Mei Cai has been our director since August 2019. Ms. Cai has served as an accounting consultant and advisor of Wealth Financial Services LLC since October 2017. From December 2013 to September 2017, Ms. Cai served as an auditor and subsequently as an audit manager of Friedman, LLP. From December 2006 to November 2013, Ms. Cai served as an auditor and subsequently as an audit manager of Patrizio & Zhao, LLC. Ms. Cai obtained her bachelor’s degree in Economic Management from Jiangsu Radio & TV University in 2003.

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Mr. Hongcai Li has been our independent director since August 2019. Mr. Li has over 10 years of professional experience in finance auditing and internal control. Mr. Li has served as a finance, tax, and investment consultant of Sichuan Jinbei Mountainside Group since February 2017. From July 2017 to September 2018, Mr. Li served as a restructuring consultant of Sichuan Dongsheng Pharmacy Co., Ltd., advising on the restructuring of some of its branch offices. From May 2014 to December 2018, Mr. Li served as a consultant of Sichuan Hexin Pharmaceuticals Co., Ltd. From September 2011 to December 2016, Mr. Li served as a consultant of Sichuan Kemeng Pharmaceutical Trading Co., Ltd. From April 2013 to Augsut 2014, Mr. Li served as a consultant of Sichuan Qiangjiang Stone Co., Ltd. and Sichuan Huide Financing Guarantee Co., Ltd. From December 2006 to March 2011, Mr. Li served as the chief financial officer of Chengdu Tianyin Pharmaceutical Co., Ltd. From April 2001 to November 2006, Mr. Li served as an audit manager and the manager of the Expense Control Department of GOME Electrical Appliances Holding Limited., responsible for the internal audit and expense control of its branch offices. From July 1998 to March 2001, Mr. Li served as an auditor and the financial manager of Chongqing Chaohua Technology Company Limited. From September 2013 to September 2016, Mr. Li served as an independent director of General Agriculture Corporation. Mr. Li received his bachelor’s degree in Accounting from Chongqing University of Technology in 1998.

Mr. Wenbiao Zhang has been our independent director since August 2019. Mr. Zhang is an experienced researcher in the areas of bamboo charcoal and biomass energy, who published over 60 papers on Chinese and international journals, owns 10 patents in the PRC, and has been a committee member of multiple bamboo material related organizations. Mr. Zhang has been a professor and doctorial supervisor of Zhejiang A&F University since July 2002, whose research focuses on the pyrolysis of biomass in bamboo, biochar and its functional composites, and the production of clean energy from biomass. Mr. Zhang has served as an independent director of Jiangshan Oupai Door Co., Ltd., a public company in the PRC since October 2015. Mr. Zhang received his doctoral degree and master’s degree in Wooden Materials and Technology from Nanjing Forestry University in 2002 and 1999, respectively, and his bachelor’s degree in Wooden Materials and Engineering from Zhejiang A&F University in 1994.

Mr. Ningfang Liang has been our independent director since August 2019. From December 2008 to June 2011 and since June 2016, Mr. Liang served as a manager of Sirius International Insurance Group. From March 2013 to January 2016, Mr. Liang served as the chief financial officer of Tantech Holdings Ltd. From June 2011 to February 2013, Mr. Liang served as the chief financial officer of China GengSheng Minerals, Inc. From December 2006 to December 2008, Mr. Liang served as a senior accountant of American International Group Inc. From January 2005 to December 2006, Mr. Liang served as a financial analyst of Celgene Corporation. Mr. Liang is a Certified Public Accountant in New Jersey and Illinois. Mr. Liang received his Master of Business Administration degree in Management from University of Illinois, Urbana-Champaign in 2004 and his Bachelor of Science degree in Accounting from Shanghai University of Finance and Economics in 1993.

Pursuant to our amended and restated articles of association, the minimum number of directors shall consist of not less than one person unless otherwise determined by the shareholders in a general meeting. Unless removed or re-appointed, each director shall be appointed for a term expiring at the next-following annual general meeting, if any is held. At any annual general meeting held, our directors will be elected by a majority vote of shareholders eligible to vote at that meeting. At each annual general meeting, each director so elected shall hold office for a one-year term and until the election of their respective successors in office or removed.

Family Relationships

None of the other directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past 10 years, been involved in any legal proceedings described in subparagraph (f) of Item 401 of Regulation S-K.

Board of Directors

Our board of directors consists of five directors, three of whom are “independent” within the meaning of the corporate governance standards of NYSE American.

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Duties of Directors

Under British Virgin Islands law, our directors owe fiduciary duties both at common law and under statute, including a statutory duty to act honestly, in good faith and with a view to our best interests. When exercising powers or performing duties as a director, our directors also have a duty to exercise the care, diligence and skills that a reasonable director would exercise in comparable circumstances, taking into account without limitation the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken by him. In exercising the powers of a director, the directors must exercise their powers for a proper purpose and shall not act or agree to the company acting in a manner that contravenes our amended and restated memorandum and articles of association or the BVI Act. See “Description of Share Capital—Differences in Corporate Law” for additional information on our directors’ fiduciary duties under British Virgin Islands law. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

| · | appointing officers and determining the term of office of the officers;
| · | authorizing the payment of donations to religious, charitable, public, or other bodies, clubs, funds, or associations as deemed advisable;
| · | exercising the borrowing powers of the company and mortgaging the property of the company;
| · | executing checks, promissory notes, and other negotiable instruments on behalf of the company; and
| · | maintaining or registering a register of mortgages, charges, or other encumbrances of the company.

Terms of Directors and Executive Officers

Each of our directors generally holds office until a successor has been duly elected and qualified unless the director was appointed by the board of directors, in which case such director holds office until the next following annual meeting of shareholders at which time such director is eligible for re-election. All of our executive officers are appointed by and serve at the discretion of our board of directors.

Qualification

There is currently no shareholding qualification for directors, although a shareholding qualification for directors may be fixed by our shareholders by ordinary resolution.

Employment Agreements With Named Executive Officers

On August 26, 2019, we entered into employment agreements with our executive officers. Pursuant to employment agreements, the form of which is filed as Exhibit 10.1 to this Registration Statement, we agreed to employ each of our executive officers for a specified time period, which may be renewed upon both parties’ agreement 30 days before the end of the current employment term, and payment of cash compensation and benefits shall become payable when the Company becomes a public reporting company in the US. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with a one-month prior written notice. Each executive officer has agreed to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.

Our employment agreement with Mr. Zhengyu Wang, our chief executive officer and chairman, provides for a term of three years beginning on August 26, 2019, with an annual salary of RMB300,000 (approximately $41,861), the payment of which commences when the Company becomes a public reporting company in the US.

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Our employment agreement with Ms. Ye Ren, our chief financial officer, provides for a term of three years beginning on August 26, 2019, with an annual salary of RMB300,000 (approximately $41,861), the payment of which commences when the Company becomes a public reporting company in the US.

Compensation of Directors and Executive Officers

For the fiscal year ended September 30, 2018, we paid an aggregate of $47,934 as compensation to our executive officers, and we did not compensate our non-executive directors for their services other than to reimburse them for out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors.

Insider Participation Concerning Executive Compensation

Our former director, Ms. Yefang Zhang, was making all determinations regarding executive officer compensation from the inception of the Company up until the time as our Compensation Committee will be set up (please see below).

Committees of the Board of Directors

Although NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country, we intend to comply with the NYSE corporate governance listing standards and will establish three committees under the board of directors prior to the closing of this offering: an audit committee, a compensation committee, and a nominating and corporate governance committee. We will adopt a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee. Our audit committee will consist of Wenbiao Zhang, Ningfang Liang, and Hongcai Li. Ningfang Liang will be the chairman of our audit committee. We have determined that Wenbiao Zhang, Ningfang Liang, and Hongcai Li will satisfy the “independence” requirements of the NYSE corporate governance rules and Rule 10A-3 under the Securities Exchange Act. Our board also has determined that Ningfang Liang qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the NYSE corporate governance rules. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

| · | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;
| · | reviewing with the independent auditors any audit problems or difficulties and management’s response;
| · | discussing the annual audited financial statements with management and the independent auditors;
| · | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;
| · | reviewing and approving all proposed related party transactions;
| · | meeting separately and periodically with management and the independent auditors; and
| · | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Compensation Committee. Our compensation committee will consist of Wenbiao Zhang, Ningfang Liang, and Hongcai Li. Hongcai Li will be the chairman of our compensation committee. We have determined that Wenbiao Zhang, Ningfang Liang, and Hongcai Li will satisfy the “independence” requirements of the NYSE corporate governance rules and Rule 10C-1 under the Securities Exchange Act. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

| · | reviewing and approving the total compensation package for our most senior executive officers;
| · | approving and overseeing the total compensation package for our executives other than the most senior executive officers;
| · | reviewing and recommending to the board with respect to the compensation of our directors;
| · | reviewing periodically and approving any long-term incentive compensation or equity plans;
| · | selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and
| · | reviewing programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

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Nominating and Corporate Governance Committee. Our nominating and corporate governance committee will consist of Wenbiao Zhang, Ningfang Liang, and Hongcai Li. Wenbiao Zhang will be the chairperson of our nominating and corporate governance committee. Wenbiao Zhang, Ningfang Liang, and Hongcai Li satisfy the “independence” requirements of the NYSE corporate governance rules. The nominating and corporate governance committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:

| · | identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy;
| · | reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us;
| · | identifying and recommending to our board the directors to serve as members of committees;
| · | advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and
| · | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Code of Business Conduct and Ethics

Our board of directors will adopt a code of business conduct and ethics, which is to be filed as Exhibit 99.1 of this registration statement and applicable to all of our directors, officers, and employees. We will make our code of business conduct and ethics publicly available on our website prior to the initial closing of this offering.

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PRINCIPAL SHAREHOLDERS

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Ordinary Shares as of the date of this prospectus, and as adjusted to reflect the sale of the Ordinary Shares offered in this offering for:

| · | each of our directors and executive officers who beneficially own our Ordinary Shares; and
| · | each person known to us to own beneficially more than 5% of our Ordinary Shares.

Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person prior to this offering is based on 139,627 Ordinary Shares issued and outstanding as of the date of this prospectus immediately prior to the effectiveness of the registration statement of which this prospectus is a part. Percentage of beneficial ownership of each listed person after this offering is based on [●] Ordinary Shares outstanding immediately after the completion of this offering if minimum offering amount is raised and [●] Ordinary Shares outstanding immediately after the completion of this offering if maximum offering amount is raised.

Information with respect to beneficial ownership has been furnished by each director, officer, or beneficial owner of 5% or more of our Ordinary Shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this prospectus are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all Ordinary Shares shown as beneficially owned by them. As of the date of the prospectus, we have nine shareholders of record, none of which are located in the United States. We will be required to have at least 400 shareholders at closing in order to satisfy the NYSE American listing standards.

|  | Ordinary Shares |  |  |  |  |  |  |
|  | Beneficially |  |  | Ordinary Shares |  |  | Ordinary Shares |
|  | Owned |  |  | Beneficially Owned |  |  | Beneficially Owned |
|  | Prior to this |  |  | After this Offering |  |  | After this Offering |
|  | Offering |  |  | (Minimum offering amount) |  |  | (Maximum offering amount) |
|  | Number |  |  | Percent |  |  | Number |  |  | Percent |  |  | Number |  |  | Percent |
Directors and Executive Officers(1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Zhengyu Wang(3) |  |  | 50,000 |  |  |  | 35.81 | % |  |  |  |  |  |  |  | % |  |  |  |  |  |  |  | %
Ye Ren |  |  | 0 |  |  |  | 0 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mei Cai |  |  | 0 |  |  |  | 0 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hongcai Li |  |  | 0 |  |  |  | 0 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Wenbiao Zhang |  |  | 0 |  |  |  | 0 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ningfang Liang |  |  | 0 |  |  |  | 0 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
All directors and executive officers as a group (six individuals): |  |  | 50,000 |  |  |  | 35.81 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
5% Shareholders(2): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Global Clean Energy Limited(3) |  |  | 50,000 |  |  |  | 35.81 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Elk International Capital Limited(4) |  |  | 20,972 |  |  |  | 15.02 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sentong Industrial Limited(5) |  |  | 15,359 |  |  |  | 11.00 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Xieying Energy Limited(6) |  |  | 15,359 |  |  |  | 11.00 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Yunda Industrial Limited(7) |  |  | 11,058 |  |  |  | 7.92 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Xinhe Industrial Limited(8) |  |  | 7,987 |  |  |  | 5.72 | % |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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Notes:

(1) | Unless otherwise indicated, the business address of each of the individuals is FPI Center Room A-901, No. 459 Qianmo Road, Binjiang District, Hangzhou City, Zhejiang Province, the PRC. The business address of Mei Cai is 1179 Vail Road, Parsippany, New Jersey 07054-1630. The business address of Hongcai Li is 2-1-2-3, East Tongzilin Road, Wuhou District, Chengdu City, Sichuan Province, the PRC. The business address of Wenbiao Zhang is No.666 Wusu Street, Linan District, Hangzhou City, Zhejiang Province, the PRC. The business address of Ningfang Liang is 65 Grassman PI. Berkeley Heights, New Jersey 07922.
(2) | Unless otherwise indicated, the business address of the following shareholders is Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.
(3) | The number of Ordinary Shares beneficially owned prior to this offering represents 50,000 Ordinary Shares held by Global Clean Energy Limited, a British Virgin Islands company, which is 100% owned by Yefang Zhang, the wife of Zhengyu Wang.
(4) | The number of Ordinary Shares beneficially owned prior to this offering represents 20,972 Ordinary Shares held by Elk International Capital Limited, a British Virgin Islands company, which is 100% owned by Wangfeng Yan.
(5) | The number of Ordinary Shares beneficially owned prior to this offering represents 15,359 Ordinary Shares held by Sentong Industrial Limited, a British Virgin Islands company, which is 100% owned by YanKaiyu Liu.
(6) | The number of Ordinary Shares beneficially owned prior to this offering represents 15,359 Ordinary Shares held by Xieying Energy Limited, a British Virgin Islands company, which is 100% owned by Yiyue Ye.
(7) | The number of Ordinary Shares beneficially owned prior to this offering represents 11,058 Ordinary Shares held by Yunda Industrial Limited, a British Virgin Islands company, which is 100% owned by Jing Wang.
(8) | The number of Ordinary Shares beneficially owned prior to this offering represents 7,987 Ordinary Shares held by Xinhe Industrial Limited, a British Virgin Islands company, which is 100% owned by Jingmin Liu.

History of Share Capital

We were incorporated in the British Virgin Islands on November 23, 2018. We have issued the following Ordinary Shares to our founding shareholders:

Purchaser |  | Date of Issuance |  |  | Number of Ordinary Shares |
Global Clean Energy Limited |  | November 23, 2018 |  |  |  | 50,000 |
Elk International Capital Limited |  | August 22, 2019 |  |  |  | 20,972 |
Sentong Industry Limited |  | August 22, 2019 |  |  |  | 15,359 |
Xieying Energy Limited |  | August 22, 2019 |  |  |  | 15,359 |
Yunda Industrial Limited |  | August 22, 2019 |  |  |  | 11,058 |
Xinhe Industrial Limited |  | August 22, 2019 |  |  |  | 7,987 |
Xintai Industrial Limited |  | August 22, 2019 |  |  |  | 6,604 |
Spruce International Limited |  | August 22, 2019 |  |  |  | 6,144 |
Xingyou Industrial Limited |  | August 22, 2019 |  |  |  | 6,144 |

As of the date of this prospectus, we are authorized to issue an unlimited number of no par value Shares. Holders of Ordinary Shares are entitled to one vote per share. We will issue Ordinary Shares in this offering.

As of the date of this prospectus, none of our outstanding Ordinary Shares are held by record holders in the United States.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of the Company.

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RELATED PARTY TRANSACTIONS

Material Transactions With Related Parties

Share Issuance to Related Parties

On November 23, 2018, we issued 50,000 Ordinary Shares to Global Clean Energy Limited, a business company with limited liability organized under the laws of British Virgin Islands and wholly owned by our then sole director, Yefang Zhang, for a consideration of 35.81% of the equity interests of Khingan Forasen in connection with the establishment of CN Energy.

Due from Related Parties

The relationship and the nature of related party transactions are summarized as follow:

Name of Related Party |  | Relationship to Us |  | Nature of Transactions
Forasen Group Co., Ltd. |  | Owned by the Chairman of Board of Directors |  | Working capital loan
Zhengyu Wang |  | CEO and Chairman of Board of Directors |  | Working capital loan
Hangzhou Suyuan Agriculture Technology Co., Ltd. |  | Controlled by the Chairman of Board of Directors |  | Operating lease

|  | September 30, 2018 |  |  | September 30, 2017 |
Forasen Group Co., Ltd. |  | $ | - |  |  | $ | 4,428,106 |
Zhengyu Wang |  |  | 148,713 |  |  |  | 161,026 |
Total |  | $ | 148,713 |  |  | $ | 4,589,132 |

As of March 31, 2019, our due from Zhengyu Wang was $77,097.

We periodically loan funds to our related parties for business purposes. The balance due from related parties is interest-free and due upon demand. As of April 18, 2019, the balances due from related parties had been fully collected.

Operating Lease to a Related Party

During the year ended September 30, 2018, we rented an office to Hangzhou Suyuan Agriculture Technology Co., Ltd. with lease term of 10 months. Rental income amounted to $7,659 (approximately RMB50,057) for the year ended September 30, 2018.

Employment Agreements

See “Management—Employment Agreements with Named Executive Officers.”

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DESCRIPTION OF SHARE CAPITAL

The following description of our share capital and provisions of our amended and restated memorandum and articles of association are summaries and do not purport to be complete. Reference is made to our amended and restated memorandum and articles of association, copies of which are filed as an exhibit to the registration statement of which this prospectus is a part (and which is referred to in this section as, respectively, the “memorandum” and the “articles”).

We were incorporated as a British Virgin Islands company under the BVI Act in the British Virgin Islands on November 23, 2018.

Ordinary Shares

All of our issued and outstanding Ordinary Shares are fully paid and non-assessable. Certificates evidencing the shares are issued in registered form. There are no limitations imposed by our amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed. Under the BVI Act, the Ordinary Shares are deemed to be issued when the name of the shareholder is entered in our register of members. If (a) information that is required to be entered in the register of members is omitted from the register or is inaccurately entered in the register, or (b) there is unreasonable delay in entering information in the register, a shareholder of the company, or any person who is aggrieved by the omission, inaccuracy or delay, may apply to the British Virgin Islands Courts for an order that the register be rectified, and the court may either refuse the application or order the rectification of the register, and may direct the company to pay all costs of the application and any damages the applicant may have sustained.

We are authorized to issue an unlimited number of no par value shares. Subject to the provisions of the BVI Act and our articles regarding redemption and purchase of the shares, the directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued shares to such persons, at such times and on such terms and conditions as they may decide. Such authority could be exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to Ordinary Shares. No share may be issued at a discount except in accordance with the provisions of the BVI Act. The directors may refuse to accept any application for shares, and may accept any application in whole or in part, for any reason or for no reason.

At the completion of this offering, there will be [●] (if the minimum offering amount is raised) or [●] (if the maximum offering amount is raised) Ordinary Shares issued and outstanding held by at least 400 shareholders and beneficial owners which is the minimum requirement by NYSE American. The offering may terminate on the earlier of (i) any time after the minimum offering amount of our Ordinary Shares is raised, or (ii) [180] days from the effective date of the registration statement, unless extended by us and the Placement Agent for an additional [60] days. Shares sold in this offering will be delivered against payment from the escrow agent upon the closing of the offering in New York, New York, on or about [●], 2020, subject to extension upon our agreement with the Placement Agent to no later than [●], 2020.

Listing

We plan to apply to list the Ordinary Shares on NYSE American under the symbol “CNEY.”

Transfer Agent and Registrar

The transfer agent and registrar for the Ordinary Shares is [●], [●].

