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

FORM 10-K

(Mark One)

☒ANNUAL REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedJuly 31, 20172019

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No.Number 000-54520

000-54520

XIANGTIAN (USA) AIR POWER CO., LTD.XT ENERGY GROUP, INC.
(Exact Namename of Small Business Issuerregistrant as specified in its charter)

No. 6 Longda Road
Yanjiao Development Zone
Sanhe City, Hebei Province, China 065201
(Address of principal executive offices)

+86 (316) 575-5518
1 (929) 228-9298

(Registrant'sRegistrant’s telephone number, including area code)

Securities Registered Underregistered pursuant to Section 12(b) of the Exchange Act:None

Securities Registered Underregistered under Section 12(g) of the Exchange Act:Common Stock, $0.001 par value(Title of class)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  [ ]☒    No  [X]☐

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitiondefinitions of a “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):One)

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as ofcomputed by reference to the price at which the common equity was last sold on the OTC markets on January 31, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $303,738,181,$770,675,375 based on 111,668,449 common shares at $2.72 on January 31, 2017, which is the quotation posted on the OTCQB Market (“OTCQB” under the symbol “XTNY”)

The number of167,538,125 shares of common stock outstanding asat the price of $4.6.

As of October 31, 2017 was 591,042,000.14, 2019, the registrant had 531,042,000 shares of common stock, par value $0.001 per share, outstanding.

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Xiangtian (USA) Air Power Co., Ltd.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to be filed with the U.S. Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K.

XT Energy Group, Inc.

FORM 10-K

For the Year Ended July 31, 20172019

TABLE OF CONTENTS

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty.

A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made in this report. Forward-looking statements are often identified by words like: “believe”, “expect”, “estimate”, “anticipate”, “intend”,“believe,” “expect,” “estimate,” “anticipate,” “intend,” “project” and similar expressions or words which, by their nature, refer to future events.

In some cases, you can also identify forward-looking statements by terminology such as “may”, “will”, “should”, “plans”, “predicts”,“may,” “will,” “should,” “plans,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors"“Risk Factors” beginning on page 23,30, that may cause our or our industry'sindustry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

The cautions outlined made in this statement and elsewhere in this document should not be construed as complete or exhaustive. In many cases, we cannot predict factors which could cause results to differ materially from those indicated by the forward-looking statements. Additionally, many items or factors that could cause actual results to differ materially from forward-looking statements are beyond our ability to control. The CompanyWe will not undertake an obligation to further update or change any forward-looking statement, whether as a result of new information, future developments, or otherwise.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. References to common shares refer to common shares in our capital stock.

In this annual report, “Goa Tours”, “the Company,” “we,” “us,” and “our,” refer to Xiangtian (USA) Air Power Co., Ltd., unless the context otherwise requires. Unless otherwise indicated, the term “fiscal year” refers to our fiscal year ending July 31. Unless otherwise indicated, the term “common stock” refers to shares of the Company’s common stock, par value $0.001 per share.

USE OF DEFINED TERMS

Except as otherwise indicated by the context, references in this Reportannual report to:

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PART I

Item 1 -

ITEM 1. Business

Overview

We utilizeare a holding company incorporated in Nevada. Through our subsidiaries and consolidated affiliated entities in China, we are engaged in a variety of renewable energy related businesses, including development of electricity generation systems powered by our proprietary compressed air energy storage powercompression generation technology, installation of photovoltaic solar (PV) panels, production and sales of synthetic fuel and related products, manufacture and sales of hydraulic parts and electronic components.

In December 2018, we acquired 90% of the equity interests in each of Hubei Rongentang Wine Co., Ltd. (“Wine Co.”) and Hubei Rongentang Herbal Wine Co., Ltd. (“Herbal Wine Co.”). Wine Co. is engaged in the business of manufacturing and sales of wine products and Herbal Wine Co. is engaged in the business of manufacturing and sales of herbal wine products. In May 2019, we determined to sell all our ownership interest in Herbal Wine Co. and Wine Co. in the following fiscal year in order to shift our business focus on energy related business.

We operate in a number of facilities in Hubei and Hebei Provinces in China. We sell our products in China mainly through distributors. The table below illustrates the businesses we conduct through our subsidiaries and consolidated affiliated entities:

As of the date of this report, we had the following four branded synthetic fuel products: Green Energy No.1, Green Energy No. 2, Green Energy No. 3 and Xiangtian No. 5. Green Energy No.1 and Green Energy No. 2 are two fuel additives we developed and are to be blended into gasoline and diesel, respectively, to generate a fuel that is efficient and can store energy for other alternative energy sources (for example, using solar, wind, geothermal,boost the octane number with lower emissions. Green Energy No. 3 is an engine lubricant to reduce friction and tidal as raw powerwear on moving parts and to regenerate electricity power withoutclean the use of fossil fuelsengine from sludge. Xiangtian No. 5 is a gas or other chemical methods). The power produced by compressed air energy storagediesel engine cleaner we developed to clean and power release can enhance the power production capabilities of alternative energy sources. If alternative energy sources cannot be fully utilized, there will be waste sources. We believe that we utilize compressed air energy storage installations in conjunction with the power generation system of alternative energy sources that could ensure the stable power supply of alternative energy generationlubricate fuel system and provide customers with an advanced power generation capability with no carbon or toxic emissions. Thus, our compressed air energy storage power generation technology provides a distinctstops corrosion, and novel method for alternative energy sources.protect engines of vehicles.

The power generated from our system can either be used forDuring the operation of our customers or be sold to the State Grid Corporation of China (the “State Grid”). We also utilize proprietary technology to enhance the power production capabilities of the photovoltaic solar panels (“PV panels”) that have been used in conjunction with our current projects, including projects that involve only the installation of PV panels without the installation of equipment for compressed air energy technology.

Our initial focus is industrial users. As of October 30,years ended July 31, 2019, 2018 and 2017, we generated revenue of $53,126,913, $15,269,788 and $9,521,371, respectively. We had 17 project contracts, exclusiveaccumulated deficit of eight projects that were cancelled. Of the 17 contracts, three projects were completed in fiscal 2015, four projects were completed in fiscal 2016, and six projects were completed in fiscal 2017. As of October 30, 2017, three were under construction and one was to start within the next few months.

The two largest projects involved installation of PV panels in conjunction with our compressed air energy storage technology, and they consist of an installation at a factory in Shandong Province with a capacity of nine megawatts and a power plant in Hubei Province with a capacity of six megawatts. The sale price for the largest Shandong project was $20,290,835 (RMB126,000,000), and was completed in fiscal 2015. The sale price for the largest Hubei project was $10,628,553 (RMB66,000,000), and was completed in fiscal 2016, exclusive of additional phases of four and eight megawatts. The other projects use PV panels without air compression technology, and their capacities are between one and two megawatts. We are also developing smaller compressed air energy storage power generation equipment for use with PV that will be appropriate for smaller commercial buildings and private homes.

We produce our systems in China primarily for Chinese customers and are also exploring foreign markets. We benefit from the Chinese government’s incentives for the production of green energy. We operate a factory in Hebei province to produce components for the compressed air energy storage power generation systems, but we also purchase certain components, such$8,292,847 as PV panels and diesel engines from third party suppliers, which we modify to operate with compressed air. We have a distribution network of third-party distributors and sales agencies in 24 provinces in China.

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Recent Developments

First, we achieved significant improvement through research and testing on the air compression power generation system. We developed enhanced air compression (liquid power) generation system based on the original models. The primary mechanism is to utilize the compressed air as a power source and the green biodegradable medium of oil as a power transmitter to support the engine running and generating power. The tested output comprehensive conversion efficiency reached 46%-65%. The research improved the conversion efficiency of our air power generation system, laying the foundation for mass industrialization and commercial marketization.

In order to obtain government approval of the commercialization of our air compression energy storage products, we have submitted three enterprise standards, namely, air compression (liquid power) power generation system, air compression (liquid power) power generation unit and air compression radial engine. We are establishing an enterprise standard because these products have no ISO or other qualifying standard for the industry. The certification is therefore based on our design specifications.

We hope that future air power compressed products in this field will follow and adhere to our standards, which we anticipate will become the industrial standards and national standards. We expect that if we become the industry and national standards, our market competitiveness will be enhanced. The declaration we submitted for these three standards is being reviewed by the Provincial Industrial and Information Department of the Sanhe Technical Service Bureau.

Second, to improve sales and marketing, we intensified our efforts to promote the air power products. We also seek to benefit from the national government’s “Helping-the-Poor” Project established in 2016. The Chinese government has announced plans to release over three to five years US$14.7 billion (100 billion RMB) worth of future electricity generating capacity to support poverty alleviation and development through low cost loans and power subsidies with more than 60% of which will be for Photovoltaic (PV) technology. Through 2017, the Company will concentrate its efforts to build and market our patented products, and take advantage of the government sponsored “Helping-the-Poor Project.”

Accordingly, we established a wholly-owned subsidiary, Xianning Xiangtian Air Energy Electric Co., Ltd., in Hubei Province to produce PV panels and products. In September 2017, we completed an advanced automatic PV panel production line with an annual capacity of 200 megawatts of PV panels. As of July 31, 2017, RMB 13,652,000 (approximately US$2,030,339) had been paid to install the production line and an additional RMB 845,000 (approximately US$125,669) remains to be paid.2019.

Third, we recently developed an Air Source Heat Pump System (the “ASHP”), a system which transfers heat from outside to inside a building, or vice versa. Under the principles of vapor compression refrigeration, an ASHP uses a refrigerant system involving a compressor and a condenser to absorb heat at one place and release it at another. The ASHP efficiently converts electrical energy into heat energy and can be used as a space heater or cooler. As the Chinese central government is emphasizing sustainable development, and enhancing environmental remediation, local governments are also seeking to replace the traditional coal-fired heating with clean energy heating. We believe that a large potential market exists for the Air Source Heat Pump System.

Our Business History and Background

Xiangtian (USA) Air Power Co., Ltd. was

We were originally incorporated as Goa Sweet Tours Ltd. in the Statestate of Delaware on September 2, 2008. We were originally formed2008 to provide personalized concierge tour packages to tourists who visit the State of Goa, India.