Distributions

Shareholders holding shares in the Company are entitled to receive such dividends as may be declared by our board of directors subject to the BVI Act and the amended and restated memorandum and articles.

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Shareholders’ Voting Rights

Any action required or permitted to be taken by the shareholders must be effected at a duly called meeting of the shareholders entitled to vote on such action or may be effected by a resolution of members in writing, each in accordance with the amended and restated memorandum and articles. At each meeting of shareholders, each shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative) will have one vote for each share that such shareholder holds.

Election of Directors (Cumulative Voting Rights)

There is nothing under British Virgin law which specifically prohibits or restrict the creation of cumulative voting rights for the election of our directors. Our amended and restated memorandum and articles do not provide for cumulative voting for elections of directors.

Meetings of Shareholders

Under our amended and restated memorandum and articles, a copy of the notice of any meeting of shareholders shall be given not less than seven days before the date of the proposed meeting to those persons whose names appear as shareholders in the register of members on the date of the notice and are entitled to vote at the meeting and our directors. Our board of directors shall call a meeting of shareholders upon the written request of shareholders holding at least 30% of our issued voting shares. In addition, our board of directors may call a meeting of shareholders on its own motion. A meeting of shareholders may be called on short notice if at least 90% of the shares entitled to vote on the matters to be considered at the meeting have agreed to short notice of the meeting, or if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice and presence at the meeting shall be deemed to constitute waiver for this purpose.

At any meeting of shareholders, a quorum will be present if there are shareholders present in person or by proxy representing not less than one-third of the issued shares entitled to vote on the resolutions to be considered at the meeting. Such quorum may be represented by only a single shareholder or proxy. If no quorum is present within two hours of the start time of the meeting, the meeting shall be dissolved if it was requested by shareholders. In any other case, the meeting shall be adjourned to the next business day, and if shareholders representing not less than one-third of the votes of the Ordinary Shares or each class of shares entitled to vote on the matters to be considered at the meeting are present within one hour of the start time of the adjourned meeting, a quorum will be present. If not, the meeting will be dissolved. No business may be transacted at any meeting of shareholders unless a quorum is present at the commencement of business. If present, the chairperson of our board of directors shall be the chairperson presiding at any meeting of the shareholders. If the chairperson of our board is not present, or there is no such chairperson, then the members present shall choose a shareholder to act to chairperson the meeting of the shareholders. If the shareholders are unable to choose a chairperson for any reason, then the person representing the greatest number of voting shares present in present of by proxy shall preside as chairperson, failing which the oldest individual member or member representative shall take the chair.

A corporation that is a shareholder shall be deemed for the purpose of our amended and restated memorandum and articles to be present in person if represented by its duly authorized representative who has been authorized to do so by resolutions of its directors or other governing body. This duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were our individual shareholder.

Meetings of Directors

Our business and affairs are managed by our board of directors, who will make decisions by voting on resolutions of directors. Our directors are free to meet at such times and in such manner and places within or outside the British Virgin Islands as the directors determine to be necessary or desirable. A director must be given not less than three business days’ notice of a meeting of directors. A meeting of directors may be called on short notice if all of the directors entitled to vote on the matters to be considered at the meeting have waived notice and presence at the meeting shall be deemed to constitute waiver for this purpose (unless that director objects in writing before or at the meeting). At any meeting of directors, a quorum will be present if not less than one-half of the total number of directors is present, unless there are only two directors in which case the quorum is two. An action that may be taken by the directors at a meeting may also be taken by a resolution of directors consented to in writing by a majority of the directors.

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Protection of Minority Shareholders and Shareholder Action

The enforcement of our rights will ordinarily be a matter for our directors. However, in certain limited circumstances, a shareholder may have the right to seek certain remedies against us in the event the directors are in breach of their duties under the BVI Act. Pursuant to Section 184B of the BVI Act, if a company or a director of a company engages in, proposes to engage in, or has engaged in, conduct that contravenes the provisions of the BVI Act or the memorandum or articles of association of the company, a BVI court may, on application of a shareholder or a director of the company, make an order directing the company or director to comply with, or restraining the company or director from engaging in conduct that contravenes, the BVI Act or the memorandum or articles. Furthermore, pursuant to Section 184I of the BVI Act, a shareholder of a company who considers that the affairs of the company have been, are being, or are likely to be, conducted in a manner that is, or any acts of the company have been, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI court for an order which can, if the court considers that it is just and equitable to do so, require the company or any other person to pay compensation to the shareholders (among various other potential orders and remedies). Under Section 184G of the BVI Act, a shareholder of a company may bring an action against the company for breach of a duty owed by the company to him as a shareholder.

Under Section 184C of the BVI Act, a shareholder also may, with the permission of the BVI court, bring an action or intervene in a matter in the name of the company, in certain circumstances. Such actions are known as derivative actions. The BVI court may only grant permission to bring a derivative action where the following circumstances apply: (i) the company does not intend to bring, diligently continue or defend or discontinue proceedings; or (ii) it is in the interests of the company that the conduct of the proceedings not be left to the directors or to the determination of the shareholders as a whole.

When considering whether to grant leave, the BVI court is also required to have regard to the following matters: whether the shareholder is acting in good faith; whether a derivative action is in the interests of the company, taking into account the directors’ views on commercial matters; whether the proceedings are likely to succeed; the costs of the proceedings in relation to the relief likely to be obtained; and whether an alternative remedy is available.

Any shareholder of a company may apply to BVI court under the Insolvency Act, 2003 of the BVI for the appointment of a liquidator to liquidate the company and the court may appoint a liquidator for the company if it is of the opinion that it is just and equitable to do so.

Generally any other claims against a BVI company by its shareholders must be based on the general laws of contract or tort applicable in the BVI or their individual rights as shareholders as established by the BVI Act or the company’s memorandum and articles of association. There are also common law rights for the protection of shareholders that may be invoked, largely derived from English common law. Under general English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to seek to have the affairs of the company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts may grant relief. Generally, the areas in which the courts may intervene are the following: a company is acting or proposing to act illegally or beyond the scope of its authority; the act complained of, although not beyond the scope of the authority, could only be effected if duly authorized by more than the number of votes which have actually been obtained; the individual rights of the plaintiff shareholder have been infringed or are about to be infringed; or those who control the company are perpetrating a “fraud on the minority.”

Pre-Emptive Rights

There are no pre-emptive rights applicable to the issue by us of new shares under our amended and restated memorandum and articles.

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Transfer of Shares

Subject to the restrictions in our amended and restated memorandum and articles and applicable securities laws, any our shareholders may transfer all or any of his or her Ordinary Shares by written instrument of transfer signed by the transferor and containing the name and address of the transferee or in any other manner as may be permitted in accordance with applicable exchange rules or requirements of NYSE or by any recognized stock exchange on which our securities are listed. Our board of directors may not resolve to refuse or delay the transfer of any Ordinary Share unless the shareholder has failed to pay an amount due in respect of it.

Liquidation

As permitted by the BVI Act and our amended and restated memorandum and articles, we may be voluntarily liquidated under Part XII of the BVI Act by resolution of directors and resolution of shareholders if our assets exceed our liabilities and we are able to pay our debts as they fall due. We also may be wound up in circumstances where we are insolvent in accordance with the terms of the BVI Insolvency Act, 2003 (as amended).

If we are wound up and the assets available for distribution among our shareholders are more than sufficient to repay all amounts paid to us on account of the issue of shares immediately prior to the winding up, the excess shall be distributable pari passu among those shareholders in proportion to the amount paid up immediately prior to the winding up on the shares held by them, respectively. If we are wound up and the assets available for distribution among the shareholders as such are insufficient to repay the whole of the amounts paid to us on account of the issue of shares, those assets shall be distributed so that, to the greatest extent possible, the losses shall be borne by the shareholders in proportion to the amounts paid up immediately prior to the winding up on the shares held by them, respectively. If we are wound up, the liquidator appointed by us may, in accordance with the BVI Act, divide among our shareholders in specie or kind the whole or any part of our assets (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as the liquidator deems fair upon any property to be divided and may determine how such division shall be carried out as between the shareholders or different classes of shareholders.

Calls on Shares and Forfeiture of Shares

Our board of directors may, on the terms established at the time of the issuance of such shares or as otherwise agreed, make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption of Shares

Subject to the provisions of the BVI Act, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as may be determined by our amended and restated memorandum and articles of association and subject to any applicable requirements imposed from time to time by, the BVI Act, the SEC, NYSE American, or by any recognized stock exchange on which our securities are listed.

Variation of Rights of Shares

All or any of the rights attached to any class of shares may, subject to the provisions of the BVI Act, be varied only with the consent in writing of, or pursuant to a resolution passed at a meeting by the holders of more than 50% of the issued shares of that class.

Changes in the Number of Shares We Are Authorized to Issue and Those in Issue

Subject to the BVI Act and our amended and restated memorandum and articles, we may from time to time by resolution of our board of directors or resolution of members (as may be appropriate):

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| · | amend our memorandum to increase or decrease the maximum number of Ordinary Shares we are authorized to issue;
| · | divide our authorized and issued Ordinary Shares into a larger number of Ordinary Shares;
| · | combine our authorized and issued Ordinary Shares into a smaller number of Ordinary Shares; and
| · | create new classes of shares with preference to be determined by resolution of the board of directors to amend the memorandum and articles to create new classes of shares with such preferences at the time of authorization.

Inspection of Books and Records

Under the BVI Act, members of the general public, on payment of a nominal fee, can obtain copies of the public records of a company available at the office of the Registrar of Corporate Affairs which will include the company’s certificate of incorporation, its memorandum and articles of association (with any amendments) and records of license fees paid to date and will also disclose any articles of dissolution, articles of merger and a register of charges if the company has elected to file such a register.

Our members are also entitled, upon giving written notice to us, to inspect (i) our memorandum and articles of association, (ii) the register of members, (iii) the register of directors, and (iv) minutes of meetings and resolutions of members and of those classes of members of which that member is a member, and to make copies and take extracts from the documents and records referred to in (i) to (iv) above. However, our directors may, if they are satisfied that it would be contrary to the company’s interests to allow a member to inspect any document, or part of a document specified in (ii) to (iv) above, refuse to permit the member to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts or records. See “Where You Can Find Additional Information.” Where a company fails or refuses to permit a member to inspect a document or permits a member to inspect a document subject to limitations, that member may apply to the British Virgin Islands court for an order that he should be permitted to inspect the document or to inspect the document without limitation.

Rights of Non-Resident or Foreign Shareholders

There are no limitations imposed by our amended and restated memorandum and articles on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our amended and restated memorandum and articles governing the ownership threshold above which shareholder ownership must be disclosed.

Issuance of Additional Shares

Our amended and restated memorandum and articles authorizes our board of directors to issue additional shares from authorized but unissued shares, to the extent available, from time to time as our board of directors shall determine.

Differences in Corporate Law

The BVI Act and the laws of the British Virgin Islands affecting British Virgin Islands companies like us and our shareholders differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the laws of the British Virgin Islands applicable to us and the laws applicable to companies incorporated under the Delaware General Corporation Law in the United States and their shareholders.

Mergers and Similar Arrangements

Under the laws of the British Virgin Islands, two or more companies may merge or consolidate in accordance with Section 170 of the BVI Act. A merger means the merging of two or more constituent companies into one of the constituent companies (the “surviving company”) and a consolidation means the uniting of two or more constituent companies into a new company (the “consolidated company”). The procedure for a merger or consolidation between the company and another company (which need not be a British Virgin Islands company, and which may be the company’s parent or subsidiary, but need not be) is set out in the BVI Act. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation, which with the exception of a merger between a parent company and its subsidiary, must also be approved by a resolution of a majority of the shareholders voting at a quorate meeting of shareholders or by written resolution of the shareholders of the British Virgin Islands company or British Virgin Islands companies which are to merge. While a director may vote on the plan of merger or consolidation, or any other matter, even if he has a financial interest in the plan, the interested director must disclose the interest to all other directors of the company promptly upon becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the company. A transaction entered into by our company in respect of which a director is interested (including a merger or consolidation) is voidable by us unless the director’s interest was (a) disclosed to the board prior to the transaction or (b) the transaction is (i) between the director and the company and (ii) the transaction is in the ordinary course of the company’s business and on usual terms and conditions. Notwithstanding the above, a transaction entered into by the company is not voidable if the material facts of the interest are known to the shareholders and they approve or ratify it or the company received fair value for the transaction. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting to approve the plan of merger or consolidation. A foreign company which is able under the laws of its foreign jurisdiction to participate in the merger or consolidation is required by the BVI Act to comply with the laws of that foreign jurisdiction in relation to the merger or consolidation. The shareholders of the constituent companies are not required to receive shares of the surviving or consolidated company but may receive debt obligations or other securities of the surviving or consolidated company, other assets, or a combination thereof. Further, some or all of the shares of a class or series may be converted into a kind of asset while the other shares of the same class or series may receive a different kind of asset. As such, not all the shares of a class or series must receive the same kind of consideration. After the plan of merger or consolidation has been approved by the directors and authorized, if required, by a resolution of the shareholders, articles of merger or consolidation are executed by each company and filed with the Registrar of Corporate Affairs in the British Virgin Islands. The merger is effective on the date that the articles of merger are registered with the Registrar or on such subsequent date, not exceeding thirty days, as is stated in the articles of merger or consolidation.

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As soon as a merger becomes effective: (a) the surviving company or consolidated company (so far as is consistent with its memorandum and articles of association, as amended or established by the articles of merger or consolidation) has all rights, privileges, immunities, powers, objects and purposes of each of the constituent companies; (b) in the case of a merger, the memorandum and articles of association of any surviving company are automatically amended to the extent, if any, that changes to its memorandum and articles of association are contained in the articles of merger or, in the case of a consolidation, the memorandum and articles of association filed with the articles of consolidation are the memorandum and articles of the consolidated company; (c) assets of every description, including choses-in-action and the business of each of the constituent companies, immediately vest in the surviving company or consolidated company; (d) the surviving company or consolidated company is liable for all claims, debts, liabilities and obligations of each of the constituent companies; (e) no conviction, judgment, ruling, order, claim, debt, liability or obligation due or to become due, and no cause existing, against a constituent company or against any member, director, officer or agent thereof, is released or impaired by the merger or consolidation; and (f) no proceedings, whether civil or criminal, pending at the time of a merger by or against a constituent company, or against any member, director, officer or agent thereof, are abated or discontinued by the merger or consolidation; but: (i) the proceedings may be enforced, prosecuted, settled or compromised by or against the surviving company or consolidated company or against the member, director, officer or agent thereof; as the case may be; or (ii) the surviving company or consolidated company may be substituted in the proceedings for a constituent company. The Registrar of Corporate Affairs shall strike off the register of companies each constituent company that is not the surviving company in the case of a merger and all constituent companies in the case of a consolidation. If the directors determine it to be in the best interests of the company, it is also possible for a merger to be approved as a Court approved plan of arrangement or scheme of arrangement in accordance with the BVI Act.

A shareholder may dissent from (a) a merger if the company is a constituent company, unless the company is the surviving company and the member continues to hold the same or similar shares; (b) a consolidation if the company is a constituent company; (c) any sale, transfer, lease, exchange or other disposition of more than 50 per cent in value of the assets or business of the company if not made in the usual or regular course of the business carried on by the company but not including: (i) a disposition pursuant to an order of the court having jurisdiction in the matter, (ii) a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the members in accordance with their respective interest within one year after the date of disposition, or (iii) a transfer pursuant to the power of the directors to transfer assets for the protection thereof; (d) a compulsory redemption of 10 per cent, or fewer of the issued shares of the company required by the holders of 90 percent, or more of the shares of the company pursuant to the terms of the BVI Act; and (e) a plan of arrangement, if permitted by the British Virgin Islands Court (each, an Action). A shareholder properly exercising his dissent rights is entitled to a cash payment equal to the fair value of his shares.

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A shareholder dissenting from an Action must object in writing to the Action before the vote by the shareholders on the merger or consolidation, unless notice of the meeting was not given to the shareholder. If the merger or consolidation is approved by the shareholders, the company must give notice of this fact to each shareholder within 20 days who gave written objection. Such objection shall include a statement that the members proposes to demand payment for his or her shares if the Action is taken. These shareholders then have 20 days to give to the company their written election in the form specified by the BVI Act to dissent from the Action, provided that in the case of a merger, the 20 days starts when the plan of merger is delivered to the shareholder. Upon giving notice of his election to dissent, a shareholder ceases to have any shareholder rights except the right to be paid the fair value of his shares. As such, the merger or consolidation may proceed in the ordinary course notwithstanding his dissent. Within seven days of the later of the delivery of the notice of election to dissent and the effective date of the merger or consolidation, the company shall make a written offer to each dissenting shareholder to purchase his shares at a specified price per share that the company determines to be the fair value of the shares. The company and the shareholder then have 30 days to agree upon the price. If the company and a shareholder fail to agree on the price within the 30 days, then the company and the shareholder shall, within 20 days immediately following the expiration of the 30-day period, each designate an appraiser and these two appraisers shall designate a third appraiser. These three appraisers shall fix the fair value of the shares as of the close of business on the day prior to the shareholders’ approval of the transaction without taking into account any change in value as a result of the transaction.

Shareholders’ Suits

There are both statutory and common law remedies available to our shareholders as a matter of British Virgin Islands Law. These are summarized below:

Prejudiced Members

A shareholder who considers that the affairs of the company have been, are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory or unfairly prejudicial to him in that capacity, can apply to the court under Section 184I of the BVI Act, inter alia, for an order that his shares be acquired, that he be provided compensation, that the Court regulate the future conduct of the company, or that any decision of the company which contravenes the BVI Act or our amended and restated memorandum and articles of association be set aside.

Derivative Actions

Section 184C of the BVI Act provides that a shareholder of a company may, with the leave of the Court, bring an action in the name of the company in certain circumstances to redress any wrong done to it. Such actions are known as derivative actions. The British Virgin Islands Court may only grant permission to bring a derivative action where the following circumstances apply:

| · | the company does not intend to bring, diligently continue or defend or discontinue proceedings; and
| · | it is in the interests of the company that the conduct of the proceedings not be left to the directors or to the determination of the shareholders as a whole.

When considering whether to grant leave, the British Virgin Islands Court is also required to have regard to the following matters:

| · | whether the shareholder is acting in good faith;
| · | whether a derivative action is in the company’s best interests, taking into account the directors’ views on commercial matters;
| · | whether the action is likely to proceed;
| · | the cost of the proceedings; and
| · | whether an alternative remedy is available.

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Just and Equitable Winding Up

In addition to the statutory remedies outlined above, shareholders can also petition the British Virgin Islands Court for the winding up of a company under the BVI Insolvency Act, 2003 (as amended) for the appointment of a liquidator to liquidate the company and the court may appoint a liquidator for the company if it is of the opinion that it is just and equitable for the court to so order. Save in exceptional circumstances, this remedy is generally only available where the company has been operated as a quasi-partnership and trust and confidence between the partners has broken down.

Indemnification of Directors and Executive Officers and Limitation of Liability

Our amended and restated memorandum and articles of association provide that, subject to certain limitations, we indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings for any person who:

| · | is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was our director; or
| · | is or was, at our request, serving as a director or officer of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust or other enterprise.

These indemnities only apply if the person acted honestly and in good faith with a view to our best interests and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful. The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the company and as to whether the person had no reasonable cause to believe that his conduct was unlawful and is, in the absence of fraud, sufficient for the purposes of the memorandum and articles of association, unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the company or that the person had reasonable cause to believe that his conduct was unlawful.

This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Anti-Takeover Provisions in Our Amended and Restated Memorandum and Articles

Some provisions of our amended and restated articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable. Under the BVI Act there are no provisions, which specifically prevent the issuance of preferred shares or any such other “poison pill” measures. Our amended and restated memorandum and articles of association also do not contain any express prohibitions on the issuance of any preferred shares. Therefore, the directors without the approval of the holders of ordinary shares may issue preferred shares that have characteristics that may be deemed to be anti-takeover. Additionally, such a designation of shares may be used in connection with plans that are poison pill plans. However, under British Virgin Islands law, our directors in the exercise of their powers granted to them under our amended and restated memorandum and articles of association and performance of their duties, are required to act honestly and in good faith in what the director believes to be in the best interests of our company.