On April 17,May 15, 2012, Goa Sweet Tours, Ltd. entered into Share Purchase Agreements (the “Purchase Agreements”), with Luck Sky International Investment Holdings Limited, an entity owned and controlled by Zhou Deng Rong, and certainpurchased 90% of our former stockholders who owned, in the aggregate, 7,200,000 shares of our common stock (90% of the then outstanding shares). Luck Sky International Investment Holdings Limited purchased such shares for an aggregate consideration of $235,000. The sale of such shares closed on May 15, 2012.

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On May 25, 2012, Goa Sweet Tours, Ltd. formed a corporation under the laws of the State of Delaware called Xiangtian (USA) Air Power Co., Ltd. ("Merger Sub") for the purpose of changing its name. On the same day, we acquired one hundred percent of the total outstanding shares of Merger Sub's common stock for cash. As such, Merger Sub became our wholly-owned subsidiary. Effective as offrom existing stockholders. On May 29, 2012, Merger Sub was merged with and into the Company. As a result of the merger, the Company’s corporatewe changed our name was changed to “Xiangtian (USA) Air Power Co., Ltd.” Prior to thethrough our merger Merger Sub had no liabilitieswith and nominal assets and,into a wholly owned subsidiary in Delaware.

Effective October 31, 2016, we were reincorporated in Nevada as a result of theour merger the separate existence of the Merger Sub ceased. The Company was the surviving corporation in the mergerwith and except for the name change provided for in the Agreement and Plan of Merger, there was no change in the directors, officers, capital structure or business of the Company.

Lucksky Holding (Group) Co. Ltd (“LuckSky Group”), formerly named Xiangtian Kelitai Air Powered Machinery Co., Ltd., (“Xiangtian Kelitai”) was established in 2000 by Zhou Deng Rong after he obtained a series of patents and developed the compressed air energy storage and related technology. Zhou Deng Rong served as our CEO through July 31, 2014, when he was replaced by Zhiqi Zhang. Upon the merger of Luck Sky (Hong Kong) Shares Limited (“Luck Sky HK”) into the Company on September 30, 2013, the Company acquired all of the shares of LuckSky HK, received 148,158,864 shares of common stock of the Company and the remaining shareholder of LuckSky HK received 101,831,136 shares of common stock of the Company in exchange for their shares of LuckSky HK. LuckSky HK had no operations but the Company succeeded to the $250,000 in registered capital of LuckSky HK.

On May 30, 2014, the Company entered into the Stock Purchase Agreement with Zhou Jian, the sole shareholder of Luck Sky (Hong Kong) Aerodynamic Electricity Limited (“LuckSky Aerodynamic”). Effective May 30, 2014, the Company purchased 100% of the issued and outstanding shares of common stock of Luck Sky Aerodynamic, and the Company paid Zhou Jian a purchase price in the amount of HKD $10,000.00 (approximately USD$1,290) in cash. Luck Sky Aerodynamic and Luck Sky Shen Zhen, its subsidiary organized in the PRC, had no operating business, no liabilities and nominal assets as of the date of the acquisition. LuckSky Aerodynamic was organized to enter into the variable interest agreements (the “VIE Agreements”) with Sanhe. As a result of the acquisition, Luck Sky Aerodynamic became our wholly owned subsidiary and Luck Sky Shen Zhen becameNevada subsidiary.

On November 5, 2018, we changed our indirect subsidiary through Luck Sky Aerodynamic.

Sanhe was established in July 2013 and was under common control with LuckSky Group. Sanhe had no operating business and no liabilities. On July 18, 2013, Sanhe borrowed RMB 7,722,000, pursuant to a loan agreement with Xiangtian Kelitai, a division of LuckSky Group.

During the three months ended July 31, 2014, LuckSky Group provided Sanhe with additional working capital and transferred to Sanhe its assets and liabilities related to the compressed air energy storage power generation technology and PV panel installations, but retained its other assets. On April 1, 2014, LuckSky Group loaned Sanhe RMB 3,000,000. In April and May 2014, Sanhe purchased the inventory, the equipment, including machinery, and office equipmentcorporate name from Xiangtian Kelitai at their book or historical values. Sanhe entered into leases with Lucksky Group for a portion of the factory, office space and dormitory located in Sanhe City and a lease with Dong Yi Glass Machine Company Limited, which is owned by Zhou Deng Rong, for a second factory and office space, on May 1, 2014 and April 1, 2014, respectively. Also, 48 employees transferred from LuckSky Group to Sanhe, including all personnel related to the projects under construction and development and administrative and finance personnel. See “Business-Properties” and “Certain Relationships and Related Party Transactions.”

We reincorporated in Nevada effective October 31, 2016 as a result of a merger of Xiangtian (USA) Air Power Co., Ltd. to XT Energy Group, Inc. through our wholly owned Nevada subsidiary’s merger with and into us. Following the name change, our trading symbol was changed to “XTEG” on January 11, 2019.

Our principal executive offices are located at No.1, Fuqiao Village, Henggouqiao Town, Xianning, Hubei, China 437012. Our telephone number is +86 (400) 103-7733.

Recent Developments

On October 17, 2018, Xianning Xiangtian entered into a lease agreement with Jiadeli, pursuant to which, Xianning Xiangtian leases the factory including the production and office facilities and equipment. We are using this facility to produce Green Energy No. 2 and Xiangtian No.5. Jiadeli started the production of Xiangtian No.5 in July 2019. We began marketing and selling Xiangtian No.5 in September 2019.

On December 14, 2018, we, through our variable interest entity, Xianning Xiangtian, entered into an equity investment agreement (“Rongentang Agreement”), a Delaware corporation, with its wholly-owned subsidiary,pursuant to which we acquired 90% of the equity interest in Rongentang. We completed the acquisition of Rongentang on December 21, 2018. Upon closing of this acquisition, Rongentang became 90% owned subsidiaries of Xianning Xiangtian (USA) Air Powerand we are now engaged in the production and sales of compound wine and herbal wine products through Rongentang. In May 2019, we determine to sell all our ownership interest in Herbal Wine Co., Ltd., a Nevada corporation. and Wine Co. in the following fiscal year in order to shift our business focus on energy related business.

Variable Interest Entity Agreements with Sanhe

On July 25, 2014, Sanhe Xiangtian and Luck Sky Shen ZhenXiangtian Shenzhen and Sanhe’s currentSanhe Xiangtian’s shareholders entered into a series of agreements known ascertain VIE Agreements pursuant to which Sanhe Xiangtian became Luck Sky Shen Zhen’sXiangtian Shenzhen’s contractually controlled affiliate. The purpose and effect of the VIE Agreements is to provide Luck Sky Shen Zhen (our indirect wholly-owned subsidiary)provided Xiangtian Shenzhen with all of the management, control and net profits of Sanhe. While Luck Sky Shen Zhen doesSanhe Xiangtian even though Xiangtian Shenzhen did not actually own any of the equity and sharesinterest in Sanhe theXiangtian. The purpose and effect of the VIE Agreements is to instill in Luck Sky Shen Zhen,Xiangtian Shenzhen, the Company’s indirect wholly-owned subsidiary, total management and voting control of Sanhe Xiangtian for all material purposes. The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government.

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TheOn September 30, 2018, we terminated the VIE Agreements include:as part of our restructuring to facilitate the shift of business focus between entities controlled by the Company. In connection with the termination of the VIE Agreements, Sanhe Xiangtian transferred its 100% equity interest of Xianning Xiangtian to the Sanhe Xiangtian Shareholders and the Sanhe Xiangtian Shareholders transferred their 100% equity interest of Sanhe Xiangtian to Xianning Xiangtian. As a result of the foregoing equity transfers, Sanhe Xiangtian became a wholly owned subsidiary of Xianning Xiangtian.

On September 30, 2018, the Company, through Xiangtian Shenzhen and Xiangtian HK, entered into a new series of variable interest entity agreements (“New VIE Agreements”), pursuant to which Xianning Xiangtian became the Company’s new contractually controlled affiliate. The New VIE Agreements allow us to:

As a result of these contractual arrangements, we have become the primary beneficiary of Xianning Xiangtian, and we treat Xianning Xiangtian as our variable interest entity under U.S. GAAP. We consolidate the financial results of Xianning Xiangtian in our consolidated financial statements in accordance with U.S. GAAP.  The above reorganization has no effect to the Company’s consolidated financial statements for the current period and thereafter.

The following is a summary of the New VIE Agreements:

Framework Agreement and the Exclusive Management Agreement have initial terms of ten years but each contains a renewal provision that allows Luck Sky Shen Zhenon Business Cooperation

Pursuant to extend the term of such agreements at its sole option by written notice with no limitation as to such extensions. The other agreements are of unlimited duration.

The foregoing description of the terms of the Framework Agreement on Business Cooperation between Xiangtian Shenzhen and Xianning Xiangtian, the parties agreed to enter into a series of agreements, including Agreement of Exclusive Management, Agreement, Consulting and Training and Technical Service, Know-How Sub-License Agreement, Equity Pledge Agreement, Exclusive Option Agreement and Power of Attorney. Specifically, Xiangtian Shenzhen will dispatch an operation team to Xianning Xiangtian to assist with Xianning Xiangtian with its planning and managing and regular business operations. The parties agree to share the cooperation profits as set forth in the New VIE Agreements. The term of cooperation is 10 years and may be unilaterally extended by Xiangtian Shenzhen.

Agreement of Exclusive Management, Consulting and Training and Technical Service

Pursuant to the Agreement of Exclusive Management, Consulting and Training and Technical Service between Xiangtian Shenzhen and Xianning Xiangtian, Xianning Xiangtian engages Xiangtian Shenzhen to provide consulting, training, management services and technical support exclusively for a term of 10 years, which may be unilaterally extended by Xiangtian Shenzhen. Xianning Xiangtian agrees to pay Xiangtian Shenzhen a service fee equal to one hundred percent (100%) of Xianning Xiangtian’s net income determined pursuant to the generally accepted accounting principles, payable quarterly.

Exclusive Option Agreement

Pursuant to the Exclusive Option Agreement among Xiangtian Shenzhen, Xiangtian HK, Xianning Xiangtian and the shareholders holding an aggregate of 100% of Xianning Xiangtian’s equity interest (“Xianning Xiangtian Shareholders”), the Xianning Xiangtian Shareholders irrevocably grant Xiangtian Shenzhen and Xiangtian HK an exclusive option to purchase from them, at its discretion, to the extent permitted under the PRC law, all or part of their equity interest in Xianning Xiangtian, and the purchase price will be the lowest price permitted by applicable PRC laws. The timing, method and times of exercise of this option to purchase is within Xiangtian Shenzhen and Xiangtian HK’s sole discretion. In addition, each of the Xianning Xiangtian Shareholders agrees to waive their respective preemptive right when the other shareholder transfers the equity interest of Xianning Xiangtian to Xiangtian Shenzhen or its designated party. The Xianning Xiangtian Shareholders further agree, among other things, without prior written consent of Xiangtian Shenzhen and Xiangtian HK, not to transfer, sell or pledge their equity interest of Xianning Xiangtian. Without the prior written consent of Xiangtian Shenzhen and Xiangtian HK, Xianning Xiangtian may not amend its articles of association, change the amount and structure of its registered capital or sell any of its assets or beneficial interest. 