Directors’ Fiduciary Duties

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction.

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The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction and that the transaction was of fair value to the corporation.

Under British Virgin Islands law, our directors owe fiduciary duties both at common law and under statute including, among others, a statutory duty to act honestly, in good faith, for a proper purpose and with a view to what the directors believe to be in the best interests of the company. Our directors are also required, when exercising powers or performing duties as a director, to exercise the care, diligence and skill that a reasonable director would exercise in comparable circumstances, taking into account without limitation, the nature of the company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken. In the exercise of their powers, our directors must ensure neither they nor the company acts in a manner which contravenes the BVI Act or our amended and restated memorandum and articles of association. A shareholder has the right to seek damages for breaches of duties owed to us by our directors.

Pursuant to the BVI Act and our amended and restated memorandum and articles, a director of a company who has an interest in a transaction and who has declared such interest to the other directors, may:

| · | (a) vote on a matter relating to the transaction;
| · | (b) attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and
| · | (c) sign a document on behalf of the Company, or do any other thing in his capacity as a director, that relates to the transaction.

In certain limited circumstances, a shareholder has the right to seek various remedies against the company in the event the directors are in breach of their duties under the BVI Act. Pursuant to Section 184B of the BVI Act, if a company or director of a company engages in, or proposes to engage in or has engaged in, conduct that contravenes the provisions of the BVI Act or the memorandum or articles of association of the company, the British Virgin Islands Court may, on application of a shareholder or director of the company, make an order directing the company or director to comply with, or restraining the company or director from engaging in conduct that contravenes the BVI Act or the memorandum or articles. Furthermore, pursuant to section 184I(1) of the BVI Act a shareholder of a company who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any acts of the company have been, or are likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the British Virgin Islands Court for an order which, inter alia, can require the company or any other person to pay compensation to the shareholders.

Shareholder Action by Written Consent

Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. British Virgin Islands law provides that, subject to the memorandum and articles of association of a company, an action that may be taken by members of the company at a meeting may also be taken by a resolution of members consented to in writing.

Shareholder Proposals

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. British Virgin Islands law and our amended and restated memorandum and articles of association allow our shareholders holding 30% or more of the votes of the outstanding voting shares to requisition a shareholders’ meeting. There is no requirement under British Virgin Islands law to hold shareholders’ annual general meetings, but our amended and restated memorandum and articles of association do permit the directors to call such a meeting. The location of any shareholders’ meeting can be determined by the board of directors and can be held anywhere in the world.

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Cumulative Voting

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under the British Virgin Islands law, our amended and restated memorandum and articles do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.

Removal of Directors

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our amended and restated memorandum and articles of association, directors can be removed from office, with or without cause, by a resolution of shareholders. Directors can also be removed by a resolution of directors passed at a meeting of directors called for the purpose of removing the director or for purposes including the removal of the director.

Transactions With Interested Shareholders

The Delaware General Corporation Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or group who or which owns or owned 15% or more of the target’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors. British Virgin Islands law has no comparable statute and our amended and restated memorandum and articles of association fails to expressly provide for the same protection afforded by the Delaware business combination statute.

Dissolution; Winding Up

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the BVI Act and our amended and restated memorandum and articles of association, we may appoint a voluntary liquidator by a resolution of the shareholders or directors, provided that the directors have made a declaration of solvency that the company is able to discharge its debts as they fall due and that the value of the company’s assets exceed its liabilities.

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Variation of Rights of Shares

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our amended and restated memorandum and articles of association, if at any time our shares are divided into different classes of shares, the rights attached to any class may only be varied, whether or not our company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by a majority of the votes cast by those entitled to vote at a meeting of the holders of the issued shares in that class. For these purposes the creation, designation or issue of preferred shares with rights and privileges ranking in priority to an existing class of shares is deemed not to be a variation of the rights of such existing class and may in accordance with our amended and restated memorandum and articles of association be effected by resolution of directors without shareholder approval.

Amendment of Governing Documents

Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by British Virgin Islands law, our amended memorandum and articles of association may be amended by a special majority (meaning a two thirds majority) resolution of shareholders and, subject to certain exceptions, by a special majority (meaning a two thirds majority) resolution of directors. An amendment is effective from the date it is registered at the Registry of Corporate Affairs in the British Virgin Islands.

Anti-Money Laundering Laws

In order to comply with legislation or regulations aimed at the prevention of money laundering we are required to adopt and maintain anti-money laundering procedures, and may require subscribers to provide evidence to verify their identity. Where permitted, and subject to certain conditions, we also may delegate the maintenance of our anti-money laundering procedures (including the acquisition of due diligence information) to a suitable person.

We reserve the right to request such information as is necessary to verify the identity of a subscriber. In the event of delay or failure on the part of the subscriber in producing any information required for verification purposes, we may refuse to accept the application, in which case any funds received will be returned without interest to the account from which they were originally debited.

If any person resident in the British Virgin Islands knows or suspects that another person is engaged in money laundering or terrorist financing and the information for that knowledge or suspicion came to their attention in the course of their business the person will be required to report his belief or suspicion to the Financial Investigation Agency of the British Virgin Islands, pursuant to the Proceeds of Criminal Conduct Act 1997 (as amended). Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise.

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SHARES ELIGIBLE FOR FUTURE SALE

Before our initial public offering, there has not been a public market for our Ordinary Shares, and although we expect to make an application for the Ordinary Shares to be listed on NYSE American, a regular trading market for our Ordinary Shares may not develop. Future sales of substantial amounts of shares of our Ordinary Shares in the public market after our initial public offering, or the possibility of these sales occurring, could cause the prevailing market price for our Ordinary Shares to fall or impair our ability to raise equity capital in the future. Upon completion of this offering, we will have outstanding Ordinary Shares held by public shareholders representing approximately [●]% of our Ordinary Shares in issue if the Ordinary Shares are offered and sold at the minimum offering amount, and approximately [●]% of our Ordinary Shares in issue if the Ordinary Shares are offered and sold at the maximum offering amount. All of the Ordinary Shares sold in this offering will be freely transferable by persons other than our “affiliates” without restriction or further registration under the Securities Act.

Lock-Up Agreements

We have agreed not to, for a period of 180 days from the effective date of this registration statement, offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, except in this offering, any of our ordinary shares or securities that are substantially similar to our ordinary shares, including but not limited to any options or warrants to purchase our ordinary shares, or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ordinary shares or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed), without the prior written consent of the Placement Agent.

Furthermore, each of our directors, executive officers, and all other shareholders of our ordinary shares has also entered into a similar lock-up agreement for a period of 180 days from the effective date of this registration statement, subject to certain exceptions, with respect to our ordinary shares and securities that are substantially similar to our ordinary shares. These parties collectively own all of our outstanding ordinary shares, without giving effect to this offering.

Other than this offering, we are not aware of any plans by any significant shareholders to dispose of significant numbers of our ordinary shares. However, one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for our ordinary shares may dispose of significant numbers of our ordinary shares in the future. We cannot predict what effect, if any, future sales of our ordinary shares, or the availability of ordinary shares for future sale, will have on the trading price of our ordinary shares from time to time. Sales of substantial amounts of our ordinary shares in the public market, or the perception that these sales could occur, could adversely affect the trading price of our ordinary shares.

Rule 144

All of our Ordinary Shares outstanding prior to this offering are “restricted securities” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who is not deemed to have been our affiliate at any time during the three months preceding a sale and who has beneficially owned restricted securities within the meaning of Rule 144 for more than six months would be entitled to sell an unlimited number of those shares, subject only to the availability of current public information about us. A non-affiliate who has beneficially owned restricted securities for at least one year from the later of the date these shares were acquired from us or from our affiliate would be entitled to freely sell those shares.

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A person who is deemed to be an affiliate of ours and who has beneficially owned “restricted securities” for at least six months would be entitled to sell, within any three-month period, a number of shares that is not more than the greater of:

| · | 1% of the number of Ordinary Shares then outstanding, in the form of Ordinary Shares or otherwise, which will equal approximately [●] shares immediately after this offering; or
| · | the average weekly trading volume of the Ordinary Shares on NYSE American during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

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TAXATION

The following discussion of material British Virgin Islands, PRC, and United States federal income tax consequences of an investment in our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This discussion does not deal with all possible tax consequences relating to an investment in our Ordinary Shares, such as the tax consequences under state, local, and other tax laws. To the extent that the discussion relates to matters of British Virgin Islands tax law, it represents the opinion of Carey Olsen, our British Virgin Islands counsel. To the extent that the discussion relates to matters of PRC tax law, it represents the opinion of GFE, our PRC counsel. To the extent the discussion relates to the matters of U.S. tax law, it represents the opinion of Hunter Taubman Fischer & Li LLC.

WE URGE POTENTIAL PURCHASERS OF OUR ORDINARY SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR ORDINARY SHARES.

People’s Republic of China Taxation

We are a holding company incorporated in the British Virgin Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries. The EIT Law and its implementation rules provide that PRC-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.

Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Circular 82, which provides guidance on the determination of the tax residence status of a PRC-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although CN Energy does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a PRC-controlled offshore incorporated enterprise within the meaning of SAT Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Circular 82 to evaluate the tax residence status of CN Energy and its subsidiaries organized outside of China.

According to SAT Circular 82, a PRC-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.

We believe that we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, the key assets and records of CN Energy, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside China, same as of Energy Holdings. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that CN Energy and its offshore subsidiary should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Circular 82 were deemed applicable to us. As the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, however, we will continue to monitor our tax status.

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If the PRC tax authorities determine that CN Energy is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from any dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our Ordinary Shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is also unclear, however, whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise. There is no guidance from the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstances where a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRC and other countries may impact non-resident enterprises. See “Risk Factors—Risks Relating to Doing Business in the PRC—Under the PRC Enterprise Income Tax Law, or the ‘EIT Law,’ we may be classified as a ‘resident enterprise’ of China, which could result in unfavorable tax consequences to us and our non-PRC shareholders.”

Provided that CN Energy is not deemed to be a PRC resident enterprise, holders of our Ordinary Shares who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under SAT Bulletin 7, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under SAT Bulletin 7, and we may be required to expend valuable resources to comply with SAT Bulletin 7, or to establish that we should not be taxed under this Bulletin. See “Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”

Hong Kong Taxation

Entities incorporated in Hong Kong are subject to profits tax in Hong Kong at the rate of 16.5% for the six months ended March 31, 2019, and each of the fiscal years ended September 30, 2018 and 2017.

British Virgin Islands Taxation

The British Virgin Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the British Virgin Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the British Virgin Islands. No stamp duty is payable in the British Virgin Islands on the issue of shares by, or any transfers of shares of, British Virgin Islands companies (except those which hold interests in land in the British Virgin Islands). The British Virgin Islands is not party to any double tax treaties that are applicable to any payments made to or by the Company. There are no exchange control regulations or currency restrictions in the British Virgin Islands.

Payments of dividends and capital in respect of our Ordinary Shares will not be subject to taxation in the British Virgin Islands and no withholding will be required on the payment of a dividend or capital to any holder of our Ordinary Shares, as the case may be, nor will gains derived from the disposal of our Ordinary Shares be subject to British Virgin Islands income or corporation tax.

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United States Federal Income Taxation

The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:

| · | banks;
| · | financial institutions;
| · | insurance companies;
| · | regulated investment companies;
| · | activated carbon or biomass energy investment trusts;
| · | broker-dealers;
| · | persons that elect to mark their securities to market;
| · | U.S. expatriates or former long-term residents of the U.S.;
| · | governments or agencies or instrumentalities thereof;
| · | tax-exempt entities;
| · | persons liable for alternative minimum tax;
| · | persons holding our Ordinary Shares as part of a straddle, hedging, conversion or integrated transaction;
| · | persons that actually or constructively own 10% or more of our voting power or value (including by reason of owning our Ordinary Shares);
| · | persons who acquired our Ordinary Shares pursuant to the exercise of any employee share option or otherwise as compensation;
| · | persons holding our Ordinary Shares through partnerships or other pass-through entities;
| · | beneficiaries of a Trust holding our Ordinary Shares; or
| · | persons holding our Ordinary Shares through a Trust.

The discussion set forth below is addressed only to U.S. Holders that purchase Ordinary Shares in this offering. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our Ordinary Shares.

Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares

The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our Ordinary Shares. It is directed to U.S. Holders (as defined below) of our Ordinary Shares and is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This description does not deal with all possible tax consequences relating to ownership and disposition of our Ordinary Shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local and other tax laws.

The following brief description applies only to U.S. Holders (defined below) that hold Ordinary Shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this prospectus and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this prospectus, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of Ordinary Shares and you are, for U.S. federal income tax purposes,

| · | an individual who is a citizen or resident of the United States;
| · | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
| · | an estate whose income is subject to U.S. federal income taxation regardless of its source; or
| · | a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

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Taxation of Dividends and Other Distributions on Our Ordinary Shares

Subject to the PFIC (defined below) rules discussed below, the gross amount of distributions made by us to you with respect to the Ordinary Shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the Ordinary Shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a PFIC (defined below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the British Virgin Islands, clause (1) above can be satisfied only if the Ordinary Shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, Ordinary Shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on certain exchanges, which presently includes the NYSE and the Nasdaq Stock Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our Ordinary Shares, including the effects of any change in law after the date of this prospectus.

Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our Ordinary Shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”

To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your Ordinary Shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

Taxation of Dispositions of Ordinary Shares

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the Ordinary Shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the Ordinary Shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreign tax credits.

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Passive Foreign Investment Company (“PFIC”)

A non-U.S. corporation is considered a PFIC, as defined in Section 1297(a) of the US Internal Revenue Code, for any taxable year if either:

| · | at least 75% of its gross income for such taxable year is passive income; or
| · | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, (1) the cash we raise in this offering will generally be considered to be held for the production of passive income and (2) the value of our assets must be determined based on the market value of our Ordinary Shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets (including the cash raised in this offering) on any particular quarterly testing date for purposes of the asset test.

Based on our operations and the composition of our assets we do not expect to be treated as a PFIC under the current PFIC rules. We must make a separate determination each year as to whether we are a PFIC, however, and there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. Depending on the amount of cash we raise in this offering, together with any other assets held for the production of passive income, it is possible that, for our current taxable year or for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. In addition, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Ordinary Shares and because cash is generally considered to be an asset held for the production of passive income, our PFIC status will depend in large part on the market price of our Ordinary Shares and the amount of cash we raise in this offering. Accordingly, fluctuations in the market price of the Ordinary Shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our Ordinary Shares from time to time and the amount of cash we raise in this offering) that may not be within our control. If we are a PFIC for any year during which you hold Ordinary Shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Ordinary Shares. If we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, however, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the Ordinary Shares.

If we are a PFIC for your taxable year(s) during which you hold Ordinary Shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Ordinary Shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Ordinary Shares will be treated as an excess distribution. Under these special tax rules:

| · | the excess distribution or gain will be allocated ratably over your holding period for the Ordinary Shares;
| · | the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and
| · | the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Ordinary Shares cannot be treated as capital, even if you hold the Ordinary Shares as capital assets.

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A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election under Section 1296 of the US Internal Revenue Code for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) Ordinary Shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the Ordinary Shares as of the close of such taxable year over your adjusted basis in such Ordinary Shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the Ordinary Shares over their fair market value as of the close of the taxable year. Such ordinary loss, however, is allowable only to the extent of any net mark-to-market gains on the Ordinary Shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the Ordinary Shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the Ordinary Shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such Ordinary Shares. Your basis in the Ordinary Shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—Taxation of Dividends and Other Distributions on our Ordinary Shares” generally would not apply.

The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including NYSE American. If the Ordinary Shares are regularly traded on NYSE American and if you are a holder of Ordinary Shares, the mark-to-market election would be available to you were we to be or become a PFIC.

Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election under Section 1295(b) of the US Internal Revenue Code with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. The qualified electing fund election, however, is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold Ordinary Shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such Ordinary Shares, including regarding distributions received on the Ordinary Shares and any gain realized on the disposition of the Ordinary Shares.

If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our Ordinary Shares, then such Ordinary Shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such Ordinary Shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the Ordinary Shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your Ordinary Shares for tax purposes.

IRC Section 1014(a) provides for a step-up in basis to the fair market value for our Ordinary Shares when inherited from a decedent that was previously a holder of our Ordinary Shares. However, if we are determined to be a PFIC and a decedent that was a U.S. Holder did not make either a timely qualified electing fund election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) our Ordinary Shares, or a mark-to-market election and ownership of those Ordinary Shares are inherited, a special provision in IRC Section 1291(e) provides that the new U.S. Holder’s basis should be reduced by an amount equal to the Section 1014 basis minus the decedent’s adjusted basis just before death. As such if we are determined to be a PFIC at any time prior to a decedent’s passing, the PFIC rules will cause any new U.S. Holder that inherits our Ordinary Shares from a U.S. Holder to not get a step-up in basis under Section 1014 and instead will receive a carryover basis in those Ordinary Shares.

You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our Ordinary Shares and the elections discussed above.

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Information Reporting and Backup Withholding

Dividend payments with respect to our Ordinary Shares and proceeds from the sale, exchange or redemption of our Ordinary Shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the US Internal Revenue Code with at a current flat rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. Transactions effected through certain brokers or other intermediaries, however, may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.

Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our Ordinary Shares, subject to certain exceptions (including an exception for Ordinary Shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Ordinary Shares.

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PLAN OF DISTRIBUTION

We expect to enter into placement agency agreement with Network 1 Financial Securities, Inc. as the Placement Agent named therein, with respect to the Ordinary Shares in this offering. Under the terms and subject to the conditions contained in the placement agency agreement, we have agreed to issue and sell a minimum offering amount of Ordinary Shares and a maximum offering amount of Ordinary Shares, which will be sold by the Placement Agent on a best efforts basis. The offering is being made without a firm commitment by the Placement Agent, which has no obligation or commitment to purchase any securities. The Placement Agent is not required to sell any specific number of dollar amount of Ordinary Shares but will use its best efforts to sell the Ordinary Shares offered.

We do not intend to close this offering unless we sell at least a minimum number of Ordinary Share, at the price per Ordinary Share set forth on the cover page of this prospectus, to result in sufficient proceeds to list our Ordinary Shares on NYSE American. We plan to apply to list our Ordinary Shares on NYSE American under the symbol “CNEY.” Because this is a best efforts offering, the Placement Agent does not have an obligation to purchase any securities, and, as a result, we may not be able to sell the minimum number of Ordinary Shares. The offering may close or terminate, as the case may be, on the earlier of (i) any time after the minimum offering amount of our Ordinary Shares is raised, or (ii) [180] days from the effective date of the registration statement, unless extended by us and the Placement Agent for an additional [60] days. If we can successfully raise the minimum offering amount within the offering period, the proceeds from the offering will be released to us.

Commissions and Expenses

We have agreed to pay the Placement Agent a fee equal to 7.5% of the gross proceeds of the offering from investors introduced by the Placement Agent and a fee equal to 6.5% of the gross proceeds of the offering from investors introduced by us.

We have agreed to pay to the Placement Agent, upon the consummation of the offering, a non-accountable expense allowance equal to 1% of the gross proceeds of the offering. We have also agreed to pay the Placement Agent’s reasonable out-of-pocket expenses incurred by the Placement Agent in connection with this offering up to $150,000. We have agreed to pay in cash any unreimbursed expenses that have accrued as of the date of earlier termination of the agreement with the Placement Agent. We have paid an advance of $[75,000] to the Placement Agent to be applied to the Placement Agent’ anticipated out-of-pocket expenses. The advance will be returned to us to the extent such out-of-pocket accountable expenses are not actually incurred in accordance with FINRA Rule 5110(f)(2)(C).