Equity Pledge Agreement

Pursuant to the Equity Pledge Agreement among Xiangtian Shenzhen, Xianning Xiangtian and the Xianning Xiangtian Shareholders, the Xianning Xiangtian Shareholders pledge all of their respective equity interest in Xianning Xiangtian to Xiangtian Shenzhen to guarantee the performance of Xianning Xiangtian’s obligations under the New VIE Agreements, other than this Equity Pledge Agreement. Xiangtian Shenzhen will be deemed to have created the encumbrance of first order in priority on the pledged equity interest. In the event of any breach of the VIE Agreements, other than this Equity Pledge Agreement, or failure to satisfy the guaranteed obligations, Xiangtian Shenzhen will have the right to dispose the pledge equity interest. The Xianning Xiangtian Shareholders may receive dividends or share profits only with prior consent from Xiangtian Shenzhen, and such dividends and profits will be deposited into a bank account designated by and under supervision of Xiangtian Shenzhen and to be used for repayment of any liability due to any breach of the VIE Agreements by Xianning Xiangtian or the Xianning Xiangtian Shareholders. The agreement will remain effective until the termination of the VIE Agreements, other than this Equity Pledge Agreement.

Know-How Sub-License Agreement

Pursuant to the Know-How Sub-License Agreement between Xiangtian Shenzhen and Xianning Xiangtian, Xiangtian Shenzhen agreed to grant an exclusive and non-transferable sublicense to use the patents, patent applications and all related trade secrets and technology and improvements on photovoltaic installation and the Power-of-air energy storage power generation technology but without the sublease right in the territory of China, exclusive of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region for the purpose of the agreement. Xianning Xiangtian agrees to pay Xiangtian Shenzhen a quarterly royalty fee equal to five percent (5%) of Xianning Xiangtian’s gross revenue of each quarter. The shareholders of Xianning Xiangtian shall pledge all of their equity interest of Xianning Xiangtian as collateral for the royalty fee payable under this agreement. The agreement will remain effective throughout the entire duration of the operation of Xianning Xiangtian, unless terminated by Xiangtian Shenzhen with a 30-day prior written notice. 

Power of Attorney is qualified in its entirety by reference

Pursuant to the provisionsPowers of Attorney executed by the Xianning Xiangtian Shareholders, each of the agreements previously filedshareholders irrevocably appointed Xiangtian Shenzhen as his attorney-in-fact to exercise any and all rights as a shareholder of Xianning Xiangtian, including, but not limited to, the right to attend shareholders’ meetings, to execute shareholders’ resolutions, to sell, assign, transfer or pledge any or all of his equity interest of Xianning Xiangtian, to vote as a shareholder for all matters, as well as full power to execute equity transfer agreement as referenced in the Exclusive Option Agreement and to perform under the Exclusive Option Agreement and Equity Pledge Agreement without limitation. Xiangtian Shenzhen is also authorized to transfer, allocate or use any cash dividends and non-cash income in accordance with the SEC in August 2014, which are incorporated by reference herein.respective shareholder’s instructions and to exercise all the necessary rights associated with the equity interest at Xiangtian Shenzhen’s sole discretion and without the consent of the Xianning Xiangtian Shareholders. The Powers of Attorney will remain effective as long as the Xianning Xiangtian Shareholders remain the shareholders of Xianning Xiangtian.

On July 25, 2014, we

Spousal Consent Letters

Pursuant to the Spousal Consent Letters, each of the spouses of the Xianning Xiang Shareholders unconditionally and irrevocably agreed to issue 264,850,740 shares and 8,191,260 shares of our common stock to Zhou Jian and Zhou Deng Rong, respectively, the sole shareholders of Sanhe, in consideration for the execution of the VIE Agreements with Sanhe.Equity Pledge Agreement, Exclusive Option Agreement and Power of Attorney entered by her spouse and the disposal of equity interest of Xianning Xiangtian held by her spouse. Each of the spouses also agreed that she will not assert any rights over the equity interest in Xianning Xiangtian held by and registered in the name of her respective spouse. The Xianning Xiangtian Shareholders’ actions to perform, amend or termination the above-mentioned agreements do not need their spouses’ authorization or consent. In addition, in the event that any of the spouses obtains any equity interest in Xianning Xiangtian held by her respective spouse for any reason, such spouse agrees to enter into similar contractual arrangements.

See “Certain Relationships and Related Transactions” for further information on our contractual arrangements with these parties.

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Because of the common control betweenamong us, LuckSky Shen ZhenXiangtian Shenzhen and Sanhe,Xianning Xiangtian, for accounting purposes, the execution of the New VIE agreementsAgreements has been treated as a combination between entities under common control with no adjustment to the historical basis of their assets and liabilities. The Company accounts for business combinations pursuant

On June 3, 2019, our board of directors approved the transfer of 3% equity interest of Xianning Xiangtian held by Zhou Deng Rong, our former Chief Executive Officer and director, to Accounting Standard Codification (“ASC”) 805-50 which generally requires the entity that receives net assets or equity interests to recognize the carrying amountsFei Wang, an employee of Xianning Xiangtain. As a result of the net assets transferred intransfer, Xianning Xiangtian and its accounting forshareholders, Zhou Jian and Fei Wang, executed a new set of equity pledge agreement, exclusive option agreement and power of attorney on June 10, 2019 and all the combination and to combineterms remained substantially the financial statements ofsame as the entities under common control for all periods presented and to eliminate any intercompany balances and transactions.New VIE Agreements described above.

Our Corporate Structure

All of our business operations are conducted through our Hong Kongsubsidiaries, controlled affiliate and Chinese subsidiaries and controlled affiliate.its subsidiaries. The chart below presents our corporate structure:

Industry Background

According to the National Energy Administration, consumption of electricity in China has grown from 5.32 trillion kWh in 2013 to 5.92 trillion kWh in 2016, with consumption in 2016 representing a five percent increase over 2015. The electricity generated by grid-connected solar in 2016 was 66.2 billion kWh with an increase of 72% from 2015.

Electricity in China is distributed by the State Grid, which is required to purchase electricity. The percentstructure as of the utilizationdate of this report:

Our Subsidiaries and Consolidated Affiliated Entities

The following is a summary of our material subsidiaries and consolidated affiliated entities:

On June 26, 2013, Luck Sky Holdings Limited was incorporated as a wholly owned subsidiary of the renewable energyCompany under the laws of British Virgin Islands. It has no operations and has been struck off the register of companies.

On September 24, 2013, we acquired 100% of the shares of common stock of Lucksky (Hong Kong) Shares Limited, a Hong Kong corporation, and 100% of the shares of common stock of Sanhe City LuckSky Electrical Engineering Limited Company in 2014exchange for the issuance of our common stock. On the same day, Lucksky (Hong Kong) Shares Limited merged with and into us. 

Xiangtian HK is shown below:our wholly owned subsidiary and a limited liability company formed in Hong Kong with no business operations.

Total Generation Capacity

Xiangtian Shenzhen, a wholly foreign owned enterprise registered under the laws of Renewable EnergyPRC, is the subsidiary of Xiangtian HK and has no business operations.

Xianning Xiangtian, is our VIE and engaged in the P.R.C.business of manufacture and sale of air compression equipment, heat pumps and related products.

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*The dataSanhe Xiangtian, a PRC limited liability company, is from the NEA’s reportwholly owned subsidiary of total consumption of electricity in 2014 (published in 2015)

We are a pioneerXianning Xiangtian and engaged in the fieldbusiness of Compressed Air Energy Storage in China. The only other effort in Chinasales of which we are aware is a pilot project established byair compression equipment and heat pumps, as well as the Chinese Academy of Science (the “CAS”)installation of compressed air energy storage energy generation in Wuhu city in November 2014.

We are producing electricitypower generation systems that combineutilizing our compressed air storage technology with PV panels to achieve a continuous supply of power, especially under weather conditions that are unfavorable to the generation of electricity from PV panels alone. We chose to initially utilize PV panels to produce the raw power because China has abundant solar energy resources. Many parts of China have long durations of sunshine; and China has vast vacant spaces that are available for the installation of solar energy systems.

The installation of PV systems is developing quickly in China. In 2016, the cumulative installed PV capacity reached 77.42 Gigawatts (“GW”), the most of any nation. According to the 13th Five Year Plan (published in 2015), the government hopes to add 65 Gigawatts (“GW”) of PV during the 2016 – 2020 period. In its guidance on promoting the healthy development of the Solar Industry (2013), the State Council of China raised the target of capacity of solar power to 35 GW in 2015 from the original 2015 target of 21 GW set by the National Energy Administration of China in 2012. China had only one GW of PV installations in 2010.

The Chinese solar market has grown rapidly, driven by a favorable policy environment intended to meet a greater portion of the country’s growing energy needs from cleaner sources, while also driving demand for domestic solar panel manufacturers. In July 2013, the State Council of China published the Opinion on Promoting the Healthy Development of PV Industry (the “Opinion”) which initiated establishment of the PV systems in the national level. In addition to setting targets for the increase in installed PV systems, grid-connection, power acquisition, subsidy, and land policies were further detailed in the Opinion. The Opinion standardized the tax benefit and feed-in tariff for the PV industry on a national level and it also set the target of promoting distributed PV (DPV) system. The feed in tariffs for large-scale ground mounted power plants are between 0.9 yuan ($0.14) and 1 yuan ($0.16) per kilowatt-hour (kWh) of energy generated, based on the radiation levels at the location of the plant. Distribution projects get a payment of between 0.62 yuan ($0.10) to 0.78 yuan ($ 0.12) per kWh. These subsidies will be valid for the next 20 years and will benefit project developers such as ourselves, since the subsidies protect the rate of return on PV projects. In October 2013, China adopted a tax benefit policy which allows a refund of 50% value-added tax for selling the solar photovoltaic power products. China also provides other incentives, including free grid connectivity for small and medium-scale distributed PV solar power producers.

The promotion of the DPV module is encouraging the manufacture and installation of PV in China. The government started to promote the distributed PV (the “DPV”) model in the proposal of the Opinion in 2012. The DPV systems are smaller PV system installed on the rooftop of building. This system generally can provide the sufficient energy for the building where it is located. On the national level, the national government allows the DPV system to be connected to the State Grid. In this case, the DPV owner can either use the electricity or sell the electricity to the State Grid with feed-in tariff (around 1 CN per kWh).

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The solar panel industry in China is highly competitive, with around 20 to 30 companies providing installation service and 50 manufacturers. In 2014, six of the 10 largest PV panel manufacture were located in China. a However, we believe that we are the only company that offers an electrical generation system that combinesproprietary compressed air energy storage power generation technology.

Jingshan Sanhe, a PRC limited liability company, is a wholly owned subsidiary of Xianning Xiangtian and mainly produces and sells synthetic fuels and related products.

Tianjin Jiabaili, a PRC limited liability company, is a wholly owned subsidiary of Xianning Xiangtian. Due to government regulations, we plan to permanently shut down this facility.

Xiangtian Trade, a PRC limited liability company, is a wholly owned subsidiary of Xianning Xiangtian and engaged in trading general merchandise.

Hubei Jinli, a PRC limited liability company, is a wholly owned subsidiary of Xianning Xiangtian, and engaged in the manufacture and sale of hydraulic parts and electronic components.

Xiangtian Zhongdian, a PRC limited liability company, is 70% owned by Xianning Xiangtian and engaged in the business of manufacture and sales of PV panels utilizing our proprietary technology to enhance the power production capabilities of the PV panels.

Rongentang Wine, a PRC limited liability company, is 90% owned by Xianning Xiangtian and engaged in the business of production and sales of compound liquors in China.

Rongentang Herbal Wine, a PRC limited liability company, is 90% owned by Xianning Xiangtian and engaged in the business of production and sales of medicinal liquors in China.

Our Competitive Advantages

Green Energy Products

Our current strong market position and potential future growth of green energy products can be attributed to the following key factors and competitive strengths:

Hydraulic Parts and Electronic Components

We believe we have built long-term relationships with our customers and established good reputation among the industry.

Air Compression Technology

We believe that we possess the following competitive advantages that allow us to maintain our strong market position and will aidwith respect to our profit growth in the future:air compression technology:

Environmental Protection:We believe that if alternative energy sources cannot be fully utilized, including instances when the electricity they produce cannot be economically stored or the source is unstable, then some productive capacity will be wasted. We utilize compressed air energy storage equipment in conjunction with the power generation system of alternative energy sources to produce electricity, which is a novel approach and provides customers with an advanced power generation capability with no carbon or toxic emissions. When power generated by the alternate energy sources, such as solar energy or wind energy, becomes unstable or fluctuates, the compressed air power generation system can start functioning and ensure a stable power supply and better utilize the productive capacity of the alternate energy source. Our compressed air energy storage power generation technology provides a new and unique method for alternative energy source power generation.

Flexibility: Our compressed air technology can be used with any other power sources. We can use solar energy, wind energy, geothermal energy, tidal energy, water energy and all the available natural energy as a raw power in conjunction with our compressed air energy storage technology. The collected mechanical energy from the raw power source is converted into compressed air and is then converted and released into direct current power. Through our ultra-wide voltage and high-performance power inverter, we produce an output of stable power in compliance with the Chinese national interconnection standards. In addition, our high-grade synthetic fuel products can be mixed into gasoline or diesel reducing exhaust emissions of carbon monoxide—a regulated pollutant lined to smog, acid rain, global warming and other environmental problems.

Enhancement of Use of PV Panels and other Energy Sources: The use of the compressed air energy storage technology helps overcome structural limitations of the use of PV panels and providing power to the State Grid. The use of PV panels is limited by the capacity of the State Grid, which limits the amount of energy that can be purchased from the PV industry and other sources of alternate energy that lack the capacity to efficiently store electricity but produce more power that can be used when generated. The expansion of the capacity of the PV industry could be constrained by the inability of the power grid to purchase the additional energy and the compressed air energy storage technology allows the energy to be stored until the electricity can be sold to the State Grid when PV panels are not producing electricity, such as when there is insufficient sunshine.

Patent Protection:Zhou Deng Rong, our founder and former Chief Executive Officer, and Zhou Jian, our Chairman of the Board, and LuckSky Group are the holders of 48 patents and 13 patent applications in China with respect to various aspects of the compressed air energy storage power generation technology, including improvements to the solar power generation system, the installation of solar energy systems, the inverters, and generators. Sanhe Xiangtian obtained a Chinese patent in August 2014 for utility module regarding photovoltaic power generation system. In addition, the patents, patent applications and related know-how and trade secrets are subject to an exclusive license for worldwide use to Luck Sky Shen Zhen,Xiangtian Shenzhen, our indirect wholly-owned subsidiary.

Government Incentives:The development of alternative sources of energy to reduce the amount of pollution in China caused by burning fossil fuels, particularly the use of coal to generate electric power, is a priority of the Chinese government. The Chinese government offers tax and rebate incentives for the construction of PV production facilities and has become stricter regarding the construction of power plants that rely on coal.

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Technical Advantage Compared to Conventional Battery Technologies:The use of conventional batteries to store excess electricity produced by solar power or other alternative energy sources is less attractive than the compressed air energy storage power generation technology. The most important disadvantages to standard batteries are that industrial batteries lose their capacity to store electricity over time, and also present environmental risks with respect to their production and disposal. Tank storage technology is estimated to have a 30 year lifespan and the steel can be recycled.

Technical Advantage CompareCompared to Conventional Solar Panels and Inverter/Converters:Our patented technologies increase the efficiency of PV panels to generate DCdirect current (“DC”) by enhancing their ability to operate at levels of lower sunlight and also increase the efficiency of the inverter/converter that converts the DC to alternating current to AC current(“AC”) by operating at a wider range of DC current than conventional inverter/converters. One licensed patent applies to the array of the PV panels.

Technical Advantage CompareCompared to Conventional Grid-connectedGrid-Connected Photovoltaic Power Generation:We adopted smart micro-grid technology which increases the efficiency of the power generation of the PV systems and significantly reduced the project costs of power plants. The micro-grid technology also helps us to improve the flexibility of PV systems, realize real zero emission of our power plant, improve reliability and help to restore power more quickly when the macro-grid is down.

Reduced Electrical Costs:Customers who generate electricity using alternate energy systems that isare intermittent or subject to periods of low production need to be linked to the State Grid to meet their power requirements. Our compressed air energy storage power generation system allows consumers to limit or eliminate their reliance on the State Grid;Grid by producing power during periods of peak pricing by the State Grid and storing the surplus energy produced by their alternate energy systems when prices charged by the State Grid are less expensive.

Scalability:The compressed air energy storage power generation system in conjunction with a PV panel installation is easily expanded thru the addition of additional solar panels, more storage tanks and/or bigger generators and engines.

Strong Design Ability: The extensive experience and specialty in prior large projects by our design and engineering team helps the Company design our heat pump products with more efficiency and stability.

Our Growth Strategy

Chinese demand for electricity is expected to increase by nearly 300 % between 2010 and 2040 according to the U.S. Energy Information Administration (http://www.eia.gov/countries/country-data.cfm?fips=CH).

We believe demand for electricity and solar energy production will continue to grow domestically and globally, thus affording us opportunity to grow and expand our business operations.

We intend to pursue the following strategies:

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Products

Air Compression Power Generation System

Our principal product is a system that combines our air compression power generation systems are combined with a PV installation that is custom designedcustom-designed for industrial users such as factories and power plants. We also offer PV systems without the air compression generation technology based on certain technological innovations that we believe increase the efficiency of our PV systems compared to those of competitors.

The air compression power generation systems can be used with multiple forms of natural energy production, including solar, wind, biomass, geothermal and tidal and the selection of the appropriate natural source depends on their relative availability at the customer’s location. Although use of any of these natural energy sources is feasible, we have initially focused on linking our air compression technology to PV installations. The installation of the solar power systems generally requires the lowest investment and shortest building time, in part because the area for building the facility is flexible as solar installations can be used anywhere outdoors and take advantage of anot taking up customer’s room. Wind power is not stable as the turbines may be inoperable at low or high winds. Nuclear and hydropower facilities are only feasible for producing power for the State Grid and are not feasible for individual factories and homeshomes.

1.Basic PV Installation. Conventional PV power generation technology is designed based upon the assumption that the minimum sun exposure would be 200W and the range of maximum power point tracking (the “MPPT”) is from DC480v to DC580v. When sun exposure is reduced and voltage drops below the DC480v, the problem with the conventional system is that it stops working; and the residual power in the photovoltaic panels that are generated under the lower light exposure cannot be utilized. The Company’s new intelligent photovoltaic technology improves power generation and shortens investment recovery time. The PV system uses a variable PV array technology and wide voltage intelligent inverter device developed by the Company. Customers can produce an additional 15% - 30% electricity each year as the system can operate in lower light environments than conventional PV technology.

We sell the PV installation that includes the solar panels installation and solar energy generation converter equipment with proprietary technology without the air compression for customers who do not need to store energy. The conversion advantage provides a higher capacity that allows the solar array to be used more effectively.

2.Compressed Air Energy Storage Technology.The power consumption rate of PV systems interconnected into the State Grid varies greatly and the active energy cannot be fully consumed, which causes significant energy waste. Generally, systems interconnected to the State Grid consume only 70% of the produced power and enterprises not connected to the State Grid consume only 60% - 70% of the produced power, and the residual power is wasted. Utilizing our compressed air energy storage system with photovoltaic power generation system improves the efficiency of power generation and reduces the waste of residual power.

Our air compression energy storage generation technology is also designed for customers whose alternative energy source provides intermittent or unstable power. The systems are sold in conjunction with a PV installation. A portion of the electricity produced by the PV panels is used to compress air into the cylinders, which effectively store the energy until it is released. The system includes compression equipment, storage tanks and a modified engine that is linked to a generator. The surplus power generated by the air compression technology may either be used by the customer itin its operations or sold to the State Grid.

The following chart illustrates an air compression power generation system that is linked with a PV installation, although the compression system can be linked to other alternative energy sources, such as wind farms, biomass, tidal or geothermal.