We have also agreed to grant to the Placement Agent warrants covering a number of Ordinary Shares equal to 5% of the aggregate number of the Ordinary Shares sold in the offering. The Placement Agent warrants will be exercisable, in whole or in part, during a period commencing on a date that is six months after the closing of the offering and will expire on the five-year anniversary after the effective date of the offering. The Placement Agent warrants will be exercisable at a price equal to 120% of the offering price and shall not be redeemable. We will register the Ordinary Shares underlying the Placement Agent warrants and will file all necessary undertakings in connection therewith. The Placement Agent warrants may not be sold, transferred, assigned, pledged or hypothecated for a period beginning from SEC’s declaration of effectiveness of our registration statement on Form F-1, of which this prospectus forms a part (in accordance with FINRA Rule 5110), until 180 days after the closing of the offering, except that they may be assigned, in whole or in part, to any successor, officer, manager, member, or partner of the Placement Agent, and to members of the syndicate or selling group and their respective officers, managers, members or partners. The Placement Agent may, but is not obligated to, retain other selected dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory Authority, Inc.

We have agreed to pay our expenses related to the offering. We estimate that our total expenses related to this offering, excluding the estimated commissions to the Placement Agent and payment of the Placement Agent’s expenses referred to above, will be approximately $[●].

Except as disclosed in this prospectus, the Placement Agent has not received and will not receive from us any other item of compensation or expense in connection with this offering considered by FINRA to be underwriting compensation under FINRA Rule 5110.

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The table below shows the per Ordinary Share and total commissions that we will pay to the Placement Agent.

|  | Minimum offering amount |  |  | Maximum offering amount |
|  | Per Ordinary Share |  |  | Total |  |  | Per Ordinary Share |  |  | Total |
Commissions to the Placement Agent (7.5%) for sales to investors introduced by the Placement Agent |  | $ | [●] |  |  | $ | [●] |  |  | $ | [●] |  |  | $ | [●] |
Commissions to the Placement Agent (6.5%) for sales to investors introduced by us |  | $ | [●] |  |  | $ | [●] |  |  | $ | [●] |  |  | $ | [●] |

Prior to this offering, there has been no public market for the Ordinary Shares. The initial public offering price will be determined by negotiations between us and the Placement Agent. In determining the initial public offering price, we and the Placement Agent expect to consider a number of factors, including:

| · | the information set forth in this prospectus and otherwise available to the representatives;
| · | our prospects and the history and prospects for the industry in which we compete;
| · | an assessment of our management;
| · | our prospects for future earnings;
| · | the general condition of the securities markets at the time of this offering;
| · | the recent market prices of, and demand for, publicly traded securities of generally comparable companies; and
| · | other factors deemed relevant by the Placement Agent and us.

The estimated initial public offering price set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors. Neither we nor the Placement Agent can assure investors that an active trading market will develop for our Ordinary Shares, or that the shares will trade in the public market at or above the initial public offering price.

We have agreed to indemnify the Placement Agent against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments that the Placement Agent may be required to make for these liabilities.

Right of First Refusal

In addition, we have agreed to grant to the Placement Agent, upon the closing of this offering, a right of first refusal to co-manage any public underwriting or private placement of our debt or equity securities or the debt or equity securities of our subsidiary or successor (excluding (i) shares issued under any compensation or stock option plan approved by our shareholders, (ii) shares issued in payment of the consideration for an acquisition or as part of strategic partnerships or transactions, and (iii) conventional banking arrangements and commercial debt financing), receiving the right to underwrite or place a minimum of 50% of the securities to be sold therein, until 12 months after the effective date of our registration statement.

Terms of the Offering

We are offering, on a best efforts basis, a minimum of $20,000,000 and a maximum of $30,000,000. The offering is being made without a firm commitment by the Placement Agent, which has no obligation or commitment to purchase any securities. The Placement Agent is not required to sell any specific number or dollar amount of the Ordinary Shares but will use its best efforts to sell the Ordinary Shares offered. The Ordinary Shares are being offered for a period not to exceed [180] days, unless extended by us and the Placement Agent for an additional [60] days. If the minimum offering amount is not raised by [●], 2020 (or [●], 2020 if extended), all subscription funds from the escrow account will be returned to investors promptly without interest (since the funds are being held in a non-interest bearing account) or deduction of fees. The offering may terminate on the earlier of (i) any time after the minimum offering amount of our Ordinary Shares is raised, or (ii) [180] days (or [240] days if extended) from the effective date of the registration statement. If we can successfully raise the minimum offering amount within the offering period, the proceeds from the offering will be released to us.

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Procedures and Requirements for Subscription

If you decide to subscribe for any shares in this offering, you must:

| ● | execute and deliver a subscription agreement; and
| ● | deliver the subscription price to the Company by cashier’s check or wire transfer of immediately available funds.

The subscription agreement requires you to disclose your name, address, social security number, telephone number, email address, number of shares you are purchasing, and the price you are paying for your shares.

Upon the Company’s acceptance of a subscription and receipt of full payment, and subject to the timing qualification set forth above, the Company shall countersign the subscription agreement and issue a stock certificate along with a copy of the subscription agreement.

We have the right to accept or reject subscriptions in whole or in part, for any reason or for no reason. All monies from rejected subscriptions will be returned immediately by us to the subscriber, without interest or deductions. Subscriptions for securities will be accepted or rejected within three (3) business days after we receive them.

Escrow Agent and Deposit of Offering Proceeds

The Placement Agent and the Company have agreed in accordance with the provisions of SEC Rule 15c2-4 to cause all funds received by the Placement Agent for the sale of the Ordinary Shares to be promptly deposited in a non-interest bearing escrow account (“Escrow Account”) maintained by [●] (the “Escrow Agent”) as escrow agent for the investors in the offering. The purpose of the Escrow Account is for (i) the deposit of all subscription monies (checks or wire transfers) received by the Placement Agent from prospective purchasers of our offered Ordinary Shares and delivered by the Placement Agent to the Escrow Agent, (ii) the holding of amounts of subscription monies which are collected through the banking system, and (iii) the disbursement of collected funds. The Escrow Agent will exercise signature control on the escrow account and will act based on joint instructions from us and the Placement Agent. On the closing date for the offering, and presuming that all conditions to closing have been attained (i.e. NYSE approval and other conditions described herein), proceeds in the escrow account maintained by the Escrow Agent will be delivered to us. We will not be able to use such proceeds in China, however, until we complete certain remittance procedures in China, which may take as long as six months in the ordinary course.

The Placement Agent shall promptly deliver to the Escrow Agent all funds in the form of checks or wire transfers which it receives from prospective purchasers of our Ordinary Shares by the end of the next business day following receipt where internal supervisory review is conducted at the same location at which subscription documents and funds are received. Simultaneously with each deposit to the Escrow Account, the Placement Agent shall inform the Escrow Agent about the subscription information for each prospective purchaser. Upon the Escrow Agent’s receipt of such monies, they shall be credited to the Escrow Account. All checks delivered to the Escrow Agent shall be made payable to “[●], as Escrow Agent for CN ENERGY GROUP. INC.” The Escrow Agent shall not be required to accept for credit to the Escrow Account or for deposit into the Escrow Account checks which are not accompanied by the appropriate subscription information. Wire transfers representing payments by prospective purchasers shall not be deemed deposited in the Escrow Account until the Escrow Agent has received in writing the subscription information required with respect to such payments.

No interest will be available for payment to either us or the investors (since the funds are being held in a non-interest bearing account). All subscription funds will be held in trust pending the raising of the minimum offering amount and no funds will be released to us until the completion of the offering. Release of the funds to us is based upon the Escrow Agent reviewing the records of the depository institution holding the escrow to verify that the funds received have cleared the banking system prior to releasing the funds to us. All subscription information and subscription funds through checks or wire transfers should be delivered to the Escrow Agent. Failure to do so will result in subscription funds being returned to the investor. In event that the offering is terminated, all subscription funds from the escrow account will be returned to investors. We have appointed, an independent third party, as our Escrow Agent.

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If we do not terminate this offering before the offering is terminated, all amounts will be promptly returned to the investors as described below. In the event of any dispute between us and the Placement Agent, including whether and how funds are to be reimbursed, the Escrow Agent is entitled to petition a court of competent jurisdiction to resolve any such dispute.

Investors must pay in full for Ordinary Shares at the time of investment. Payment for the shares may be made (i) by check, bank draft or money order made payable to “[●], as Escrow Agent for CN ENERGY GROUP. INC.” and delivered to the Placement Agent no less than four business days before the date of closing, or (ii) by wire made payable to “[●], as Escrow Agent for CN ENERGY GROUP. INC.” The checks, bank drafts and money orders will be forwarded/returned by the Placement Agent and its dealers to the Escrow Agent by noon of the following business day. The Placement Agent will inform prospective purchasers of the anticipated date of closing.

Proceeds deposited in escrow with the Escrow Agent may not be withdrawn by investors prior to the earlier of the closing of the offering or the date the offering is terminated. If the offering is withdrawn or canceled or terminated and proceeds therefrom are not received by us on or prior to the date the offering is terminated, all proceeds will be promptly returned by the Escrow Agent without interest or deduction to the persons from which they are received (within one business day) in accordance with applicable securities laws. All such proceeds will be placed in a non-interest bearing account pending such time.

Lock-Up Agreements

We have agreed not to, for a period of 180 days from the effective date of this registration statement, offer, issue, sell, contract to sell, encumber, grant any option for the sale of, or otherwise dispose of, except in this offering, any of our ordinary shares or securities that are substantially similar to our ordinary shares, including but not limited to any options or warrants to purchase our ordinary shares, or any securities that are convertible into or exchangeable for, or that represent the right to receive, our ordinary shares or any such substantially similar securities (other than pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date such lock-up agreement was executed), without the prior written consent of the Placement Agent.

Furthermore, each of our directors, executive officers, and all other shareholders of our ordinary shares has also entered into a similar lock-up agreement for a period of 180 days from the effective date of this registration statement, subject to certain exceptions, with respect to our ordinary shares and securities that are substantially similar to our ordinary shares. These parties collectively own all of our outstanding ordinary shares, without giving effect to this offering.

There are no existing agreements between the Placement Agent and any person who will execute a lock-up agreement in connection with this offering providing consent to the sale of shares prior to the expiration of the lock-up period. The lock up does not apply to the issuance of shares upon the exercise of rights to acquire Ordinary Shares pursuant to any existing stock option or the conversion of any of our preferred convertible stock.

Electronic Offer, Sale and Distribution of Ordinary Shares

A prospectus in electronic format may be made available on the websites maintained by the Placement Agent. In addition, Ordinary Shares may be sold by the Placement Agent to securities dealers who resell Ordinary Shares to online brokerage account holders. Other than the prospectus in electronic format, the information on the Placement Agent’s website and any information contained in any other website maintained by the Placement Agent is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the Placement Agent in its capacity as Placement Agent and should not be relied upon by investors.

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Selling Restrictions

No action has been taken in any jurisdiction (except in the United States) that would permit a public offering of the Ordinary Shares, or the possession, circulation or distribution of this prospectus or any other material relating to us or the Ordinary Shares, where action for that purpose is required. Accordingly, the Ordinary Shares may not be offered or sold, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the Ordinary Shares may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction.

Notice to Prospective Investors in Canada

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

The Ordinary Shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations . Any resale of the Ordinary Shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

Notice to Prospective Investors in the United Kingdom

This prospectus is only being distributed to and is only directed at persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 within, and/or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) (all such persons together being referred to as “relevant persons”).

This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom who is not a relevant person should not act or rely on this prospectus or any of its contents.

Notice to Prospective Investors in Singapore

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Ordinary Shares may not be circulated or distributed, nor may the Ordinary Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.

Notice to Prospective Investors in the People’s Republic of China

This prospectus may not be circulated or distributed in China and the Ordinary Shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of China except pursuant to applicable laws, rules and regulations of China. For the purpose of this paragraph only, China does not include Taiwan and the special administrative regions of Hong Kong and Macau.

121

Notice to Prospective Investors in Hong Kong

The Ordinary Shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to our Ordinary Shares be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to our Ordinary Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Taiwan, the Republic of China

The Ordinary Shares have not been and will not be registered with the Financial Supervisory Commission of (“Taiwan”), pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in any manner which would constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or would otherwise require registration with or the approval of the Financial Supervisory Commission of Taiwan.

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EXPENSES RELATING TO THIS OFFERING

Set forth below is an itemization of the total expenses, excluding placement discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, the FINRA filing fee and the NYSE American listing fee, all amounts are estimates.

Securities and Exchange Commission Registration Fee | $ | [●] |
NYSE American Listing Fee | $ | [●] |
FINRA Filing Fee | $ | [●] |
Legal Fees and Expenses | $ | [●] |
Accounting Fees and Expenses | $ | [●] |
Printing and Engraving Expenses | $ | [●] |
Transfer Agent Expenses | $ | [●] |
Miscellaneous Expenses | $ | [●] |
Total Expenses | $ | [●] |

These expenses will be borne by us. Underwriting discounts and commissions will be borne by us in proportion to the numbers of ordinary shares sold in the offering.

LEGAL MATTERS

The validity of the Ordinary Shares and certain other legal matters as to United States Federal and New York State law in connection with this offering will be passed upon for us by Hunter Taubman Fischer & Li LLC. The validity of the Ordinary Shares offered in this offering and certain other legal matters as to British Virgin Islands law will be passed upon for us by Carey Olsen, our counsel as to British Virgin Islands law. Legal matters as to PRC law will be passed upon for us by GFE Law Office. Loeb & Loeb LLP is acting as counsel to the Placement Agent.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

EXPERTS

The consolidated financial statements for the fiscal years ended September 30, 2018 and 2017, included in this prospectus have been so included in reliance on the report of Friedman LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. The office of Friedman LLP is located at One Liberty Plaza, 165 Broadway Floor 21, New York, NY 10006.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form F-1, including relevant exhibits and schedules under the Securities Act, covering the Ordinary Shares offered by this prospectus. You should refer to our registration statements and their exhibits and schedules if you would like to find out more about us and about the Ordinary Shares. This prospectus summarizes material provisions of contracts and other documents that we refer you to. Since the prospectus may not contain all the information that you may find important, you should review the full text of these documents.

Immediately upon the completion of this offering, we will be subject to periodic reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Accordingly, we will be required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders under the federal proxy rules contained in Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

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The registration statements, reports and other information so filed can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this prospectus.

No dealers, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

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CN ENERGY GROUP. INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

| Page |
Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets as of September 30, 2018 and 2017 | F-3 |
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended September 30, 2018 and 2017 | F-4 |
Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2018 and 2017 | F-5 |
Consolidated Statements of Cash Flows for the Years Ended September 30, 2018 and 2017 | F-6 |
Condensed Consolidated Balance Sheets as of March 31, 2019 and September 30, 2018 (Unaudited) | F-23 |
Condensed Consolidated Statements of Operations and Comprehensive Income for the Sixth Months Ended March 31, 2019 and 2018 (Unaudited) | F-24 |
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended March 31, 2019 and 2018 (Unaudited) | F-25 |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2019 and 2018 (Unaudited) | F-26 |
Notes to Condensed Consolidated Financial Statements (Unaudited) | F-27 |

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

CN Energy Group. Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CN Energy Group. Inc. and its subsidiaries (collectively, the “Company”) as of September 30, 2018 and 2017, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

/s/ Friedman LLP

We have served as the Company’s auditor since 2018.

New York, New York

September 27, 2019

F-2

CN ENERGY GROUP. INC.

CONSOLIDATED BALANCE SHEETS

|  | September 30 |  |  | September 30 |
|  |  | 2018 |  |  |  | 2017 |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash |  | $ | 1,896,802 |  |  | $ | 78,010 |
Accounts receivable, net |  |  | 3,050,308 |  |  |  | 1,281,699 |
Notes receivable |  |  | 97,378 |  |  |  | - |
Inventory |  |  | 2,650,589 |  |  |  | 4,206,306 |
Advances to suppliers, net |  |  | 1,625,820 |  |  |  | 30,652 |
Due from related parties |  |  | 148,713 |  |  |  | 4,589,132 |
Other receivables and other current assets |  |  | 2,937,223 |  |  |  | 2,420,883 |
Total current assets |  |  | 12,406,833 |  |  |  | 12,606,682 |
Property, plant and equipment, net |  |  | 11,247,354 |  |  |  | 13,031,925 |
Intangible assets, net |  |  | 374,551 |  |  |  | 494,826 |
Long-term deposits |  |  | 314,784 |  |  |  | 324,944 |
Deferred tax assets |  |  | 5,023 |  |  |  | 115,788 |
Total Assets |  | $ | 24,348,545 |  |  | $ | 26,574,165 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 6,095,292 |  |  | $ | 7,724,019 |
Deferred revenue |  |  | 733,285 |  |  |  | 869,832 |
Advances from customers |  |  | 29,621 |  |  |  | 1,292,271 |
Taxes payable |  |  | 173,590 |  |  |  | 163,380 |
Accrued expenses and other current liabilities |  |  | 276,556 |  |  |  | 468,988 |
Total current liabilities |  |  | 7,308,344 |  |  |  | 10,518,490 |
Total liabilities |  |  | 7,308,344 |  |  |  | 10,518,490 |
Commitments and contingencies |  |  |  |  |  |  |  |
Stockholders' Equity: |  |  |  |  |  |  |  |
Ordinary share, no par value, unlimited number of shares authorized, 139,627 shares issued and outstanding |  |  | 14,005,621 |  |  |  | 14,005,621 |
Additional paid-in capital |  |  | 7,890,199 |  |  |  | 7,890,199 |
Accumulated deficit |  |  | (3,623,578 | ) |  |  | (5,186,196 | )
Accumulated other comprehensive loss |  |  | (1,232,041 | ) |  |  | (653,949 | )
Total stockholders' equity |  |  | 17,040,201 |  |  |  | 16,055,675 |
Total Liabilities and Stockholders' Equity |  | $ | 24,348,545 |  |  | $ | 26,574,165 |

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

F-3

CN ENERGY GROUP. INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

|  | For the Years Ended September 30, |
|  | 2018 |  |  | 2017 |
Revenues |  | $ | 8,091,937 |  |  | $ | 1,370,563 |
Cost of revenues |  |  | (6,274,484 | ) |  |  | (1,648,371 | )
Gross profit (loss) |  |  | 1,817,453 |  |  |  | (277,808 | )
Operating expenses: |  |  |  |  |  |  |  |
Selling expenses |  |  | 307,742 |  |  |  | 119,731 |
General and administrative expenses |  |  | 410,710 |  |  |  | 580,161 |
Research and development expenses |  |  | 43,723 |  |  |  | 41,938 |
Total operating expenses |  |  | 762,175 |  |  |  | 741,830 |
Income (Loss) from operations |  |  | 1,055,278 |  |  |  | (1,019,638 | )
Other income: |  |  |  |  |  |  |  |
Interest income, net |  |  | - |  |  |  | 437 |
Government subsidy income |  |  | 655,029 |  |  |  | 110,272 |
Other expense, net |  |  | (35,060 | ) |  |  | (16,177 | )
Total other income |  |  | 619,969 |  |  |  | 94,532 |
Income (Loss) before income taxes |  |  | 1,675,247 |  |  |  | (925,106 | )
Provision for income taxes |  |  | 112,629 |  |  |  | (113,113 | )
Net income (loss) |  |  | 1,562,618 |  |  |  | (811,993 | )
Other comprehensive income (loss): |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  |  | (578,092 | ) |  |  | 20,697 |
Comprehensive income (loss) |  | $ | 984,526 |  |  | $ | (791,296 | )
Earnings (Losses) per share – basic and diluted |  | $ | 11.19 |  |  | $ | (5.82 | )
Weighted average shares outstanding – basic and diluted |  |  | 139,627 |  |  |  | 139,627 |