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Air Source Heat Pump System

We recently

In 2017 we developed an Air Source Heat Pump System（theSystem (the “ASHP”), a system which transfers heat from outside to inside of a building, or vice versa. Under the principles of vapor compression refrigeration, an ASHP uses a refrigerant system involving a compressor and a condenser to absorb heat at one place and release it at another. The ASHP efficiently converts electrical energy into heat energy and can be used as a space heater or cooler. Our ASHP meets the national standard and technical requirements, and has obtained a series of certifications from the China Quality Certification Center and the Beijing East Allreach Certification Center Co. Ltd.

Sales of the ASHP commenced in September 2017 after receipt of the latest certification. We are selling theASHPthe ASHP through third-party distributors and through employees for direct sales. We use a third party to manufacture the products.

As the Chinese central government is emphasizing sustainable development, and enhancing environmental remediation, local governments are also seeking to replace the traditional coal-fired heating with clean energy heating. We believe that a large potential market exists for the Air Source Heat Pump System.ASHP.

PV Panels

We manufacture PV panels in standard sizes at our factory in Xianning city, Hubei province, China. The table below lists PV panels we are currently offering.

In July 2019, Xiangtian Zhongdian entered into a product sales agreement (the “Sales Agreement”) with Shanxi Xinrongxiang Energy Group Co. Ltd. (the “Buyer”), pursuant to which Xiangtian Zhongdian will sell to the Buyer up to 200 million megawatt solar panel components, for a total purchase price of RMB 440 million (approximately $63 million). There is no minimum purchase commitment under this Sales Agreement made by the Buyer and therefore, the Buyer may purchase substantially less than the aggregate contract amount. Pursuant to the Sales Agreement, Xiangtian Zhongdian will deliver the products in batches. The parties will enter into separate agreements for the sale of each batch.

Electricity Generation Process

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Photovoltaic power generation is greatly affected by the amount of sunlight the PV system receives. The changes in the intensity of sunlight affect the power generation, which causes direct current to fluctuate. Therefore, actions to offset the fluctuation are essential. When fluctuation or disruption in photovoltaic power occurs, or during the night or when power in the storage system is exhausted, the power supply must be converted to a voltage transformer. However, based upon the current power supply equipment in power plants, energy cannot be instantly converted on a per megawatt basis. Therefore, frequent conversions are needed, which might obstruct system security and power production. Our design of the AC/DC non-contact converter rectifier can resolve this issue at a low cost. If DC power is below DC430v, DC offset is automatically incorporated into the electricity network and the transformer photovoltaic power will be shared with the power supply. The inverter won’t lose electricity and the entire system will not fluctuate or have the power shut off.

The system offers double power selection by utilizing a backup switch to ensure that the power supply does not stop. Should the generation of the solar power become unstable or intermittent, the system switches to operate using the air compression generation technology or, if available, to rely on the State Grid.

A. Compressor – fills storage tanks with air.

B. Plasma Heater – heats air being stored into tanks to a temperature of 300 to 400 degrees Fahrenheit to increase the amount of stored energy.

C. Storage Tanks – stores compressed air. Our storage tanks are built with carbon steel to withstand higher pressures. Each one megawatt of generated electricity requires 2 tanks, each with an average capacity of 30 m3m³ of compressed air. The standard tank is 50 meters long and 1.5 meters in diameter. The energy capacity per tank is dependent on the temperature and pressure of the air and the capacity of the e cylinder. The quality of the storage tanks areis based on ISOInternational Organization for Standardization (“ISO”) standards.

D. Air Engine – weWe utilize our patented technology to modify diesel engines purchased from outside vendors to enable the engine to operate on compressed air. A pressure regulator within the air engine turns the generator.generator on. Unlike a conventional combustion engine that explodes fossil fuel to create energy, the compressed air engine utilizes the heat and compression of the air to release energy.

E. Generator – Our proprietary generator utilizes patented and other proprietary technology that was developed in 2012 for our air compression storage generation system. The device affords stability by maintaining a consistent supply despite changes in the air pressure that may cause inefficiency in the engine (for example, a piston misfiring). Our tests indicated that the generator is more efficient thatthan the industry standard in maintaining a stable flow of voltage.

The air compression technology is used to produce electricity primarily at night or at other times when the electricity produced by the PV panels is intermittent or unstable. At such times, the compressed air is sent first from the storage tanks to the thermal heater, then to the engine. The engine then spins a flywheel attached to the generator.

Projects

AsWe have achieved significant improvement through research and testing on the air compression power generation system. We developed enhanced air compression (liquid power) generation system based on the original models. The primary mechanism is to utilize the compressed air as a power source and the biodegradable medium of October 30, 2017 we had 17 project contracts. Thirteen were completed, three were under constructions,oil as a power transmitter to support the engine running and one is expectedgenerating power.

 In order to start within several months. In addition,obtain government approval of the commercialization of our air compression energy storage products, we have had eight project cancelledsubmitted three enterprise standards, namely, air compression (liquid power) power generation system, air compression (liquid power) power generation unit and air compression radial engine. We are establishing an enterprise standard because ofthese products have no ISO or other qualifying standard for the industry. The certification is therefore based on our concern thatdesign specifications. The declarations we submitted for these three standards were approved by the customers may fail to meet their payment obligations. Three projects in Shandong province commenced operations in 2015, one project in Fujian province commenced operation in February 2016, the two projects in HubeiProvincial Industrial and Zhejiang commenced operations in March 2016 and one in Hubei commenced in April 2016. The project in Heilongjiang commenced operations in February 2017. Three projects in Hubei commenced operations in March and April 2017. The project in Dezhou and a project in Hubei (representing the second phaseInformation Department of the newSanhe Technical Service Bureau.

We hope that future air power plant) commenced operationscompressed products in this field will follow and adhere to our standards. We expect that if we set the industry and national standards, our market competitiveness will be enhanced.

Synthetic Fuel and Related Products

Fuel Additives

We develop, produce and sell fuel additives that are blended in gasoline to extend supplies and reduce emissions. Green Energy No.1 and Green Energy No. 2, two fuel additives we developed, are used to be blended in gasoline and diesel, respectively, to generate a fuel that, we believe, is efficient and can boost octane number with lower emissions. Their major component is methanol. The patents for these two products are pending in China. Four production lines in Jingshan facility are designed for the manufacturing of Green Energy No. 1. We plan to manufacture  Green Energy No.2 at Jingshan and Jiadeli by December 2019.

Engine Lubricant

Green Energy No. 3 is an engine lubricant to reduce friction and wear on moving parts and to clean the engine from sludge. Compared to the traditional chemical lubricant and nanoscale lubricant, Green Energy No. 3 contains rare metals and biodegradable elements, which creates a protection layer for the engine, maximizes the burning rate of the fuels and repairs the scratches from frictions. We have produced Green Energy No. 3 through Sanhe Xiangtian since June 2018 and plan to add another production line at Jingshan Sanhe to increase production capacity.

Engine Cleaner

Xiangtian No. 5 is a gas or diesel engine cleaner we developed to clean and lubricate fuel systems and stop corrosion, and protect engine. Xiangtian No. 5 contains polyisobutylene and Aluminum foil oil. We started manufacturing Xiangtian No. 5 at Jiadeli since July 2017. Two systems2019. We began marketing and selling Xiangtian No.5 in ShandongSeptember 2019.

Hydraulic Parts

Our hydraulic parts line of products mainly includes hydraulic cylinders, diesel pumps, motor oil pumps and Hubei provinceshydraulic valves. We also design and manufacture hydraulic pump stations, cylinders and high-pressure valves of various specifications according to customer requirements. Operation lines mainly consists of various computer numeric control machines and other fabrication equipment.

The main raw materials for our hydraulic products include compressedaluminum alloy, steel, natural rubber, silicone rubber, nitrile rubber and other materials which are readily available on the market.

Wine and Herbal Wine Products

On December 14, 2018, we acquired 90% of the equity interest Rongentang and are now engaged in the production and sales of compound liquor and medicinal liquor in China.

Projects

We assist our clients to install air energy storagecompression power generation systems in conjunctioncombined with a PV panel installation. The remaining projects only involveinstallation that is custom-designed for industrial users such as factories and power plants. We also offer PV systems. The contracts typically provide for payments in installments, with approximately 35% paid uponsystems without the commencement of construction, and the balance in two equal installments approximately 6 and 18 months later.

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In Shandong Province, we designed and installed a new power supply system with a capacity of 8.5 megawatts (the “Haide Group Project”) that includes our air compression generation technology. Pursuant to an agreement executed by Sanhe with Binzhou Xintuo Natural Energy Electrical Engineering Limited (“Binzhou Xintuo”) on April 18, 2014, Sanhe transferred the Haide Group Project in turn-key condition to Binzhou Xintuo after the completion

As of the installation and construction. The project included the installationdate of 15 tanks and eight engines. The project began to produce electricity from the PV panels in June 2014 and wasthis report, we have completed in Junea cumulative 17 projects since 2015. The project was connected to the State Grid on September 1, 2016. The customer anticipates utilizing the power produced by the compressed air technology when production from the solar panels is insufficient and when electricity from the State Grid is either too expensive during peak hours or not available. The customer may also generate revenue by selling power to the State Grid. The sale price for the project was $20,290,835 (RMB 126,000,000), which was paid as of July 31, 2016.

In Hubei province, wetable below summarizes all these completed construction of a facility with 10 megawatts of production capacity at the new power plant using air compression technology and PV panels (the “Hubei Xianning Project”). The initial six megawatts project was connected to the State Grid on December 3, 2015, and completed in March 2016 after a three months runtime check. We completed the second phases of construction of four megawatts, and delivered a total of 15 storage tanks and PV panels and generators as of July 31, 2017 for the production of a total of 10 megawatts. Under Sanhe’s contract with Xianning Auspicious Day Air Energy Power Company Limited dated April 25, 2014, Sanhe was responsible for designing, installing and constructing the project. The sale price for the six megawatt project was $10,628,553 (RMB66,000,000), which has been fully paid, and the sale price for the four megawatt project was $4,520,046 (RMB 30,000,000), of which we have recognized revenue of $3,761,888 (RMB 25,641,026) as of August 31, 2017. For the Hubei Xianning Project, Zhejiang Bowei Industrial and Trading Co., Ltd., provided the PV panels and engaged a third-party contractor to provide the installation. The facility’s capacity can be expanded, should the parties agree, to 18 megawatts, which will require an additional 15 storage tanks.