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

F-4

CN ENERGY GROUP. INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED SEPTEMBER 30, 2018 AND 2017

|  | Ordinary Share |  |  | Additional Paid-in |  |  | Accumulated |  |  | Accumulated Other Comprehensive |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Loss |  |  | Total |
Balance at September 30, 2016 |  |  | 139,627 |  |  | $ | 14,005,621 |  |  | $ | 7,890,199 |  |  | $ | (4,374,203 | ) |  | $ | (674,646 | ) |  | $ | 16,846,971 |
Net loss for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (811,993 | ) |  |  | - |  |  |  | (811,993 | )
Foreign currency translation income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,697 |  |  |  | 20,697 |
Balance at September 30, 2017 |  |  | 139,627 |  |  |  | 14,005,621 |  |  |  | 7,890,199 |  |  |  | (5,186,196 | ) |  |  | (653,949 | ) |  |  | 16,055,675 |
Net income for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,562,618 |  |  |  | - |  |  |  | 1,562,618 |
Foreign currency translation loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (578,092 | ) |  |  | (578,092 | )
Balance at September 30, 2018 |  |  | 139,627 |  |  | $ | 14,005,621 |  |  | $ | 7,890,199 |  |  | $ | (3,623,578 | ) |  | $ | (1,232,041 | ) |  | $ | 17,040,201 |

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

F-5

CN ENERGY GROUP. INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | For The Years Ended September 30, |
|  | 2018 |  |  | 2017 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 1,562,618 |  |  | $ | (811,993 | )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Depreciation expense |  |  | 1,031,123 |  |  |  | 1,009,219 |
Amortization of intangible asset |  |  | 110,167 |  |  |  | 105,687 |
Changes in bad debts allowances |  |  | 42,650 |  |  |  | 1,573 |
Deferred revenue |  |  | (114,947 | ) |  |  | (110,272 | )
Deferred income taxes |  |  | 112,629 |  |  |  | (113,113 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (1,901,256 | ) |  |  | 1,769,982 |
Inventory |  |  | 1,497,093 |  |  |  | (1,583,175 | )
Prepaid expenses and other current assets |  |  | (2,342,805 | ) |  |  | 202,628 |
Long-term deposit |  |  | - |  |  |  | (7,339 | )
Accounts payable |  |  | (1,458,224 | ) |  |  | 2,021,144 |
Advances from customers |  |  | (1,284,802 | ) |  |  | 1,246,916 |
Taxes payable |  |  | 16,103 |  |  |  | 84,249 |
Accrued expenses and other current liabilities |  |  | (186,868 | ) |  |  | (92,303 | )
Net cash provided by (used in) operating activities |  |  | (2,916,519 | ) |  |  | 3,723,203 |
Cash flows from investing activities: |  |  |  |  |  |  |  |
Purchase of property, plant and equipment |  |  | (1,928 | ) |  |  | (94,721 | )
Proceeds from disposal of property, plant and equipment |  |  | 418,394 |  |  |  | 71,948 |
Loans to related parties |  |  | - |  |  |  | (1,419,522 | )
Notes receivable |  |  | (102,362 | ) |  |  | - |
Collections of loans to related parties |  |  | 4,516,859 |  |  |  | - |
Net cash provided by (used in) investing activities |  |  | 4,830,963 |  |  |  | (1,442,295 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Repayment of related parties loans |  |  | - |  |  |  | (2,226,138 | )
Net cash used in financing activities |  |  | - |  |  |  | (2,226,138 | )
Effect of exchange rate changes on cash |  |  | (95,652 | ) |  |  | 1,345 |
Net increase in cash |  |  | 1,818,792 |  |  |  | 56,115 |
Cash, beginning of year |  |  | 78,010 |  |  |  | 21,895 |
Cash, end of year |  | $ | 1,896,802 |  |  | $ | 78,010 |

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

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and nature of business

CN ENERGY GROUP. INC. (“CN Energy”) is a holding company incorporated under the laws of the British Virgin Islands on November 23, 2018. CN Energy, through its subsidiaries (collectively, the “Company”), is a manufacturer and supplier of activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production (“Activated Carbon Production”), and a producer of biomass electricity generated in the process of producing activated carbon (“Biomass Electricity Production”).

Reorganization

A reorganization of the legal structure of the Company was completed on August 12, 2019 (the “Reorganization”). The Reorganization involved the incorporation of CN Energy, a British Virgin Islands holding company; the incorporation of CLEAN ENERGY HOLDINGS LIMITED (“Energy Holdings”), a Hong Kong holding company; the incorporation of Zhejiang CN Energy Technology Development Co., Ltd. (“Zhejiang CN Energy”) and Manzhouli CN Energy Industrial Co., Ltd. (“Manzhouli CN Energy”), two new wholly foreign-owned enterprises (“WFOE”) formed by Energy Holdings under the laws of the People’s Republic of China (“China” or the “PRC”); the incorporation of Manzhouli CN Energy Technology Co., Ltd. (“Manzhouli CN Technology”), a PRC company, of which 90% of the equity interests are owned by Manzhouli CN Energy, and the remaining 10% by Zhejiang CN Energy; the incorporation of CN Energy Industrial Development Co., Ltd. (“CN Energy Development”), a PRC company, of which 70% of the equity interests are owned by Manzhouli CN Technology and the remaining 30% by Zhejiang CN Energy; and the transfer of 100% of the equity interest of Greater Khingan Range Forasen Energy Technology Co., Ltd. (“Khingan Forasen”) from its original shareholders to CN Energy Development in exchange for 139,627 ordinary shares of CN Energy.

After the Reorganization, CN Energy, the ultimate holding company, owns 100% of the equity interest of Khingan Forasen, which in turn owns 100% of the equity interest of Hangzhou Forasen Technology Co., Ltd. (“Hangzhou Forasen”) and Manzhouli Zhongxing Energy Technology Co., Ltd. (“Zhongxing Energy”).

In accordance with Accounting Standards Codification (“ASC”) 805-50-25, the Reorganization has been accounted for as a recapitalization among entities under common control since the same shareholders controlled all these entities prior to the Reorganization. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the Reorganization, those results will be on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings (accumulated deficit) at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

Upon the completion of the Reorganization, the Company has subsidiaries in countries and jurisdictions including the PRC, Hong Kong, and British Virgin Islands. Details of the subsidiaries of the Company are set out below:

F-7

Note 1 – Organization and nature of business (Continued)

Reorganization (Continued)

Name of Entity |  | Date of Incorporation |  | Place of Incorporation |  | % of Ownership |  | Principal Activities
CN Energy |  | November 23, 2018 |  | British Virgin Islands |  | Parent |  | Holding Company
Energy Holdings |  | August 29, 2013 |  | Hong Kong |  | 100% |  | Holding Company
Zhejiang CN Energy |  | January 14, 2019 |  | Zhejiang, China |  | 100% |  | Holding Company
Manzhouli CN Energy |  | January 24, 2019 |  | Inner Mongolia, China |  | 100% |  | Holding Company
Manzhouli CN Technology |  | June 10, 2019 |  | Inner Mongolia, China |  | 100% |  | Holding Company
CN Energy Development |  | April 18, 2019 |  | Zhejiang, China |  | 100% |  | Holding Company
Khingan Forasen |  | March 5, 2009 |  | Heilongjiang, China |  | 100% |  | Produces and distributes activated carbon and biomass electricity
Hangzhou Forasen |  | March 16, 2006 |  | Zhejiang, China |  | 100% |  | Distributes activated carbon products
Zhongxing Energy |  | May 21, 2018 |  | Inner Mongolia, China |  | 100% |  | Expected to hold the second biopower plant and produce activated carbon and biomass electricity in the future

Note 2 – Summary of significant accounting policies

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied.

The consolidated financial statements of the Company reflect the principal activities of CN Energy, Energy Holdings, Zhejiang CN Energy, Manzhouli CN Energy, Manzhouli CN Technology, CN Energy Development, Khingan Forasen, Hangzhou Forasen, and Zhongxing Energy. All intercompany transactions and balances have been eliminated upon consolidation.

Use of estimates

In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting years. Significant items subject to such estimates and assumptions include, but are not limited to, the valuation of inventories, advances to suppliers, useful lives of property, plant and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition, and realization of deferred tax assets. Actual results could differ from those estimates.

F-8

Note 2 – Summary of significant accounting policies (Continued)

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. The Company maintains all of its bank accounts in the PRC. Cash balances in bank accounts in the PRC are not insured by the Federal Deposit Insurance Corporation or other programs. As of September 30, 2018 and 2017, the Company had no cash equivalents.

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after efforts at collection prove unsuccessful.

Inventory

The Company values its inventory at the lower of cost, determined on a weighted average basis, or net realizable value. Costs include the cost of raw materials, freight, direct labor, and related production overhead. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products. The Company reviews its inventory periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value. No inventory reserves were recorded as of September 30, 2018 and 2017.

Advances to suppliers

Advances to suppliers consists of balances paid to suppliers for services and materials that have not been provided or received. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance. Allowance for uncollectible balances amounted to $20,764 and $Nil as of September 30, 2018 and 2017, respectively.

Property, plant, and equipment

Property, plant, and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:

|  | Useful life
Property and buildings |  | 20 years
Machinery and equipment |  | 10 years
Vehicles |  | 4 years
Office equipment |  | 3 - 5 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and other comprehensive income (loss) in income (loss) from operations.

F-9

Note 2 – Summary of significant accounting policies (Continued)

Property, plant, and equipment (Continued)

Construction-in-progress represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction. Construction-in-progress is not depreciated. Upon completion and ready for intended use, construction-in-progress is reclassified to the appropriate category within property, plant, and equipment.

Intangible assets

Intangible assets consist primarily of patents and software. Intangible assets are stated at cost less accumulated amortization, which are amortized using the straight-line method with the following estimated useful lives:

|  | Useful life
Patents |  | 10 years
Software |  | 10 years

Impairment of long-lived assets

The Company reviews long-lived assets, including definitive-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition below are the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of September 30, 2018 and 2017.

Fair value of financial instruments

ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

•Level 3 - inputs to the valuation methodology are unobservable.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, notes receivable, advances to suppliers, due from related parties, other receivables and other current assets, accounts payable, deferred revenue, advances from customers, other payables, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities.

F-10

Note 2 – Summary of significant accounting policies (Continued)

Revenue recognition

On October 1, 2016, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective method for contracts that were not completed as of October 1, 2016. The results of applying ASC Topic 606 using the modified retrospective approach were insignificant and did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows, business process, controls, or systems.

Revenues of the Company are mainly from the sale of two types of products, activated carbon and biomass electricity generated in the process of producing activated carbon. For the sale of activated carbon, the Company recognizes revenue when title and risk of loss passes and the customer accepts the products, which generally occurs at delivery. Product delivery is evidenced by warehouse shipping log as well as signed shipping bills from the shipping company, or by receipt document signed by the customer upon delivery, depending on the delivery term negotiated between the Company and customers on a customer-by-customer basis. For the sale of biomass electricity, revenue is recognized over time as the biomass electricity is delivered, which occurs when the biomass electricity is transmitted from the power plant of the Company to the provincial power grid company. The amount is based on the reading of meters, which occurs on a systematic basis throughout each reporting period and represents the market value of the biomass electricity delivered. The Company provided a one-time technical service to one customer who purchased activated carbon from the Company. The revenue of technical service is recognized on a straight-line basis over the service period as earned.

The transaction price of activated carbon is determined based on fixed consideration in the Company’s customer contracts. Pursuant to the power purchase agreements entered into between the Company and the respective provincial power grid company, the Company’s sales of biomass electricity were made to the power grid company at the tariff rates agreed with the provincial power grid company as approved by the relevant government authorities in the PRC. In determining the transaction price, no significant financing components exist since the timing from when the Company invoices its customers to when payment is received is less than one year.

Revenue is reported net of all value added taxes. The Company generally does not permit customers to return products and historically, customer returns have been immaterial. In the event the Company receives an advance from a customer, such advance is recorded as a liability to the Company. The Company reduces the liability and recognizes revenue after the delivery of goods occurs.

The core principle underlying the revenue recognition ASU is that the Company recognizes revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s sales contracts of activated carbon have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Therefore, the sale of activated carbon is recognized at a point in time. The Company’s sales contracts of biomass electricity have a single performance obligation that represents a promise to transfer to the customer a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. The Company’s performance obligation is satisfied over time as biomass electricity is delivered.

The contract assets and contract liabilities are recorded on the consolidated balance sheets as accounts receivable and advances from customers as of September 30, 2018 and 2017. For the fiscal years ended September 30, 2018 and 2017, revenue recognized from performance obligations related to prior periods was insignificant. Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant.

F-11

Note 2 – Summary of significant accounting policies (Continued)

Revenue recognition (Continued)

The Company has elected the following practical expedients in applying ASC Topic 606:

• | Unsatisfied Performance Obligations – for all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606, and therefore is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
• | Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.
• | Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
• | Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.
• | Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.
• | Modified Retrospective Method - the Company adopted ASC Topic 606 on October 1, 2016, utilizing the modified retrospective method which allows the Company to not retrospectively adjust prior periods. The Company applied the modified retrospective method only to contracts that were not completed at October 1, 2016, and accounted for the aggregate effect of any contract modifications upon adoption.

Refer to Note 13—Segment reporting for details of revenue disaggregation.

Cost of revenues

Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense, and other overhead. Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues.

Research and development expenses

Research and development expenses include costs directly attributable to the conduct of research and development projects, including the cost of salaries and other employee benefits. All costs associated with research and development are expensed as incurred.

Shipping and handling

All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $304,418 and $111,123 for the fiscal years ended September 30, 2018 and 2017, respectively.

F-12

Note 2 – Summary of significant accounting policies (Continued)

Government subsidy income

The Company receives various government grants from time to time. There is no guarantee that the Company will continue to receive such grants in the future. For the fiscal years ended September 30, 2018 and 2017, the Company had subsidies income of $655,029 and $110,272, including $114,947 and $110,272 for equipment of energy projects grants, and $540,082 and $Nil of value-added tax refund, respectively.

In January 2014 and April 2014, the Company received government subsidies of approximately $840,000 and $140,000 for equipment of energy projects, respectively. These subsidies were one-time grants, and the Company recognizes the income over the useful lives of the equipment. For the fiscal years ended September 30, 2018 and 2017, $114,947 and 110,272 was recorded in government subsidy income, respectively.

Income taxes

The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the fiscal years ended September 30, 2018 and 2017. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain.

ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods, and income tax disclosures. There were no material uncertain tax positions as of September 30, 2018 and 2017. As of September 30, 2018, the tax years ended December 31, 2013, through December 31, 2017, for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.

Value-added tax (“VAT”)

Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. The Company recorded a VAT payable or receivable net of payments in the accompanying consolidated financial statements. All of the VAT returns filed by the Company’s subsidiaries in the PRC, have been and remain subject to examination by the tax authorities for five years from the date of filing.

Each local tax authority at times may grant tax holidays to local enterprises as a way to encourage entrepreneurship and stimulate local economy. Khingan Forasen and its branch office, Greater Khingan Range Forasen Energy Technology Co., Ltd. Tahe Biopower Plant (“Biopower Plant”), are entitled to obtained 70% VAT refund as they meet the requirement of national comprehensive utilization of resources program. For the fiscal years ended September 30, 2018 and 2017, the amount of $540,082 and $Nil VAT refund was recorded in government subsidy income, respectively.

F-13

Note 2 – Summary of significant accounting policies (Continued)

Concentrations of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable, notes receivable, advances to suppliers, due from related parties, other receivables, and other current assets. Most of the Company’s cash is maintained with banks within the PRC of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas. The Company also makes cash advances to certain suppliers to ensure the stable supply of key raw materials. The Company performs ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk.

Comprehensive income (loss)

Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains, and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustment from the Company not using the U.S. dollar as its functional currency.

Foreign currency translation

The Company’s financial information is presented in U.S. dollars. The functional currency of the Company is the Renminbi (“RMB”), the currency of the PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters.” The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive loss in stockholders’ equity.

The exchange rates in effect as of September 30, 2018, and September 30, 2017, were RMB1 for $0.1456 and $0.1503, respectively. The average exchange rates for the fiscal years ended September 30, 2018 and 2017, were RMB1 for $0.1530 and $0.1468, respectively.

Statement of cash flows

In accordance with ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations are formulated based upon the local currencies, and then translated at average translation rates for the periods. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Risks and uncertainties

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, in addition to the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

F-14

Note 2 – Summary of significant accounting policies (Continued)

Risks and uncertainties (Continued)

The Company’s sales, purchases, and expense transactions are denominated in RMB, and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In the PRC, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of the PRC. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.

The Company does not carry any business interruption insurance, product liability insurance, or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The main objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (1) public business entities, (2) not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (3) employee benefit plans that file financial statements with the SEC. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities. The Company will adopt this new lease standard within annual reporting period of September 30, 2019, and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt this ASU within annual reporting period of September 30, 2021, and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.

In September 2017, the FASB issued ASU 2017-13, Revenue from Contracts with Customers (Topic 606). The main objective of this pronouncement is to clarify the effective date of the adoption of ASC Topic 606 and the definition of public business entity as stipulated in ASU 2014-09. ASU 2014-09 provides that a public business entity and certain other specified entities adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities are required to adopt ASC Topic 606 for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. ASU 2017-13 clarifies that the SEC would not object to certain public business entities electing to use the non-public business entities effective dates for applying ASC Topic 606. ASU 2017-13, however, limits such election to certain public business entities that “otherwise would not meet the definition of a public business entity except for a requirement to include or inclusion of its financial statements or financial information in another entity’s filings with the SEC”. The Company early adopted this new revenue recognition standard at October 1, 2016, using the modified retrospective method.

F-15

Note 2 – Summary of significant accounting policies (Continued)

Recent accounting pronouncements (Continued)

In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” which clarifies how to apply certain aspects of the new leases standard. This ASU addresses the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. This ASU has the same effective date and transition requirements as the new leases standard, which is effective for annual periods beginning after December 15, 2018. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which provides a new transition method and a practical expedient for separating components of a contract. This ASU is intended to reduce costs and ease the implementation of the new leasing standard for financial statement preparers. The effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of operations and cash flows.

Note 3 – Accounts receivable

Accounts receivable consisted of the following:

|  | September 30, 2018 |  |  | September 30, 2017 |
Trade accounts receivable |  | $ | 3,050,308 |  |  | $ | 1,281,699 |
Less: allowance for doubtful accounts |  |  | - |  |  |  | - |
Accounts receivable, net |  | $ | 3,050,308 |  |  | $ | 1,281,699 |

No allowance for doubtful accounts was recorded for the fiscal years ended September 30, 2018 and 2017.

Note 4 – Inventory

Inventory consisted of the following:

|  | September 30, 2018 |  |  | September 30, 2017 |
Raw materials |  | $ | 129,899 |  |  | $ | 1,720,846 |
Finished goods |  |  | 2,520,690 |  |  |  | 2,485,460 |
Total |  | $ | 2,650,589 |  |  | $ | 4,206,306 |

Inventory includes raw materials and finished goods. Finished goods include direct material costs, direct labor costs, and manufacturing overhead.

F-16

Note 5 – Advances to suppliers, net

Advances to suppliers represent prepayments made to ensure continuous high-quality supply and favorable purchase prices. As of September 30, 2018 and 2017, the Company had $1,625,820 and $30,652, respectively, of advance payments made to suppliers primarily for raw material purchasing.

Note 6 – Other receivables and other current assets

Other receivables and other current assets consisted of the following:

|  | September 30, 2018 |  |  | September 30, 2017 |
Due from third parties (a) |  | $ | 2,055,467 |  |  | $ | 2,339,630 |
VAT refund receivable |  |  | 399,861 |  |  |  | - |
Prepaid travel expenses |  |  | 70,860 |  |  |  | 82,863 |
Other prepaid expenses |  |  | 432,403 |  |  |  | - |
Subtotal |  |  | 2,958,591 |  |  |  | 2,422,493 |
Less: allowance for doubtful accounts |  |  | (21,368 | ) |  |  | (1,610 | )
Other receivables and other current assets |  | $ | 2,937,223 |  |  | $ | 2,420,883 |

| (a) | As of September 30, 2018 and 2017, the Company had due from third parties balance of $2,055,467 and $2,339,630, respectively, which were interest-free and payable upon demand. As of December 31, 2018, the outstanding balance of due from third parties have been fully collected.