The following chart summarizes our projects:

Projects completed:

Project completed and recognition deferred¹:

¹The project was completed in July 2017, however the payments for the project will be received, and the revenue will be recognized after the year end July 31, 2017.Marketing

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Projects under construction:

Project not yet started:

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Marketing

We market our products mainly through third-party distributors in 24 provinces and through employees for direct sales.China. The distributors exclusively sell our products and receive commissions based on the value of the contracts but no salary.contracts. We utilize three classes of distributors based on the size of their territory – provincial,province, city and town. The distributors target both factories and power plants, but alsoas well as local governments which may encourage local industry to utilize alternate energy sources. Our marketing focus is on:

Manufacturing

We produce and assemble our PV installations and air energy compression generation systems at our factory in Sanhe.Xianning city, Hubei province, China. We produce many components, including the brackets and supports for the PV panels, an ultra-wideband voltage power inverter and converter, parts to modify the engines to operate using air compression, low-speed aerodynamic generators, and isothermal air compressor and thermal heaters. Other parts, such as solar panels, power cords, engines, carbon fiber tanks and generators and compressors are purchased from third parties and used to assemble our systems.

Our factory is based in Hebei Province Sanhe City, Yanjiao Economic Development Zone, withXianning has a production workshopfacility of 75007,500 square meters for our core-technology air compression equipment that can supply solar energy systems. We produce the engine generators, and related components, but notand the PV panels. The factory has a total capacity of up to 7 megawatts each month, based on one –eight houreight-hour shift working six days per week. Capacity can readily be expanded by adding additional shifts or building up to three more production lines at our facility.

In May 2016, we established a wholly-owned subsidiary,

Xianning Xiangtian Airengages one factory to assemble a series of our heat pump products under our name. All of our heat pump products have been certified by China Quality Certification Center.

Hubei Jinli has a production facility of 6,800 square meters for the manufacture of hydraulic parts and electronic components.

Jingshan Sanhe has four production lines on a 11,000-square-meter facility and capacities to complete manufacturing, labelling and packaging. It is the main facility for our Green Energy Electric Co., Ltd., in Xianning in Hubei Province, to manufacture PV panelsNo. 1 products. In addition, this facility also serves the purposes of research and related products. We completed the advancedsales with an office space of 3,400 square meters.

Rongentang Wine has an automatic filling production line with an annual production capacity of 200 megawatts5,000 tons of PV panels in September 2017. As of July 31, 2017, we had paid RMB 13,652,000 (approximately US$2,030,339) to install thewine at a 1,000 square-meter facility.  Rongentang Herbal Wine has an automatic filling production line andwith an additional RMB 845,000 (approximately US$125,669) remains due.annual production capacity of 6,000 tons of herbal wine.

Due to government regulations, as of the date of this report, Tianjin Jiabaili was not able to start its production of Green Energy No.4 as scheduled. This facility will be closed down permanently.

Suppliers

We are not heavily dependent on any single supplier for any important product. We purchaseFor the year ended July 31, 2019, we purchased our solar panels from sixone suppliers, engines from one supplier, and carbon fiber storage tanks from two suppliers. We have a good relationship with each supplier. We believe that many suitable alternate producers of these products are available should we need an alternate supplier. We also purchasepurchased electrical components to the inverter/converters, generators, compressors and control panels that we manufacture and believe that alternate suppliers of such components are also readily available.

Patents

For the year ended July 31, 2019, we purchased our heat pumps from a single manufacturer but believe that an alternative supplier could be used should the need arise.

For the year ended July 31, 2019, we purchased the raw material for high-grade synthetic fuel products from ten suppliers.

For the year ended July 31, 2019, we purchased the raw materials for our hydraulic parts and Technologyelectronic components from ten suppliers.

Zhou Deng Rong

For the year ended July 31, 2019, we purchased the raw materials for wine products from two suppliers.

Intellectual Property

Trademarks

We have registered in the PRC four trademarks which we use on our products sold in China.

Patents

Sanhe Xiangtian obtained a patent in August 2014 for utility module regarding photovoltaic power generation system. It was also granted a patent from the PRC National Intellectual Property Administration on biodiesel esterification heterogeneous catalyst and Zhou Jiang are the inventors for all of our technologies. preparation method in 2018.

On July 25, 2014, Luck Sky Shen Zhen,Xiangtian Shenzhen, our Chinese subsidiary, obtained an exclusive, worldwide, royalty freeroyalty-free license from Zhou Deng Rong and Zhou Jian (his son) and a second exclusive, worldwide royalty free license from LuckSky Group to 48 Chinese patents and 13 patent applications and trade secrets, including the technology underlying the patent applications for power stations, commercial buildings and residences in China, but not for other uses, including wind towers, vehicles and trains (the “Technology”). The Technology represents all of licensors’ patents with respect to PV power generation installations, the air energy storage power generation technology and trade secrets. Effective as of July 31, 2015, Beijing XiangTian Huachuang Aerodynamic Force Technology Research Institute Company (“XiangTian Huachuang”), granted Luck Sky Shen ZhenXiangtian Shenzhen an exclusive worldwide license to four foreign patents that it had recently obtained.related to air energy storage power generation technology. XiangTian Huachuang obtained three patents in Japan and one patent in Australia in March 2015. XiangTian Huachuang is owned 30% by Zhou Jian and 70% by Zhou Deng Rong.

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LuckSky Shen ZhenXiangtian Shenzhen granted an exclusive sub-license to the use and exploitation of the Technology in China to Sanhe Xiangtian in July 2014, which sub-license provides for a licensing fee of five percent of Sanhe’sSanhe Xiangtian’s revenues. On September 30, 2018, Xiangtian Shenzhen terminated the exclusive sub-license to the use and exploitation of the Technology in China to Sanhe Xiangtian and granted Xianning Xiangtian an exclusive and non-transferable sub-license to use and exploitation of the Technology but without the sublease right in the territory of China, exclusive of Hong Kong, Macao and Taiwan for the purpose of the agreement. Xianning Xiangtian agreed to pay Xiangtian Shenzhen a quarterly royalty fee equal to five percent (5%) of Xianning Xiangtian’s gross revenue of each quarter. For the year ended July 31, 2019, the annual royalty fee was waived by Xiangtian Shenzhen.

Tianjin Jiabaili also owns a patent on ether fuel, its preparation method in China. In addition, Sanhe obtainedpatent applications for our gasoline and diesel synthetic fuels have been filed with the PRC National Intellectual Property Administration.

Hubei Jinli is owner of 10 patents in the PRC on hydraulic related devices or components.

We take reasonable steps to protect our proprietary information and trade secrets, such as limiting disclosure of proprietary plans, methods and other similar information on a patent in August 2014 for utility module regarding photovoltaic power generation system.need-to-know basis and requiring employees with access to our proprietary technology to enter into confidentiality arrangements. We believe that our proprietary technology and trade secrets are adequately protected.

Research and Development

Our Technology was originally developed principally by Zhou Deng Rong. Sanhe Xiangtian obtained the legal right to use and develop the Technology through the Agreement on Know-How Sub-LicensingSub-License executed on July 25, 2014 with Luck Sky Shen Zhen,Xiangtian Shenzhen, and Luck Sky Shen ZhenXiangtian Shenzhen was granted a license to use and sublease the Technology through licensing agreements with Zhou Deng Rong, Zhou Jian, and LuckSky Group, owners of the Technology. Sanhe Xiangtian’s right to use and develop the Technology was terminated on September 30, 2018. Xianning Xiangtian then obtained the legal right to use and develop the Technology through the Agreement on Know-How Sub-License executed on September 30, 2018 with Xiangtian Shenzhen.

As of October 31, 2017 and July 31, 2016,

We are currently collaborating with experts in the research and development department had 5 and 2 employees, respectively. The Company is focusing on the development of its project installation team and sales promotion team and it is relying on LuckSky Group, a licensor, for its research and development.synthetic fuel industry to develop new synthetic fuel products.

Warranty

We provide a five-year limited warranty on all models of compressed air energy generators produced by us, and on the parts, we manufacture, such as the inverter/converter and plasma heater. Components that we purchase from third party suppliers, such as the PV panels, storage tanks and the unmodified portions of the engines, are governed by the suppliers’ warranties.

We provide one to three year warranties on hydraulic parts and electronic components.

Competition

Our business operates in highly competitive markets and industries. These competitors and the degree of competition vary widely by product lines, end markets, geographic scope and/or geographic locations. Although each of the Company’s segments has numerous competitors, given the Company’s market and product breadth, no single competitor competes with the Company with respect to all products manufactured and sold by the Company.

We compete against larger, better capitalized and better known competitors that have become, or are becoming, vertically integrated in the PV industry value chain, from module manufacturing to PV system sales and installation, such as Yingli Green Energy, one of the largest vertically integrated PV module suppliers in the world. China has about 20 to 30 companies providing PV installation service and 50 PV manufacturers. In 2014, sixAs of 2019, 7 of the 10 largest PV panel manufacturers in the world were located in ChinaChina. The ability of the vertically integrated competitors to produce modules and sometimes also be polysilicon manufacturers gives them a cost advantage with respect to the price of PV modules, which we purchase, and which could erode our competitive advantage resulting from our PV installation and air compression technologies. Furthermore, we face competition from conventional energy and non-solar renewable energy providers.

With respect to large integrated PV system projects, we compete primarily in terms of price, design and construction experience, aesthetics and conversion efficiency. We face competition from other providers of renewable energy solutions, including developers of PV, solar thermal and concentrated solar power systems, and developers of other forms of renewable energy projects, including wind, hydropower, geothermal, biomass, and tidal. We also face competition from other EPC companiesengineering and construction contractor (“EPC”) and joint venture type arrangements between EPC companies and solar companies. While the decline in PV modules prices over the last several years has increased demand in solar electricity worldwide, competition at the systems level can be intense, thereby exerting downward pressure on systems level profit margins industry-wide, to the extent competitors are willing and able to bid aggressively low prices for new projects and power purchase agreements or PPAs,(“PPAs”), using low cost assumptions for modules, components, installation, maintenance and other costs. We face intense competition in the PV system markets and our PV and compressed air energy generation systems compete with different solar energy systems as well as other renewable energy sources in the alternative energy market.”