Note 7 – Property, plant and equipment, net

Property, plant, and equipment, stated at cost less accumulated depreciation, consisted of the following:

|  | September 30, 2018 |  |  | September 30, 2017 |
Property and buildings |  | $ | 7,107,832 |  |  | $ | 7,337,243 |
Machinery and equipment |  |  | 7,302,964 |  |  |  | 7,538,673 |
Office equipment |  |  | 101,310 |  |  |  | 102,687 |
Vehicles |  |  | 82,512 |  |  |  | 85,175 |
Subtotal |  |  | 14,594,618 |  |  |  | 15,063,778 |
Construction in progress |  |  | 670,457 |  |  |  | 1,102,965 |
Less: accumulated depreciation |  |  | (4,017,721 | ) |  |  | (3,134,818 | )
Property, plant, and equipment, net |  | $ | 11,247,354 |  |  | $ | 13,031,925 |

Depreciation expense was $1,031,123 and $1,009,219 for the fiscal years ended September 30, 2018 and 2017, respectively.

F-17

Note 8 – Intangible assets, net

Intangible assets, net consisted of the following:

|  | September 30, 2018 |  |  | September 30, 2017 |
Software |  | $ | 14,920 |  |  | $ | 15,401 |
Purchased patents |  |  | 1,033,114 |  |  |  | 1,066,459 |
Subtotal |  |  | 1,048,034 |  |  |  | 1,081,860 |
Less: accumulated amortization |  |  | (673,483 | ) |  |  | (587,034 | )
Intangible assets, net |  | $ | 374,551 |  |  | $ | 494,826 |

Amortization expense was $110,167 and $105,687 for the fiscal years ended September 30, 2018 and 2017, respectively.

Estimated future amortization expense is as follows:

Twelve months ending September 30, |  |  | Amortization expense |
2019 |  |  | $ | 110,167 |
2020 |  |  |  | 110,167 |
2021 |  |  |  | 110,031 |
2022 |  |  |  | 44,186 |
Total |  |  | $ | 374,551 |

Note 9 – Related party transactions

The relationship and the nature of related party transactions are summarized as follow:

Name of Related Party |  | Relationship to the Company |  | Nature of Transactions
Forasen Group Co., Ltd. |  | Owned by the Chairman of Board of Directors |  | Working capital loan
Zhengyu Wang |  | CEO and Chairman of Board of Directors |  | Working capital loan
Hangzhou Suyuan Agriculture Technology Co., Ltd. |  | Controlled by the Chairman of Board of Directors |  | Operating lease

Due from related parties

|  | September 30, 2018 |  |  | September 30, 2017 |
Forasen Group Co., Ltd. |  | $ | - |  |  | $ | 4,428,106 |
Zhengyu Wang |  |  | 148,713 |  |  |  | 161,026 |
Total |  | $ | 148,713 |  |  | $ | 4,589,132 |

The Company periodically loans funds to its related parties for business purposes. The balance due from related parties is interest-free, due upon demand, and, as of April 18, 2019, the balance due from related party has been fully collected.

F-18

Note 9 – Related party transactions (Continued)

Operating lease to a related party

During the fiscal year ended September 30, 2018, the Company rented an office to Hangzhou Suyuan Agriculture Technology Co., Ltd with lease term of 10 months. Rental income amounted to $7,659 (approximately RMB50,057) for the fiscal year ended September 30, 2018.

Note 10 – Taxes

Corporation Income Tax (“CIT”)

The Company is subject to income taxes on an entity basis on income derived from the location in which each entity is domiciled.

CN Energy is incorporated in the British Virgin Islands as an offshore holding company and is not subject to tax on income or capital gain under the laws of the British Virgin Islands.

Energy Holdings is incorporated in Hong Kong as a holding company with no activities. Under the Hong Kong tax laws, an entity is not subject to income tax if no revenue is generated in Hong Kong.

Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% EIT rate while preferential tax rates, tax holidays, and even tax exemption may be granted on case-by-case basis. The PRC tax authorities grant preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Since Khingan Forasen was approved as an HNTE in November 2016, Khingan Forasen and its branch office, Biopower Plant, are entitled to a reduced income tax rate of 15% beginning November 2016. In addition, 10% of the revenue of Biopower Plant can be exempt from income tax for the fiscal years ended September 30, 2018 and 2017, because it meets the requirement of national comprehensive utilization of resources program.

The local tax authorities in the PRC typically govern EIT. Each local tax authority at times may grant tax holidays to local enterprises as a way to encourage entrepreneurship and stimulate local economy. The corporate income taxes of Khingan Forasen for fiscal years 2018 and 2017 were reported at a reduced rate of 15% as a result of Khingan Forasen being approved as HNTE. The impact of the reduced tax rate noted above decreased income taxes by $277,865 and $60,736 for the fiscal years ended September 30, 2018 and 2017, respectively. The benefits of the reduced tax rate and tax exemption on net income per share (basic and diluted) were $1.97 and $0.42 for the fiscal years ended September 30, 2018 and 2017, respectively.

The following table reconciles the statutory rate to the Company’s effective tax rate:

|  | For the fiscal years ended September 30, |
|  | 2018 |  |  | 2017 |
China Statutory income tax rate |  |  | 25.0 | % |  |  | 25.0 | %
Effect of PRC preferential tax rate and tax exemption |  |  | (16.4 | %) |  |  | (6.3 | %)
Research and development (“R&D”) tax credit |  |  | (0.3 | %) |  |  | 0.3 | %
Effect of non-taxable government subsidy income |  |  | (1.0 | %) |  |  | 1.8 | %
Change in valuation allowance |  |  | 1.7 | % |  |  | (8.5 | %)
Others |  |  | (2.3 | %) |  |  | (0.1 | %)
Effective tax rate |  |  | 6.7 | % |  |  | 12.2 | %

F-19

Note 10 – Taxes (Continued)

Corporation Income Tax (“CIT”) (Continued)

The provision for income tax consists of the following:

|  | For the fiscal years ended September 30, |
|  | 2018 |  |  | 2017 |
Deferred income tax provision (benefit) |  | $ | 112,629 |  |  | $ | (113,113 | )

Components of deferred tax assets are as follows:

|  | For the fiscal years ended September 30, |
|  | 2018 |  |  | 2017 |
Net operating loss carryforwards |  | $ | 412,959 |  |  | $ | 513,678 |
Allowance for doubtful accounts |  |  | 5,023 |  |  |  | 242 |
Valuation allowance on net operating loss |  |  | (412,959 | ) |  |  | (398,132 | )
Total |  | $ | 5,023 |  |  | $ | 115,788 |

The Company’s PRC subsidiaries had cumulative net operating loss of approximately $2,254,434 and $2,993,809 as of September 30, 2018 and 2017, respectively, which may be available for reducing future taxable income.

As of each reporting date, management considers evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. On the basis of this evaluation, valuation allowance of $412,959 and $398,132 was recorded against the gross deferred tax asset balance on September 30, 2018 and 2017, respectively. The amount of the deferred tax asset is considered unrealizable because it is more likely than not that the Company will not generate sufficient future taxable income to utilize this portion of the net operating loss. The increase in valuation allowance for the fiscal years ended September 30, 2018 and 2017, was approximately $14,827 and $80,864, respectively.

Taxes Payable

The Company’s taxes payable consist of the following:

|  | September 30, 2018 |  |  | September 30, 2017 |
Value-added tax payable |  | $ | 166,701 |  |  | $ | (19,782 | )
Payroll tax and other taxes payable |  |  | 6,889 |  |  |  | 183,162 |
Total taxes payable |  | $ | 173,590 |  |  | $ | 163,380 |

Note 11 – Concentration of major customers and suppliers

For the fiscal year ended September 30, 2018, one major customer accounted for approximately 44% of the Company’s total sales. For the fiscal year ended September 30, 2017, three major customers accounted for approximately 60%, 17%, and 13% of the Company’s total sales, respectively. Any decrease in sales to these major customers may negatively impact the Company’s operations and cash flows if the Company fails to increase its sales to other customers.

F-20

Note 11 – Concentration of major customers and suppliers (Continued)

As of September 30, 2018, three major customers accounted for approximately 30%, 25%, and 11% of the Company’s accounts receivable balance, respectively. As of September 30, 2017, two major customers accounted for approximately 77% and 12% of the Company’s accounts receivable balance, respectively.

For the fiscal year ended September 30, 2018, five major suppliers accounted for approximately 22%, 21%, 12%, 11%, and 10% of the total purchases, respectively. For the fiscal year ended September 30, 2017, four major suppliers accounted for approximately 22%, 21%, 20%, and 12% of the total purchases, respectively.

As of September 30, 2018, four major suppliers accounted for approximately 33%, 18%, 11%, and 10% of the Company’s advance to suppliers balance. As of September 30, 2017, one supplier accounted for approximately 98% of the Company’s advance to suppliers balance.

Note 12 – Commitments and contingencies

Operating Lease Commitments

The Company leases one main office space through May 9, 2020. This lease contains scheduled rent increases or escalation clauses, renewal options, or in some cases, purchase options. Rental expense charged to general and administrative expenses under operating lease for the fiscal years ended September 30, 2018 and 2017, amounted to $25,510 and $27,195, respectively.

Future minimum lease obligations for operating lease with initial terms in excess of one year at September 30, 2018, are as follows:

Twelve months ending September 30, |  |  |  |
2019 |  |  | $ | 53,513 |
2020 |  |  |  | 32,098 |
Total |  |  | $ | 85,611 |

Contingencies

The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Biopower Plant has not paid adequate social insurance for all its employees, and the Company's PRC subsidiaries have not made adequate housing provident fund payments for all their employees. The relevant PRC authorities may order the Company to make up the contributions to these plans. In addition, failure to make adequate social insurance payments on time may subject the Company to 0.05% late fees per day starting from the date of underpayment and fines equal to one to three times the underpaid amount. For failure to make adequate housing provident fund payments as required, the Company may be fined RMB10,000 to RMB50,000. If the Company is subject to late fees or fines in relation to underpaid employee benefits, the financial condition and results of operations may be adversely affected. However, the risk of regulatory penalty that the relevant authorities may impose on our PRC subsidiaries in relation to its failure to make adequate contributions to the employee benefit plans for all the Company's employees as required is remote, because the relevant local authorities confirmed in writing that no records of violation were found on the Company's PRC subsidiaries for social insurance plan and/or housing provident fund contributions.

F-21

Note 13 – Segment reporting

ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments, and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker makes operating decisions and assesses performance solely based on activated carbon sales orders received. In addition, the production of activated carbon and the biomass electricity are one integrated process and inseparable. Therefore, the Company has determined that it has only one operating segment and therefore one reportable segment as defined by ASC.

The following table presents revenue by major product categories for the fiscal years ended September 30, 2018 and 2017, respectively:

|  | For the fiscal years ended September 30, |
|  | 2018 |  |  | 2017 |
Activated carbon |  | $ | 7,670,000 |  |  | $ | 1,046,036 |
Biomass electricity |  |  | 381,800 |  |  |  | 231,056 |
Technical service |  |  | 40,137 |  |  |  | 93,471 |
Total |  | $ | 8,091,937 |  |  | $ | 1,370,563 |

All of the Company’s long-lived assets are located in the PRC. All of the Company’s products are sold in the PRC.

Note 14 – Statutory Reserves

The Company's PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. The Company's PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. The appropriation to these reserves by the Company's PRC subsidiaries was $nil and $nil for the years ended September 30, 2018 and 2017 due to accumulated deficit.

Note 15 – Subsequent events

These consolidated financial statements were approved by management and available for issuance on September 27, 2019. The Company evaluated subsequent events through the date these consolidated financial statements were issued.

Short-term bank loans

On March 25, 2019, Biopower Plant entered into a credit loan agreement with Industrial and Commercial Bank of China Tahe Branch to borrow RMB2 million (equivalent to $298,014 as of March 31, 2019) as the Company’s working capital with a variable interest rate equals 110% of the prime interest rate set by the People’s Bank of China at the time of borrowing (4.785% as of March 31, 2019). This loan was due upon maturity on September 21, 2019. On September 19, 2019, Biopower Plant renewed this loan with ICBC to borrow RMB 1.98 million (equivalent to $295,034) as working capital with a variable interest rate equals 115% of the prime interest rate set by the People’s Bank of China at the time of borrowing (5.0025% as of September 19, 2019). The new maturity date is March 17, 2020.

F-22

CN ENERGY GROUP. INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

|  | March 31, |  |  | September 30, |
|  | 2019 |  |  | 2018 |
ASSETS |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |
Cash |  | $ | 2,148,748 |  |  | $ | 1,896,802 |
Accounts receivable, net |  |  | 1,356,466 |  |  |  | 3,050,308 |
Notes receivable |  |  | - |  |  |  | 97,378 |
Inventory |  |  | 2,762,124 |  |  |  | 2,650,589 |
Advances to suppliers, net |  |  | 3,736,362 |  |  |  | 1,625,820 |
Due from related parties |  |  | 77,097 |  |  |  | 148,713 |
Prepaid expenses and other current assets |  |  | 301,608 |  |  |  | 2,937,223 |
Total current assets |  |  | 10,382,405 |  |  |  | 12,406,833 |
Property, plant and equipment, net |  |  | 11,018,742 |  |  |  | 11,247,354 |
Intangible assets, net |  |  | 329,782 |  |  |  | 374,551 |
Land use right, net |  |  | 582,454 |  |  |  | - |
Long-term deposits |  |  | 320,365 |  |  |  | 314,784 |
Deferred tax assets |  |  | 3,091 |  |  |  | 5,023 |
Total Assets |  | $ | 22,636,839 |  |  | $ | 24,348,545 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |
Short-term bank loan |  | $ | 298,014 |  |  | $ | - |
Accounts payable |  |  | 3,306,316 |  |  |  | 6,095,292 |
Deferred revenue |  |  | 697,092 |  |  |  | 733,285 |
Advances from customers |  |  | - |  |  |  | 29,621 |
Taxes payable |  |  | 33,266 |  |  |  | 173,590 |
Accrued expenses and other current liabilities |  |  | 161,800 |  |  |  | 276,556 |
Total current liabilities |  |  | 4,496,488 |  |  |  | 7,308,344 |
Total liabilities |  |  | 4,496,488 |  |  |  | 7,308,344 |
Commitments and contingencies |  |  |  |  |  |  |  |
Stockholders' Equity: |  |  |  |  |  |  |  |
Ordinary share, no par value, unlimited number of shares authorized, 139,627 shares issued and outstanding |  |  | 14,005,621 |  |  |  | 14,005,621 |
Additional paid-in capital |  |  | 7,890,199 |  |  |  | 7,890,199 |
Accumulated deficit |  |  | (2,939,441 | ) |  |  | (3,623,578 | )
Accumulated other comprehensive loss |  |  | (816,028 | ) |  |  | (1,232,041 | )
Total stockholders' equity |  |  | 18,140,351 |  |  |  | 17,040,201 |
Total Liabilities and Stockholders' Equity |  | $ | 22,636,839 |  |  | $ | 24,348,545 |

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

F-23

CN ENERGY GROUP. INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(UNAUDITED)

|  | For the Six Months Ended March 31, |
|  | 2019 |  |  | 2018 |
Revenues |  | $ | 4,768,077 |  |  | $ | 1,808,125 |
Cost of revenues |  |  | (3,356,376 | ) |  |  | (2,217,289 | )
Gross profit (loss) |  |  | 1,411,701 |  |  |  | (409,164 | )
Operating expenses: |  |  |  |  |  |  |  |
Selling expenses |  |  | 125,121 |  |  |  | 26,081 |
General and administrative expenses |  |  | 413,428 |  |  |  | 115,528 |
Research and development expenses |  |  | 432,431 |  |  |  | 17,005 |
Total operating expenses |  |  | 970,980 |  |  |  | 158,614 |
Income (Loss) from operations |  |  | 440,721 |  |  |  | (567,778 | )
Other income: |  |  |  |  |  |  |  |
Interest income, net |  |  | 237 |  |  |  | 140 |
Government subsidy income |  |  | 263,832 |  |  |  | 106,610 |
Other income (expense), net |  |  | 873 |  |  |  | (46,483 | )
Total other income |  |  | 264,942 |  |  |  | 60,267 |
Income (Loss) before income taxes |  |  | 705,663 |  |  |  | (507,511 | )
Provision (benefit) for income taxes |  |  | 21,526 |  |  |  | (108,050 | )
Net income (loss) |  |  | 684,137 |  |  |  | (399,461 | )
Other comprehensive income: |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  |  | 416,013 |  |  |  | 944,696 |
Comprehensive income |  | $ | 1,100,150 |  |  | $ | 545,235 |
Earnings (Losses) per share – basic and diluted |  | $ | 4.90 |  |  | $ | (2.86 | )
Weighted average shares outstanding – basic and diluted |  |  | 139,627 |  |  |  | 139,627 |

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

F-24

CN ENERGY GROUP. INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED MARCH 31, 2019 AND 2018

(UNAUDITED)

|  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated Other |  |  |  |
|  | Ordinary Share |  |  | Additional Paid-in |  |  | Accumulated |  |  | Comprehensive Income |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | (Loss) |  |  | Total |
Balance at October 1, 2017 |  |  | 139,627 |  |  | $ | 14,005,621 |  |  | $ | 7,890,199 |  |  | $ | (5,186,196 | ) |  | $ | (653,949 | ) |  | $ | 16,055,675 |
Net loss for the period |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (399,461 | ) |  |  | - |  |  |  | (399,461 | )
Foreign currency translation gain |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 944,696 |  |  |  | 944,696 |
Balance at March 31, 2018 |  |  | 139,627 |  |  | $ | 14,005,621 |  |  | $ | 7,890,199 |  |  | $ | (5,585,657 | ) |  | $ | 290,747 |  |  | $ | 16,600,910 |
Balance at October 1, 2018 |  |  | 139,627 |  |  | $ | 14,005,621 |  |  | $ | 7,890,199 |  |  | $ | (3,623,578 | ) |  | $ | (1,232,041 | ) |  | $ | 17,040,201 |
Net income for the period |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 684,137 |  |  |  | - |  |  |  | 684,137 |
Foreign currency translation gain |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 416,013 |  |  |  | 416,013 |
Balance at March 31, 2019 |  |  | 139,627 |  |  | $ | 14,005,621 |  |  | $ | 7,890,199 |  |  | $ | (2,939,441 | ) |  | $ | (816,028 | ) |  | $ | 18,140,351 |

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

F-25

CN ENERGY GROUP. INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

|  | For The Six Months Ended March 31, |
|  | 2019 |  |  | 2018 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 684,137 |  |  | $ | (399,461 | )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |
Depreciation expense |  |  | 489,126 |  |  |  | 523,748 |
Amortization |  |  | 57,509 |  |  |  | 55,520 |
Changes in bad debt allowances |  |  | (22,127 | ) |  |  | 19,470 |
Deferred income taxes |  |  | 2,015 |  |  |  | (108,050 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable, net |  |  | 1,723,517 |  |  |  | (740,071 | )
Inventory |  |  | (47,872 | ) |  |  | 1,144,471 |
Advances to suppliers, net |  |  | (2,014,703 | ) |  |  | (362,293 | )
Prepaid expenses and other current assets |  |  | 2,734,260 |  |  |  | (429,483 | )
Long-term deposits |  |  | 1,844 |  |  |  | 1,542 |
Accounts payable |  |  | (2,881,825 | ) |  |  | (263,402 | )
Deferred revenue |  |  | (52,626 | ) |  |  | (55,442 | )
Advances from customers |  |  | (29,790 | ) |  |  | (436,680 | )
Taxes payable |  |  | (141,897 | ) |  |  | (134,361 | )
Accrued expenses and other current liabilities |  |  | (119,177 | ) |  |  | (285,010 | )
Net cash provided by (used in) operating activities |  |  | 382,391 |  |  |  | (1,469,502 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Purchase of property, plant and equipment |  |  | (2,712 | ) |  |  | (1,943 | )
Proceeds from disposal of property, plant and equipment |  |  | - |  |  |  | 421,711 |
Purchase of land use right |  |  | (577,021 | ) |  |  | - |
Collections of loans to related parties |  |  | 73,818 |  |  |  | 1,056,400 |
Notes receivable |  |  | 97,933 |  |  |  | - |
Net cash provided by (used in) investing activities |  |  | (407,982 | ) |  |  | 1,476,168 |
Cash flows from financing activities: |  |  |  |  |  |  |  |
Deferred financing costs |  |  | (63,822 | ) |  |  | - |
Proceeds from short-term bank loans |  |  | 292,774 |  |  |  | - |
Net cash provided by financing activities |  |  | 228,952 |  |  |  | - |
Effect of exchange rate changes on cash |  |  | 48,585 |  |  |  | 4,869 |
Net increase in cash |  |  | 251,946 |  |  |  | 11,535 |
Cash, beginning of period |  |  | 1,896,802 |  |  |  | 78,010 |
Cash, end of period |  | $ | 2,148,748 |  |  | $ | 89,545 |

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

F-26

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 1 – Organization and nature of business

CN ENERGY GROUP. INC. (“CN Energy”) is a holding company incorporated under the laws of the British Virgin Islands on November 23, 2018. CN Energy, through its subsidiaries (collectively, the “Company”), is a manufacturer and supplier of activated carbon that is primarily used in pharmaceutical manufacturing, industrial manufacturing, water purification, environmental protection, and food and beverage production (“Activated Carbon Production”), and a producer of biomass electricity generated in the process of producing activated carbon (“Biomass Electricity Production”).

Reorganization

A reorganization of the legal structure of the Company was completed on August 12, 2019 (the “Reorganization”). The Reorganization involved the incorporation of CN Energy, a British Virgin Islands holding company; the incorporation of CLEAN ENERGY HOLDINGS LIMITED (“Energy Holdings”), a Hong Kong holding company; the incorporation of Zhejiang CN Energy Technology Development Co., Ltd. (“Zhejiang CN Energy”) and Manzhouli CN Energy Industrial Co., Ltd. (“Manzhouli CN Energy”), two new wholly foreign-owned enterprises (“WFOE”) formed by Energy Holdings under the laws of the People’s Republic of China (“China” or the “PRC”); the incorporation of Manzhouli CN Energy Technology Co., Ltd. (“Manzhouli CN Technology”), a PRC company, of which 90% of the equity interests are owned by Manzhouli CN Energy, and the rest 10% of the equity interest is owned by Zhejiang CN Energy; the incorporation of CN Energy Industrial Development Co., Ltd. (“CN Energy Development”), a PRC company, of which 70% of the equity interests are owned by Manzhouli CN Technology and the remaining 30% by Zhejiang CN Energy; and the transfer of 100% of the equity interest of Greater Khingan Range Forasen Energy Technology Co., Ltd. (“Khingan Forasen”) from its original shareholders to CN Energy Development in exchange for 139,627 ordinary shares of CN Energy.

After the Reorganization, CN Energy, the ultimate holding company, owns 100% of the equity interest of Khingan Forasen, which in turn owns 100% of the equity interest of Hangzhou Forasen Technology Co., Ltd. (“Hangzhou Forasen”) and Manzhouli Zhongxing Energy Technology Co., Ltd. (“Zhongxing Energy”).

In accordance with Accounting Standards Codification (“ASC”) 805-50-25, the Reorganization has been accounted for as a recapitalization among entities under common control since the same shareholders controlled all these entities prior to the Reorganization. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the period presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period. By eliminating the effects of intra-entity transactions in determining the results of operations for the period before the Reorganization, those results will be on substantially the same basis as the results of operations for the period after the date of combination. The effects of intra-entity transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings (accumulated deficit) at the beginning of the periods presented are eliminated to the extent possible. Furthermore, ASC 805-50-45-5 indicates that the financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information.

Upon the completion of the Reorganization, the Company has subsidiaries in countries and jurisdictions including the PRC, Hong Kong, and British Virgin Islands. Details of the subsidiaries of the Company are set out below:

F-27

Note 1 – Organization and nature of business (Continued)

Reorganization (Continued)

Name of Entity |  | Date of Incorporation |  | Place of Incorporation |  | % of Ownership |  | Principal Activities
CN Energy |  | November 23, 2018 |  | British Virgin Islands |  | Parent |  | Holding Company
Energy Holdings |  | August 29, 2013 |  | Hong Kong |  | 100% |  | Holding Company
Zhejiang CN Energy |  | January 14, 2019 |  | Zhejiang, China |  | 100% |  | Holding Company
Manzhouli CN Energy |  | January 24, 2019 |  | Inner Mongolia, China |  | 100% |  | Holding Company
Manzhouli CN Technology |  | June 10, 2019 |  | Inner Mongolia, China |  | 100% |  | Holding Company
CN Energy Development |  | April 18, 2019 |  | Zhejiang, China |  | 100% |  | Holding Company
Khingan Forasen |  | March 5, 2009 |  | Heilongjiang, China |  | 100% |  | Produces and distributes activated carbon and biomass electricity
Hangzhou Forasen |  | March 16, 2006 |  | Zhejiang, China |  | 100% |  | Distributes activated carbon products
Zhongxing Energy |  | May 21, 2018 |  | Inner Mongolia, China |  | 100% |  | Expected to hold the second biopower plant and produce activated carbon and biomass electricity in the future

Note 2 – Summary of significant accounting policies

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and have been consistently applied. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal years ended September 30, 2018 and 2017.

The unaudited condensed consolidated financial statements of the Company reflect the principal activities of CN Energy and its subsidiaries. All significant inter-company balances and transactions are eliminated upon consolidation.

F-28

Note 2 – Summary of significant accounting policies (Continued)

Use of estimates

In preparing the unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, the valuation of inventories, advances to suppliers, useful lives of property, plant and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets. Actual results could differ from those estimates.

Cash and cash equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. The Company maintains all of its bank accounts in the PRC. Cash balances in bank accounts in the PRC are not insured by the Federal Deposit Insurance Corporation or other programs. As of March 31, 2019, and September 30, 2018, the Company had no cash equivalents.

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s historical payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the allowance after efforts at collection prove unsuccessful.

Inventory

The Company values its inventory at the lower of cost, determined on a weighted average basis, or net realizable value. Costs include the cost of raw materials, freight, direct labor, and related production overhead. Net realizable value is estimated using selling price in the normal course of business less any costs to complete and sell products. The Company reviews its inventory periodically to determine if any reserves are necessary for potential obsolescence or if the carrying value exceeds net realizable value. No inventory reserves were recorded as of March 31, 2019 and September 30, 2018.

Advances to suppliers

Advances to suppliers consists of balances paid to suppliers for services and materials that have not been provided or received. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance. Allowance for uncollectible balances amounted to $Nil and $20,764 as of March 31, 2019, and September 30, 2018, respectively.

Property, plant, and equipment

Property, plant and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.

F-29

Note 2 – Summary of significant accounting policies (Continued)

Property, plant, and equipment (Continued)

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated

useful lives for significant property and equipment are as follows:

|  | Useful life
Property and buildings |  | 20 years
Machinery and equipment |  | 10 years
Vehicles |  | 4 years
Office equipment |  | 3 - 5 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the unaudited condensed consolidated statements of operations and comprehensive income in income (loss) from operations.

Construction-in-progress represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction. Construction-in-progress is not depreciated. Upon completion and ready for intended use, construction-in-progress is reclassified to the appropriate category within property, plant, and equipment.

Land use right, net

Land use right is recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives which are 50 years and represent the shorter of the estimated usage periods or the terms of the agreements.

Intangible assets

Intangible assets consist primarily of patents and software. Intangible assets are stated at cost less accumulated amortization, which are amortized using the straight-line method with the following estimated useful lives:

|  | Useful life
Patents |  | 10 years
Software |  | 10 years

Impairment of long-lived assets

The Company reviews long-lived assets, including definitive-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition below are the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of March 31, 2019, and September 30, 2018.

F-30

Note 2 – Summary of significant accounting policies (Continued)

Fair value of financial instruments

ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.

•Level 3 - inputs to the valuation methodology are unobservable.

Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, accounts receivable, notes receivable, advances to suppliers, due from related parties, prepaid expenses and other current assets, short-term bank loans, accounts payable, deferred revenue, advances from customers, other payables, taxes payable, and accrued expenses and other current liabilities approximate their recorded values due to their short-term maturities.

Revenue recognition

On October 1, 2016, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective method for contracts that were not completed as of October 1, 2016. The results of applying ASC Topic 606 using the modified retrospective approach were insignificant and did not have a material impact on the Company’s consolidated financial position, results of operations, cash flows, business process, controls, or systems.

Revenues of the Company are mainly from the sale of two types of products, activated carbon and biomass electricity generated in the process of producing activated carbon. For the sale of activated carbon, the Company recognizes revenue when title and risk of loss passes and the customer accepts the products, which generally occurs at delivery. Product delivery is evidenced by warehouse shipping log as well as signed shipping bills from the shipping company, or by receipt document signed by the customer upon delivery, depending on the delivery term negotiated between the Company and customers on a customer-by-customer basis. For the sale of biomass electricity, revenue is recognized over time as the biomass electricity is delivered, which occurs when the biomass electricity is transmitted from the power plant of the Company to the provincial power grid company. The amount is based on the reading of meters, which occurs on a systematic basis throughout each reporting period and represents the market value of the biomass electricity delivered. The Company provided a one-time technical service to one customer who purchased activated carbon from the Company. The revenue of technical service is recognized on a straight-line basis over the service period as earned.

The transaction price of activated carbon is determined based on fixed consideration in the Company’s customer contracts. Pursuant to the power purchase agreements entered into between the Company and the respective provincial power grid company, the Company’s sales of biomass electricity were made to the power grid company at the tariff rates agreed with the provincial power grid company as approved by the relevant government authorities in the PRC. In determining the transaction price, no significant financing components exist since the timing from when the Company invoices its customers to when payment is received is less than one year.

F-31

Note 2 – Summary of significant accounting policies (Continued)

Revenue recognition (Continued)

Revenue is reported net of all value added taxes. The Company generally does not permit customers to return products and historically, customer returns have been immaterial. In the event the Company receives an advance from a customer, such advance is recorded as a liability to the Company. The Company reduces the liability and recognizes revenue after the delivery of goods occurs.

The core principle underlying the revenue recognition ASU is that the Company recognizes revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s sales contracts of activated carbon have one single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Therefore, the sale of activated carbon is recognized at a point in time. The Company’s sales contracts of biomass electricity have a single performance obligation that represents a promise to transfer to the customer a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. The Company’s performance obligation is satisfied over time as biomass electricity is delivered.

The contract assets and contract liabilities are recorded on the consolidated balance sheets as accounts receivable and advances from customers as of March 31, 2019, and September 30, 2018. For the six months ended March 31, 2019 and 2018, revenue recognized from performance obligations related to prior periods was insignificant. Revenue expected to be recognized in any future periods related to remaining performance obligations is insignificant.

The Company has elected the following practical expedients in applying ASC Topic 606:

• | Unsatisfied Performance Obligations – for all performance obligations relate to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC Topic 606, and therefore is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.
• | Contract Costs - all incremental customer contract acquisition costs are expensed as they are incurred as the amortization period of the asset that the Company otherwise would have recognized is one year or less in duration.
• | Significant Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
• | Sales Tax Exclusion from the Transaction Price - the Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from the customer.
• | Shipping and Handling Activities - the Company elected to account for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.
• | Modified Retrospective Method - the Company adopted ASC Topic 606 on October 1, 2016, utilizing the modified retrospective method which allows the Company to not retrospectively adjust prior periods. The Company applied the modified retrospective method only to contracts that were not completed at October 1, 2016, and accounted for the aggregate effect of any contract modifications upon adoption.

Refer to Note 15—Segment reporting for details of revenue disaggregation.

F-32

Note 2 – Summary of significant accounting policies (Continued)

Cost of revenues

Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense, and other overhead. Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues.

Research and development expenses

Research and development expenses include costs directly attributable to the conduct of research and development projects, including the cost of salaries and other employee benefits. All costs associated with research and development are expensed as incurred.

Shipping and handling

All shipping and handling costs are expensed as incurred and included in selling expenses. Total shipping and handling expenses were $114,841 and $24,275 for the six months ended March 31, 2019 and 2018, respectively.

Government subsidy income

The Company receives various government grants from time to time. There is no guarantee that the Company will continue to receive such grants in the future. For the six months ended March 31, 2019 and 2018, the Company had subsidies income of $263,832 and $106,610, including $52,626 and $55,442 for equipment of energy projects grants, and $211,205 and $51,168 of value-added tax refund, respectively.

In January 2014 and April 2014, the Company received government subsidies of approximately $840,000 and $140,000 for equipment of energy projects, respectively. These subsidies were one-time grants, and the Company recognizes the income over the useful lives of the equipment. For the six months ended March 31, 2019 and 2018, $52,627 and $55,442 was recorded in government subsidy income, respectively.

Income taxes

The Company’s subsidiaries in the PRC and Hong Kong are subject to the income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the six months ended March 31, 2019 and 2018. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain.

ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. There were no material uncertain tax positions as of March 31, 2019, and September 30, 2018. As of March 31, 2019, the tax years ended December 31, 2014, through December 31, 2018 for the Company’s PRC subsidiaries remain open for statutory examination by PRC tax authorities.

F-33

Note 2 – Summary of significant accounting policies (Continued)

Value added tax (“VAT”)

Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to 17%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. The Company recorded a VAT payable or receivable net of payments in the accompanying unaudited condensed consolidated financial statements. All of the VAT returns filed by the Company’s subsidiaries in the PRC, have been and remain subject to examination by the tax authorities for five years from the date of filing.

Each local tax authority at times may grant tax holidays to local enterprises as a way to encourage entrepreneurship and stimulate local economy. Khingan Forasen and its branch office, Greater Khingan Range Forasen Energy Technology Co., Ltd. Tahe Biopower Plant (“Biopower Plant”), are entitled to obtained 70% VAT refund as they meet the requirement of national comprehensive utilization of resources program. For the six months ended March 31, 2019 and 2018, the amount of $211,205 and $51,168 VAT refund was recorded in government subsidy income, respectively.

Concentrations of credit risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, accounts receivable, notes receivable, advances to suppliers, and due from related parties. Most of the Company’s cash is maintained with banks within the PRC of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas. The Company also makes cash advances to certain suppliers to ensure the stable supply of key raw materials. The Company performs ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk.

Comprehensive income

Comprehensive income consists of two components, net income (loss) and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains, and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income consists of foreign currency translation adjustment from the Company not using the U.S. dollar as its functional currency.

Foreign currency translation

The Company’s financial information is presented in U.S. dollars. The functional currency of the Company is the Renminbi (“RMB”), the currency of the PRC. Any transactions which are denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of operations as foreign currency transaction gain or loss. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters.” The financial information is first prepared in RMB and then translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive loss in stockholders’ equity.

The exchange rates in effect as of March 31, 2019, and September 30, 2018, were RMB1 for $0.1490 and $0.1456, respectively. The average exchange rates for the six months ended March 31, 2019 and 2018, were RMB1 for $0.1464 and $0.1542, respectively.

F-34

Note 2 – Summary of significant accounting policies (Continued)

Statement of cash flows

In accordance with ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations are formulated based upon the local currencies, and then translated at average translation rates for the periods. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Risks and uncertainties

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, in addition to the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

The Company’s sales, purchases, and expense transactions are denominated in RMB, and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In the PRC, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of the PRC. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.

The Company does not carry any business interruption insurance, product liability insurance, or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). The main objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for (1) public business entities, (2) not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and (3) employee benefit plans that file financial statements with the SEC. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities. The Company will adopt this new lease standard within annual reporting period of September 30, 2019 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt this ASU within annual reporting period of September 30, 2021 and expects that the adoption will not have a material impact on the Company’s consolidated financial statements.

F-35

Note 2 – Summary of significant accounting policies (Continued)

Recent accounting pronouncements (Continued)

In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases,” which clarifies how to apply certain aspects of the new leases standard. This ASU addresses the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. This ASU has the same effective date and transition requirements as the new leases standard, which is effective for annual periods beginning after December 15, 2018. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which provides a new transition method and a practical expedient for separating components of a contract. This ASU is intended to reduce costs and ease the implementation of the new leasing standard for financial statement preparers. The effective date and transition requirements for the amendments related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

F-36

Note 2 – Summary of significant accounting policies (Continued)

Recent accounting pronouncements (Continued)

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company expects that the adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of operations and cash flows.

Note 3 – Accounts receivable

Accounts receivable consisted of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Trade accounts receivable |  | $ | 1,368,221 |  |  | $ | 3,050,308 |
Less: allowance for doubtful accounts |  |  | 11,755 |  |  |  | - |
Accounts receivable, net |  | $ | 1,356,466 |  |  | $ | 3,050,308 |

Note 4 – Inventory

Inventory consisted of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Raw materials |  | $ | 741,472 |  |  | $ | 129,899 |
Finished goods |  |  | 2,020,652 |  |  |  | 2,520,690 |
Total |  | $ | 2,762,124 |  |  | $ | 2,650,589 |

Note 5 – Advances to suppliers, net

Advances to suppliers represent prepayments made to ensure continuous high quality supply and favorable purchase prices. As of March 31, 2019, and September 30, 2018, the Company had $3,736,362 and $1,625,820, respectively, of advance payments made to suppliers primarily for raw material purchasing.

F-37

Note 6 – Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Due from third parties (a) |  | $ | - |  |  | $ | 2,055,467 |
VAT refund receivable |  |  | - |  |  |  | 399,861 |
Prepaid travel expenses |  |  | 81,825 |  |  |  | 70,860 |
Deferred financing costs |  |  | 64,963 |  |  |  | - |
Other prepaid expenses |  |  | 163,673 |  |  |  | 432,403 |
Subtotal |  |  | 310,461 |  |  |  | 2,958,591 |
Less: allowance for doubtful accounts |  |  | (8,853 | ) |  |  | (21,368 | )
Prepaid expenses and other current assets |  | $ | 301,608 |  |  | $ | 2,937,223 |

| (a) | As of September 30, 2018, the Company had due from third parties balance of $2,055,467, which was interest-free and payable upon demand. As of December 31, 2018, the outstanding balance of due from third parties had been fully collected.

Note 7 – Property, plant, and equipment, net

Property, plant, and equipment, stated at cost less accumulated depreciation, consisted of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Property and buildings |  | $ | 7,276,252 |  |  | $ | 7,107,832 |
Machinery and equipment |  |  | 7,476,008 |  |  |  | 7,302,964 |
Office equipment |  |  | 109,535 |  |  |  | 101,310 |
Vehicles |  |  | 81,404 |  |  |  | 82,512 |
Subtotal |  |  | 14,943,199 |  |  |  | 14,594,618 |
Construction in progress |  |  | 686,343 |  |  |  | 670,457 |
Less: accumulated depreciation |  |  | (4,610,800 | ) |  |  | (4,017,721 | )
Property, plant and equipment, net |  | $ | 11,018,742 |  |  | $ | 11,247,354 |

Depreciation expense was $489,126 and $523,748 for the six months ended March 31, 2019 and 2018, respectively.

F-38

Note 8 – Land use right, net

Land use right, net consists of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Land use right |  | $ | 587,348 |  |  |  | - |
Less: accumulated amortization |  |  | (4,894 | ) |  |  | - |
Net book value |  | $ | 582,454 |  |  | $ | - |

Amortization expense was $4,809 and $Nil for the six months ended March 31, 2019 and 2018, respectively.