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Also,Stimulated by the policy promotion initiated by the Chinese government in 2017, the output value of air source heat pump heating (including household and commercial) reached RMB 9.04 billion ($1.33 billion), accounting for 52.4% of the industry, and began to occupy the largest share according to 2018 industry report by China Energy Conservation Association. Midea, Gree, A.O. Smith, and Haier were the top four brands who sold the most air-source heat pumps as they are major household appliances brands in China. We expect more companies to enter the market which will increase competition.

Although air power technologies are being researched and developed in some countries, such as China, Italy, Germany, the United Stated,States, and France.France, air compression energy storage products in China have not been commercialized significantly. However, there are a few companies in China, such as Jontia Energy Investment Group, who are developing the air compression energy storage products.

The sale of our air compression products is also affected by the cost of producing electricity from PV panels operating alone and other sources. The purchase and installation of our air compression technology requires the customer to incur substantial up from costs and the relative inexpensive electricity produced from ample supplies of PV panels in China have inhibited demand for the air compression systems that supplement production of electricity by PV panels.

With respect to our synthetic fuel business and green energy products, we compete with large state-owned enterprises and well-established oil companies, which have offered a wider range of oil products and have greater name recognition. They may have greater customer loyalty bases and these competitors may be able to respond more quickly to new or changing opportunities. Our competitors have substantially greater resources, experience in product commercialization, and obtaining regulatory approvals for their products, operating experience, research and development, marketing capabilities, and manufacturing capabilities that we do. We will face competition from companies marketing existing products or developing new products in synthetic fuel industry. In addition, our competitors may be able to undertake more extensive promotional activities, and adopt more aggressive advertising campaigns than what we are able to provide to green energy products at the present. Further, the synthetic fuel industry also compete with other forms of energy available to customers, primarily based on price. These alternate forms of energy include electricity, coal, natural gas and bio-fuels.

Principal methods of competition in both hydraulic parts and electronic components are technology, innovation, price, geographic coverage, service and product performance. The Company participates in a number of highly competitive markets in this industry. The Company believes its hydraulic part and electronic component product have achieved unique positions in their markets; however, we encounter competition in varying degrees in all product groups and for each product line.

The spirits market in China is flourishing and highly competitive. We compete with high-end spirits, such as Moutai, Chivas, and Martell.

Environmental Matters

We have installed various types of anti-pollution equipment in our facilities to reduce, treat, and where feasible, recycle the wastes generated in our manufacturing process. We contain and treat waste water generated in our production process. The other major environmental contaminant we generate is gaseous waste. We treat such gas in our special facilities to reduce the contaminant level to below the applicable environmental protection standard before discharging the gas into the atmosphere. Our operations are subject to regulation and periodic monitoring by local environmental protection authorities. The Chinese national and local environmental laws and regulations impose fees for the discharge of waste substances above prescribed levels, impose fines for serious violations and provide that the Chinese national and local governments may at their own discretion close or suspend the operation of any facility that fails to comply with orders requiring it to cease or remedy operations causing environmental damage.

In May 2014, as required by PRC law, we obtained the Environmental Assessment Report on Construction Projects for the manufacturing space that we lease from Dong Yi Glass Machine Company Limited, which is used as our second factory and offices. This report was issued by an independent qualified evaluation company with a conclusion that the operations conducted by Sanhe Xiangtian comply with relevant environmental laws in China, which willwould not cause detrimental environmental impacts. However, since our primary manufacturing and office space leased from LuckSky Group in Sanhe City has a zoning restriction that only permits agricultural use, we are still in the process of obtaining the approval formoved the manufacturing use.factory to Xianning, Hubei and the Sanhe Xiangtian facility will be used for product sales.

No penalties have been imposed on us, or our subsidiaries or controlled entities, and we believe we are currently in compliance with present environmental protection requirements in all material respects, and have obtained or been in the process of obtaining all necessary environmental permits for our production facility.facilities. We are not aware of any pending or threatened environmental investigation proceeding or action by any governmental agency or third party.

Insurance

We do not maintain property and casualty insurance, product liability insurance or insurance covering injury to our employees.and equipment and operation line insurance.

PRC Governmental Regulations

This section sets forth a summary of the most significant regulations or requirements that affect our business activities in China. Other regulations and requirements, such as those relating to foreign currency exchange, dividend distribution, regulation of foreign exchange in certain onshore and offshore transactions, and regulations of overseas listings, may affect our shareholders’ right to receive dividends and other distributions from us.

Renewable Energy Law and Other Government Directives

In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006 or the 2006(the “2006 Renewable Energy Law.Law”). The 2006 Renewable Energy Law sets forth the national policy to encourage and support the use of solar and other renewable energy and the use of on-grid generation. On December 26, 2009, the Standing Committee of the National People’s Congress adopted an amendment to the 2006 Renewable Energy Law or the Amended(the “Amended Renewable Energy Law,Law”), which became effective on April 1, 2010. While the 2006 Renewable Energy Law has laid the legal foundation for developing renewable energy in China, the Amended Renewable Energy Law has introduced practical implementing measures to enhance such development.

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The Amended Renewable Energy Law details the principles, main content and key issues of the renewable energy development and utilization plans, further elaborates the requirements for grid companies to purchase the full amount of electricity generated from renewable energy by setting out the responsibilities and obligations of the government, the power companies and the grid companies, respectively, and also clarifies that the state will set up a special fund, referred to as the renewable energy development fund, to compensate the difference between the tariff for electricity generated from renewable energy and that generated from conventional energy sources. The proceeds of the renewable energy development fund may also be used to support renewable energy scientific research, finance rural clean energy projects, build independent power systems in remote areas and islands, and build information networks to exploit renewable energy. It is anticipated that China will publish more detailed implementing rules for the Amended Renewable Energy Law and make corresponding changes to those existing implementing rules relating to renewable energy.

The current rebates available for our customers include a rebate of 0.42 RMB per kilowatt for 20 years for factories and 1 RMB per kilowatt for 20 years for power plants.

China’s Ministry of Construction issued a directive in June of 2005, which seeks to expand the use of solar energy in residential and commercial buildings and encourages the increased application of solar energy in townships. In addition, China’s State Council promulgated a directive in June of 2005, which sets forth specific measures to conserve energy resources and encourage exploration, development and use of solar energy in China’s western areas, which are not fully connected to electricity transmission grids, and other rural areas. In July 2007, the PRCChina’s State Electricity Regulatory Commission issued the Supervision Regulations on the Purchase of All Renewable Energy by Power Grid Enterprises which became effective on September 1, 2007. To promote the use of renewable energy for power generation, the regulations require that electricity grid enterprises must in a timely manner set up connections between the grids and renewable power generation systems and purchase all the electricity generated by renewable power generation systems.systems in a timely manner. The regulations also provide that power dispatch institutions shall give priority to renewable power generation companies in respect of power dispatch services provision.

On August 31, 2007, the NDRCNational Development and Reform Commission of China (“NDRC”) implemented the National Medium-Medium and Long-Term Programs for Renewable Energy, or MLPRE, which highlights the government’s long-term commitment to the development of renewable energy.

On April 1, 2008, the PRC Energy Conservation Law came into effect. Among other objectives, this law encourages the utilization and installation of solar power facilities in buildings for energy-efficiency purposes.

On March 23, 2009, the MOF, issued the Provisional Measures for Administration of Government Subsidy Funds for Application of Solar Photovoltaic Technology in Building Construction, which outline a subsidy program dedicated to rooftop PV systems with a minimum capacity of 50 kilowatt-peak.

In July 2010, the Ministry of Housing and Urban-Rural Development issued the “CityCity Illumination Administration Provisions (the “Illumination Provisions” or the Illumination Provision.). The Illumination Provisions encourage the installation and use of renewable energy system such as PV systems in the process of construction and re- construction of city illumination projects.

On July 24, 2011, the NDRC issued the Notice on Improving the On-grid Tariff Policy for Photovoltaic Generation. Under this Notice,notice, it is required that a uniform national benchmark on-grid tariff for solar energy photovoltaic generation be formulated. Furthermore, for PV projects that had been approved before July 1, 2011 and would be completed by December 31, 2011, the feed-in tariff would be RMB1.15/kWh, including value-added tax or VAT.(“VAT”). Except for PV projects that are constructed in Tibet, for PV projects that are approved after July 1, 2011 and PV projects that had been approved before July 1, 2011 but would not be completed by December 31, 2011, the feed-in tariff including VAT would be RMB1/kWh.

On March 14, 2012, the MOF,Ministry of Finance (“MOF”), the NDRC and the National Energy Administration or the NEA,(the “NEA”) jointly issued interim measures for the management of additional subsidies for renewable-energy power prices, according to which relevant renewable-energy power generation enterprises are entitled to apply for subsidies for their renewable power generation projects that satisfy relevant requirements set forth in the measures.

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On January 1, 2013, the State Council adopted a Circular on the Twelfth Five-Year Plan for the Energy Development, which sets out key development objectives for the industry during the 12th Five-Year Plan. In accordance with this plan, to optimize the structure of energy consumption, the proportion of non- fossil energy consumption shall be increased to 11.4 percent of total energy consumption by 2015.

In March 2013, NDRC On December 26, 2016, the Thirteenth Five-Year Plan for the Energy Development was issued the Notice on Improving the Pricing Scheme for Photovoltaic Power Generation. According to this notice, the NDRC proposed to reduce the feed-in tariff for utility scale PV projects from RMB 1/kWh to RMB 0.75/kWh, RMB 0.85/kWh and RMB 0.95/kWh, depending on the project’s location of construction. The feed-in tariff for PV projects constructed in specific regions would remain at RMB 1/kWh. In addition, the NDRC proposed a subsidy of RMB 0.35/kWh for distributed PV generation projects and the purchase price of electricity generated to be in line with the coal-electricity tariffs.

In March 2013, NDRC, the NEA and the MOF, jointly issued measures to standardize settlement of feed-in tariffs, which are believed to help address the delay in payment of solar subsidies and settlement of accounts payable experienced by solar project developers. In addition, pursuant to a July 2013 MOF notice, starting from August 2013, subsidies for distributed PV power generation stations (excluding distributed PV power generation projects) are required to be paid directly from the MOFaccording to the State Grid Corporationnew plan, the proportion of China and the China Southern Power Grid Co., Ltd., rather than through the MOF’s provincial counterparts. As a resultnon- fossil energy consumption shall be increased to 15 percent of such measures, the collection period for feed-in-tariffs is expected to be significantly shortened.total energy consumption by 2020.