Estimated future amortization expense is as follows:

12 months ending March 31, |  | Amortization expense |
2020 |  | $ | 11,541 |
2021 |  |  | 11,541 |
2022 |  |  | 11,541 |
2023 |  |  | 11,541 |
2024 |  |  | 11,541 |
Thereafter |  |  | 524,749 |
Total |  | $ | 582,454 |

F-39

Note 9 – Intangible assets, net

Intangible assets, net consisted of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Software |  | $ | 15,273 |  |  | $ | 14,920 |
Purchased patents |  |  | 1,057,594 |  |  |  | 1,033,114 |
Subtotal |  |  | 1,072,867 |  |  |  | 1,048,034 |
Less: accumulated amortization |  |  | (743,085 | ) |  |  | (673,483 | )
Intangible assets, net |  | $ | 329,782 |  |  | $ | 374,551 |

Amortization expense was $52,700 and $55,520 for the six months ended March 31, 2019 and 2018, respectively.

Estimated future amortization expense is as follows:

12 months ending March 31, |  | Amortization expense |
2020 |  | $ | 105,410 |
2021 |  |  | 105,410 |
2022 |  |  | 105,410 |
2023 |  |  | 13,552 |
Total |  | $ | 329,782 |

Note 10 – Short-term bank loans

On March 25, 2019, Biopower Plant entered into a credit loan agreement with Industrial and Commercial Bank of China Tahe Branch to borrow RMB2 million (equivalent to $298,014 as of March 31, 2019) as the Company’s working capital with a variable interest rate equals 110% of the prime interest rate set by the People’s Bank of China at the time of borrowing (4.785% as of March 31, 2019). This loan was due upon maturity on September 21, 2019. On September 19, 2019, Biopower Plant renewed this loan with ICBC to borrow RMB 1.98 million (equivalent to $295,034) as working capital with a variable interest rate equals 115% of the prime interest rate set by the People’s Bank of China at the time of borrowing (5.0025% as of September 19, 2019). The new maturity date is March 17, 2020.

Note 11 – Related party transactions

The relationship and the nature of related party transactions are summarized as follow:

Name of Related Party |  | Relationship to the Company |  | Nature of Transactions
Zhengyu Wang |  | CEO and Chairman of Board of Directors |  | Working capital loan

Share Issuance to Related Parties

On November 23, 2018, we issued 50,000 Ordinary Shares to Global Clean Energy Limited, a business company with limited liability organized under the laws of British Virgin Islands and wholly owned by our then sole director, Yefang Zhang, in exchange for 35.81% of the equity interests of Khingan Forasen in connection with the establishment of CN Energy.

Due from related parties consisted of the following:

|  | March 31, 2019 |  |  | September 30, 2018 |
Zhengyu Wang |  | $ | 77,097 |  |  | $ | 148,713 |
Total |  | $ | 77,097 |  |  | $ | 148,713 |

The Company periodically loans funds to its related parties for business purposes. The balance due from related parties is interest-free and due upon demand. As of April 18, 2019, the balance due from the related party has been fully collected.

F-40

Note 12 – Taxes

Corporation Income Tax (“CIT”)

The Company is subject to income taxes on an entity basis on income derived from the location in which each entity is domiciled.

CN Energy is incorporated in the British Virgin Islands as an offshore holding company and is not subject to tax on income or capital gain under the laws of the British Virgin Islands.

Energy Holdings is incorporated in Hong Kong as a holding company with no activities. Under the Hong Kong tax laws, an entity is not subject to income tax if no revenue is generated in Hong Kong.

Under the Enterprise Income Tax (“EIT”) Law of the PRC, domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% EIT rate while preferential tax rates, tax holidays, and even tax exemption may be granted on case-by-case basis. The PRC tax authorities grant preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years. Since Khingan Forasen was approved as an HNTE in November 2016, Khingan Forasen and its branch office, Biopower Plant, are entitled to a reduced income tax rate of 15% beginning November 2016. In addition, 10% of the revenue of Biopower Plant can be exempt from income tax for the six months ended March 31, 2019 and 2018, because it meets the requirement of national comprehensive utilization of resources program.

The local tax authorities in the PRC typically govern EIT. Each local tax authority at times may grant tax holidays to local enterprises as a way to encourage entrepreneurship and stimulate local economy. The corporate income taxes of Khingan Forasen for fiscal years 2018 and 2017 were reported at a reduced rate of 15% as a result of Khingan Forasen being approved as HNTE. The impact of the reduced tax rate noted above decreased income taxes by $132,921 and $Nil for the six months ended March 31, 2019 and 2018, respectively. The benefits of the reduced tax rate and tax exemption on net income per share (basic and diluted) were $0.95 and $Nil for the six months ended March 31, 2019 and 2018, respectively.

The following table reconciles the statutory rate to the Company’s effective tax rate:

|  | For the six months ended March 31, |
|  | 2019 |  |  | 2018 |
China Statutory income tax rate |  |  | 25.0 | % |  |  | 25.0 | %
Effect of PRC preferential tax rate and tax exemption |  |  | (18.8 | )% |  |  | (4.3 | )%
Research and development (“R&D”) tax credit |  |  | (6.9 | )% |  |  | (0.4 | )%
Effect of non-taxable government subsidy income |  |  | (1.1 | )% |  |  | 1.6 | %
Change in valuation allowance |  |  | 2.9 | % |  |  | (3.2 | )%
Others |  |  | 2.0 | % |  |  | 2.6 | %
Effective tax rate |  |  | 3.1 | % |  |  | 21.3 | %

F-41

Note 12 – Taxes (Continued)

Corporation Income Tax (“CIT”) (Continued)

The provision for income tax consists of the following:

|  | For the six months ended March 31, |
|  | 2019 |  |  | 2018 |
Current income tax provision |  | $ | 19,511 |  |  | $ | - |
Deferred income tax provision (benefit) |  |  | 2,015 |  |  |  | (108,050 | )
Income tax provision |  | $ | 21,526 |  |  | $ | (108,050 | )

Components of deferred tax assets are as follows:

|  | March 31, 2019 |  |  | September 30, 2018 |
Net operating loss carryforwards |  | $ | 443,511 |  |  | $ | 412,959 |
Allowance for doubtful accounts |  |  | 3,091 |  |  |  | 5,023 |
Valuation allowance on net operating loss |  |  | (443,511 | ) |  |  | (412,959 | )
Total |  | $ | 3,091 |  |  | $ | 5,023 |

The Company’s PRC subsidiaries had cumulative net operating loss of approximately $2,399,770 and $2,254,434 as of March 31, 2019, and September 30, 2018, respectively, which may be available for reducing future taxable income.

As of each reporting date, management considers evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. On the basis of this evaluation, valuation allowance of $443,511 and $412,959 was recorded against the gross deferred tax asset balance at March 31, 2019, and September 30, 2018, respectively. The amount of the deferred tax asset is considered unrealizable because it is more likely than not that the Company will not generate sufficient future taxable income to utilize this portion of the net operating loss. The increase in valuation allowance for the six months ended March 31, 2019 and 2018 was approximately $30,552 and $40,653, respectively.

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Note 13 – Concentration of major customers and suppliers

For the six months ended March 31, 2019, three major customers accounted for approximately 24%, 11%, and 10% of the Company’s total sales. For the six months ended March 31, 2018, three major customers accounted for approximately 53%, 21%, and 15% of the Company’s total sales, respectively. Any decrease in sales to these major customers may negatively impact the Company’s operations and cash flows if the Company fails to increase its sales to other customers.

As of March 31, 2019, four major customers accounted for approximately 18%, 18%, 16%, and 15% of the Company’s accounts receivable balance, respectively. As of September 30, 2018, three major customers accounted for approximately 31%, 25%, and 11% of the Company’s accounts receivable balance, respectively.

For the six months ended March 31, 2019, six major suppliers accounted for approximately 19%, 17%, 15%, 13%, 11%, and 10% of the total purchases, respectively. For the six months ended March 31, 2018, three major suppliers accounted for approximately 15%, 15%, and 10% of the total purchases, respectively.

As of March 31, 2019, two suppliers accounted for approximately 40% and 16% of the Company’s advance to suppliers balance, respectively. As of September 30, 2018, four major suppliers accounted for approximately 33%, 18%, 11%, and 10% of the Company’s advance to suppliers balance, respectively.

Note 14 – Commitments and contingencies

Operating Lease Commitments

The Company leases one main office space through May 9, 2020. This lease contains scheduled rent increases or escalation clauses, renewal options, or in some cases, purchase options. Rental expense charged to general and administrative expenses under operating lease for the six months ended March 31, 2019 and 2018 amounted to $28,842 and $5,774, respectively.

Future minimum lease obligations for operating lease with initial terms in excess of one year at March 31, 2019, are as follows:

12 months ending March 31, |  |  |
2020 |  | $ | 56,108 |
2021 |  |  | 4,694 |
Total |  | $ | 60,802 |

Contingencies

The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Biopower Plant has not paid adequate social insurance for all its employees, and the Company's PRC subsidiaries have not made adequate housing provident fund payments for all their employees. The relevant PRC authorities may order the Company to make up the contributions to these plans. In addition, failure to make adequate social insurance payments on time may subject the Company to 0.05% late fees per day starting from the date of underpayment and fines equal to one to three times the underpaid amount. For failure to make adequate housing provident fund payments as required, the Company may be fined RMB10,000 to RMB50,000. If the Company is subject to late fees or fines in relation to underpaid employee benefits, the financial condition and results of operations may be adversely affected. However, the risk of regulatory penalty that the relevant authorities may impose on our PRC subsidiaries in relation to its failure to make adequate contributions to the employee benefit plans for all the Company's employees as required is remote, because the relevant local authorities confirmed in writing that no records of violation were found on the Company's PRC subsidiaries for social insurance plan and/or housing provident fund contributions.

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Note 15 – Segment reporting

ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments, and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker makes operating decisions and assesses performance solely based on activated carbon sales orders received. In addition, the production of activated carbon and the biomass electricity are one integrated process and inseparable. Therefore, the Company has determined that it has only one operating segment and therefore one reportable segment as defined by ASC.

The following table presents revenue by major product categories for the six months ended March 31, 2019 and 2018, respectively:

|  | For the six months ended March 31, |
|  | 2019 |  |  | 2018 |
Activated carbon |  | $ | 4,653,725 |  |  | $ | 1,653,880 |
Biomass electricity |  |  | 108,670 |  |  |  | 113,790 |
Technical service |  |  | 5,682 |  |  |  | 40,455 |
Total |  | $ | 4,768,077 |  |  | $ | 1,808,125 |

All of the Company’s long-lived assets are located in the PRC. All of the Company’s products are sold in the PRC.

Note 16 – Statutory Reserves

The Company's PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. The Company's PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. The appropriation to these reserves by the Company's PRC subsidiaries was $nil and $nil for the six months ended March 31, 2019 and 2018 due to accumulated deficit.

Note 17 – Subsequent events

These unaudited condensed consolidated financial statements were approved by management and available for issuance on September 27, 2019. The Company evaluated subsequent events through the date these unaudited condensed consolidated financial statements were issued.

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Until , 2020, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Ordinary Shares
(minimum offering amount)

Ordinary Shares
(maximum offering amount)

CN ENERGY GROUP. INC.

Prospectus dated [●], 2019

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

British Virgin Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our amended and restated articles of association provide that, we may indemnify against all expenses, including legal fees, and against all judgements, fines, and amounts paid in settlement and reasonably incurred in connection with legal, administrative, or investigative proceedings any Eligible Person (which is defined in the amended and restated memorandum and articles of association as any “individuals, corporations, trusts, the estates of deceased individuals, partnerships, and unincorporated associations of persons”) who is or was:

| (a) | a party or is threatened to be made a party to any threatened, pending, or completed proceedings, whether civil, criminal, administrative, or investigative, by reason of the fact that the Eligible Person is or was a director; or

| (b) | at our request, serving as a director of, or in any other capacity is or was acting for, another body corporate or a partnership, joint venture, trust, or other enterprise.

The above does not apply unless the Eligible Person acted honestly and in good faith and in what he or she believed to be in our best interests and, in the case of criminal proceedings, the Eligible Person had no reasonable cause to believe that his or her conduct was unlawful.

For the purposes of the above, a director acts in our best interests if he or she acts in the best interests of our parent or member (or members), in either case, in the circumstances specified in the BVI Act, as the case may be.

The decision of our directors as to whether the person acted honestly and in good faith and with a view to our best interests and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of our amended and restated articles of association, unless a question of law is involved.

The termination of any proceedings by any judgement, order, settlement, conviction, or the entering of a nolle prosequi does not, by itself, create a presumption that the Eligible Person did not act honestly and in good faith and with a view to our best interests or that the Eligible Person had reasonable cause to believe that his or her conduct was unlawful.

Expenses, including legal fees, incurred by our director (or our former director) in defending any legal, administrative, or investigative proceedings may be paid by us in advance of the final disposition of such proceedings upon receipt of an undertaking by or on behalf of such director (or a former director) to repay the amount if it shall ultimately be determined that the director (or a former director) is not entitled to be indemnified by us in accordance with the provisions stated above and upon such other terms and conditions, if any, as we deem appropriate.

The indemnification and advancement of expenses provided by, or granted pursuant to our amended and restated memorandum and articles of association is not exclusive of any other rights to which the Eligible Person seeking indemnification or advancement of expenses may be entitled under any agreement, resolution of members, resolution of disinterested directors, or otherwise, both as to acting in the Eligible Person’s official capacity and as to acting in another capacity while serving as a Director.

To the extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former secretary or any of our officers in respect of any matter identified in above on condition that the secretary or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify the secretary or that officer for those legal costs.

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Pursuant to indemnification agreements, the form of which is filed as Exhibit 10.2 to this Registration Statement, we will agree to indemnify our directors and officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer.

The Placement agency agreement, the form of which will be filed as Exhibit 1.1 to this Registration Statement, will also provide for indemnification of us and our officers and directors.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

ITEM 7. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, we have issued the following securities which were not registered under the Securities Act. We believe that each of the following issuance was exempt from registration under the Securities Act in reliance on Regulation S under the Securities Act regarding sales by an issuer in offshore transactions. No Placement Agents were involved in these issuance of securities.

Purchaser |  | Date of Issuance |  | Number of Ordinary Shares |  | Consideration
Global Clean Energy Limited |  | November 23, 2018 |  | 50,000 |  | 35.81% of the equity interests of Khingan Forasen, valued at RMB32,550,000 (approximately $4,570,529)
Elk International Capital Limited |  | August 22, 2019 |  | 20,972 |  | 15.02% of the equity interests of Khingan Forasen, valued at RMB13,650,000 (approximately $1,924,382)
Sentong Industry Limited |  | August 22, 2019 |  | 15,359 |  | 11% of the equity interests of Khingan Forasen, valued at RMB10,000,000 (approximately $1,409,780)
Xieying Energy Limited |  | August 22, 2019 |  | 15,359 |  | 11% of the equity interests of Khingan Forasen, valued at RMB10,000,000 (approximately $1,409,780)
Yunda Industrial Limited |  | August 22, 2019 |  | 11,058 |  | 7.92% of the equity interests of Khingan Forasen, valued at RMB7,200,000 (approximately $1,015,128)
Xinhe Industrial Limited |  | August 22, 2019 |  | 7,987 |  | 5.72% of the equity interests of Khingan Forasen, valued at RMB5,200,000 (approximately $733,098)
Xintai Industrial Limited |  | August 22, 2019 |  | 6,604 |  | 4.73% of the equity interests of Khingan Forasen, valued at RMB4,298,000 (approximately $605,907)
Spruce International Limited |  | August 22, 2019 |  | 6,144 |  | 4.4% of the equity interests of Khingan Forasen, valued at RMB4,000,000 (approximately $563,953)
Xingyou Industrial Limited |  | August 22, 2019 |  | 6,144 |  | 4.4% of the equity interests of Khingan Forasen, valued at RMB4,000,000 (approximately $563,953)

126

ITEM 8. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

See Exhibit Index beginning on page 133 of this registration statement.

(b) Financial Statement Schedules

Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.

ITEM 9. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the Placement Agent at the closing specified in the placement agency agreement, certificates in such denominations and registered in such names as required by the Placement Agent to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 6, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) For the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

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(4) For the purpose of determining any liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

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Signatures

Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hangzhou, People’s Republic of China, on [●], 2019.

| CN ENERGY GROUP. INC.
| By: |
|  | Zhengyu Wang
|  | Chief Executive Officer, Chairman, and Director
|  | (Principal Executive Officer)

Power Of Attorney

Each person whose signature appears below constitutes and appoints each of Zhengyu Wang and Ye Ren as attorneys-in-fact with full power of substitution, for him or her in any and all capacities, to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended (the “Securities Act”), and any rules, regulations, and requirements of the Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of ordinary shares of the registrant (the “Shares”), including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1 (the “Registration Statement”) to be filed with the Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature |  | Title |  | Date
|  | Chief Executive Officer, Chairman, and Director |  | [●], 2019
Name: Zhengyu Wang |  | (Principal Executive Officer) |  |
|  | Chief Financial Officer |  | [●], 2019
Name: Ye Ren |  | (Principal Accounting and Financial Officer) |  |
|  | Director |  | [●], 2019
Name: Mei Cai |  |  |  |
|  | Director |  | [●], 2019
Name: Hongcai Li |  |  |  |
|  | Director |  | [●], 2019
Name: Wenbiao Zhang |  |  |  |
|  | Director |  | [●], 2019
Name: Ningfang Liang |  |  |  |

129

SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES

Pursuant to the Securities Act of 1933 as amended, the undersigned, the duly authorized representative in the United States of America, has signed this registration statement thereto in New York, NY on [●], 2019.

Hunter Taubman Fischer & Li LLC.

| By: |
|  | Name: Ying Li
|  | Title: Partner and Member

130

EXHIBIT INDEX

Description |  |
1.1 |  | Form of Placement Agency Agreement**
3.1 |  | Amended and Restated Memorandum and Articles of Association*
4.1 |  | Specimen Certificate for Ordinary Shares*
5.1 |  | Form of Opinion of Carey Olsen regarding the validity of the Ordinary Shares being registered **
8.1 |  | Form of Opinion of GFE regarding certain PRC tax matters (included in Exhibit 99.2)
10.1 |  | Form of Employment Agreement by and between executive officers and the Registrant*
10.2 |  | Form of Indemnification Agreement with the Registrant’s directors and officers*
10.3 |  | English Translation of Form of Supplying Agreement*
10.4 |  | English Translation of Form of Activated Carbon Sales Agreement*
10.5 |  | English Translation of Biomass Electricity Sales Agreement dated June 5, 2018, by and between Khingan Forasen and State Grid Heilongjiang*
10.6 |  | English Translation of Lease Agreement dated April 21, 2009, by and between Khingan Forasen and Tahe Forestry Bureau*
10.7 |  | English Translation of Lease Agreement dated June 8, 2018, by and between Hangzhou Forasen and Hangzhou Focused Photonics Technology Park Limited*
10.8 |  | English Translation of Loan Agreement dated September 19, 2019, by and between Tahe Biopower Plant and Industrial and Commercial Bank of China Tahe Branch*
21.1 |  | Subsidiaries*
23.1 |  | Consent of Friedman LLP**
23.2 |  | Consent of Carey Olsen (included in Exhibit 5.1)
23.3 |  | Consent of GFE (included in Exhibit 99.2)
24.1 |  | Powers of Attorney (included on signature page)*
99.1 |  | Code of Business Conduct and Ethics of the Registrant**
99.2 |  | Form of Opinion of GFE, People’s Republic of China counsel to the Registrant, regarding certain PRC law matters**
99.3 |  | Consent of Frost & Sullivan (Beijing) Inc., Shanghai Branch Co.*
99.4 |  | The PRC Activated Carbon Manufacturing Market and Biomass Energy Market Independent Research by Frost & Sullivan*

* | Filed herewith.
** | To be filed by amendment.

131