The MOF has proposed to almost double the renewable energy surcharge for end-users of electricity from RMB0.008 per kWh to RMB0.015 per kWh, effective since September 25, 2013.

On August 26, 2013, the Department of Price of the NDRC released subsidy details for PV projects. Transmission-grid-connected projects will receive a feed-in-tariff of RMB0.90 to RMB1.00 per kWh, and distribution-grid-connected projects will receive a premium of RMB0.42 per kWh in addition to the desulphurized coal benchmark price. Distribution-grid-connected projects are expected to represent the majority of China’s new PV installation in the next few years. Unlike the rest of the world, capital expenditures for distribution-grid-connected projects are higher than transmission-grid-connected projects, since labor costs for scaffolding and work on rooftops are low in China and rooftop space is currently free. Meanwhile, the NDRC announced that the feed-in tariff will be valid, in principle, for 20 years.

On September 23, 2013, the MOF and the State Administration of Taxation jointly issued athe notice that ordered a 50% refund of value-added taxVAT on sales by PV manufacturers of their PV products. This VAT refund will be effective from October 1, 2013 through December 31, 2015. On July 25, 2016, the MOF and the State Administration of Taxation n issued Circular 81, Notice on the Implementation of the VAT Policy for Photovoltaic Power Generation from January 1, 2016 to December 31, 2018.

On November 26, 2013, the MOF announced Circular 103, which provides that the electricity generated by the distributed PV system for its own use is exempted from paying fourfor governmental charges. On the same date, the NEA promulgated the “Interim Measures for the Administration of PV Power Generation.Generation,”, which clarify that the state department in charge of energy and its local counterparts are responsible for the supervision of PV projects.

On February 12, 2014, the NEA circulated the target of national solar installations for 2014 to be 14GW, 6GW of which would be targeted for utility scale, 8GW for distributed generation.

On the same day, the NEA released a list of 81 “New Energy Demonstration Cities” and eight “industrial demonstration parks” in 28 and 8 provinces respectively. These cities and zones are required to achieve their respective mandatory targets in terms of solar PV installations and the percentage of installed renewable energy power generation capacities by the end of 2015, or the end of the 12th Five-Year-Plan.

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In February 2014, the Certification and Accreditation Administration of China and the NEA jointly issued the “Implementation Opinions on Strengthening the Testing and Certification of PV Products.” The implementation opinions provide that only certified PV products may be connected to the public grid or receive government subsidies. The institutions that certify PV products must be approved by the Certification and Accreditation Administration. According to the implementation opinions, PV products that are subject to certification include PV battery parts, inverters, control devices, confluence devices, energy storage devices and independent PV systems.

On April 2, 2015, the MOF issued the Interim Measures for the Administration of Special Funds for Renewable Energy Development, which is aimed to standardize and strengthen the management of special funds for renewable energy development, and improve the efficiency of capital use.

In 2016, the Chinese government enacted the “Helping the Poor” Project. The National Poverty Alleviation Office has set an objective for the provinces and cities to alleviate poverty in the next three years through government investment to construct household power stations for poor families and to subsidize electricity charges for poor families to alleviate poverty.

May 5, 2017, National Development and Reform Commission, National Energy Administration published Circular 870, New Energy Microgrid Demonstration Project List, and 28 new energy microgrid demonstration projects were approved. It might results the new PV installations brought by this batch of projects are 899MW, and the newly added electric energy storage capacity exceeds 150MW.

December 19, 2017, National Development and Reform Commission issued Circular 2196, Notice on the Price Policy of Photovoltaic Power Generation Projects in 2018, which regulated that, according to the current technological progress and cost reduction of the photovoltaic industry, the on-grid tariff of photovoltaic power plants put into operation after January 1, 2018 will be reduced. The on-grid tariffs of Class I, II and III resource zones will be adjusted to 0.55 yuan per kWh, 0.65 yuan, 0.75 yuan (including tax). Since 2019, the photovoltaic power generation projects that have been included in the annual scale management of financial subsidies have all executed the corresponding benchmark electricity prices according to the commissioning time.

January 1, 2018, Ministry of Industry and Information Technology issued the Circular 2, Photovoltaic Manufacturing Industry Specification Conditions, it sets the comprehensive regulation of the photovoltaic manufacturing industry. According to Circular 2, photovoltaic manufacturing enterprises shall meet the following conditions: shall be legally incorporated and established in the territory of the People’s Republic of China, with independent legal personality; have the independent production, supply and after-sales service capabilities of solar photovoltaic products; have independent research and development institutions, technical centers or high-tech enterprises above the provincial level. The annual cost for R&D and process improvement is not less than 3% of total sales and not less than RMB 10 million. When the declaration conforms to the list of specifications, the actual production in the previous year is not less than 50% of the actual capacity of the previous year. Besides, Photovoltaic manufacturing enterprises shall strictly follow the requirements of pollutant discharge permits and relevant technical specifications, and shall strictly implement the environmental impact assessment system. The exhaust gas and wastewater shall comply with national and local atmospheric and water pollutant discharge standards and total control requirements.

Environmental Regulations

We are subject to a variety of governmental regulations related to the storage, use and disposal of hazardous materials. The major environmental regulations applicable to us include the Environmental Protection Law of the PRC, the Law of the PRC on the Prevention and Control of Water Pollution and its implementation rules, the Law of the PRC on the Prevention and Control of Air Pollution and its implementation rules, the Law of PRC on the Prevention and Control of Solid Waste Pollution and the Law of the PRC on the Prevention and Control of Noise Pollution and the PRC Law on Appraising Environment Impacts.

In addition, under the Environmental Protection Law of the PRC, the Ministry of Environmental Protection sets national pollutant emission standards. However, provincial governments may set stricter local standards, which are required to be registered at the State Administration for Environmental Protection. Enterprises are required to comply with the stricter of the two standards.

The relevant laws and regulations generally impose discharge fees based on the level of emission of pollutants. These laws and regulations also impose fines for violations of laws, regulations or decrees and provide for possible closure by the central or local government of any enterprise which fails to comply with orders requiring it to rectify the activities causing environmental damage.

We have received

Foreign Investment Regulations

Investment activities in the environmental certificationPRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time by the Ministry of Commerce and the National Development and Reform Commission. On June 30, 2019, Ministry of Commerce and the National Development and Reform Commission announced the amendment of the Catalog 2019.

Industries listed in the Catalogue are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalogue are generally deemed as constituting a fourth “permitted” category. Establishment of wholly foreign-owned enterprises is generally allowed in the encouraged and permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations.

On October 8, 2016, the Ministry of Commerce issued the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises, or FIE Record-filing Interim Measures, which became effective on the same day and was further amended in July 2017. Pursuant to FIE Record-filing Interim Measures, the establishment and change of FIEs are subject to record filing procedures, instead of prior approval requirements, provided that the establishment or change does not involve special entry administration measures. If the establishment or change of FIE matters is subject to the special entry administration measures, the approval of the Ministry of Commerce or its local counterparts is still required. Pursuant to the Announcement (2016) No. 22 of the National Development and Reform Commission and the Ministry of Commerce issued on October 8, 2016, the special entry administration measures for foreign investment apply to restricted and prohibited categories specified in the Catalog and the encouraged categories which are subject to certain requirements relating to equity ownership and senior management.

In December 2018, the Standing Committee of National People’s Congress published a discussion draft of a new proposed Foreign Investment Law (the “New Draft Foreign Investment Law”) aiming to replace the major existing laws governing foreign direct investment in China. The New Draft Foreign Investment Law applies to PRC enterprises established, acquired or otherwise invested wholly or partially by foreign investors in a manner prescribed under applicable PRC laws and regulations. The New Draft Foreign Investment Law does not clearly define the “foreign investor”. Therefore, we are uncertain if our PRC subsidiary will be deemed as a “foreign investor” and our PRC subsidiary will be subject to the New Draft Foreign Investment Law.

Pursuant to the New Draft Foreign Investment Law, foreign investment shall be subject to the negative list management system. The “negative list” which is issued or approved by the State Council specifies the special management measures for the access of foreign investment in specific areas. If a foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor may be required to, among other aspects, suspend its investment activities, dispose of its equity interests or assets in the target companies and forfeit its income. In addition, if a foreign investor is found to invest in any restricted industry in the “negative list”, the relevant competent department shall require the foreign investor to take the measures to correct itself. The deadline for the solicitation of comments on the New Draft Foreign Investment Law is February 24, 2019 and there is uncertainty with respect to the enactment timetable and the final content of the New Draft Foreign Investment Law.

Licenses and Permits Required for Our Business

Safety Production License, according to Regulation on Work Safety Permits (2014), the state applies a work safety licensing system to enterprises engaged in mining, construction, and the production of dangerous chemicals, fireworks and crackers, and civil explosives.

Hazardous Chemicals Business License, according to Measures for the Administration of Dangerous Chemicals Business License (2012), the state implements a licensing system for the operation of hazardous chemicals. Enterprises which operate dangerous chemicals shall obtain a hazardous chemicals business license. It is prohibited to operate hazardous chemicals without obtaining such business license.

 Industrial Product Production License, according to Regulation of the People's Republic of China on the Production License of Industrial Products (2005), the State implements a production license system for enterprises that produce the industrial products that affect production safety and public safety such as hazardous chemicals. It is prohibited to produce such products listed without obtaining such license.

Food Business License, according to Food Management License Management Measures (2015), within the territory of the People's Republic of China, anyone who engages in food sales and catering services shall obtain a food business license in accordance with the law. Where engaging in food business activities without obtaining food business license, the local food and drug supervision and administration department may impose punishment in accordance with the provisions of Article 122 of the Food Safety Law of the People's Republic of China.

Food Production License, according to Food Production License Management Measures (2015), within the territory of the People's Republic of China, food production activities shall be subject to food production license in accordance with the law. Where engaging in food production activities without obtaining food production license, the local food and drug supervision and administration department may impose punishment in accordance with the provisions of Article 122 of the Food Safety Law of the People's Republic of China.

Pharmaceutical Manufacturing Permit, a pharmaceutical manufacturer must obtain a pharmaceutical manufacturing permit from the governmentrelevant provincial branch of China Food and Drug Administration's (“CFDA”).

Good Manufacturing Practice (“GMP”) Certificate. A pharmaceutical manufacturer must meet the Good Manufacturing Practice standards for each of its production facilities in China in respect of each form of pharmaceutical product it produces. GMP standards include staff qualifications, production premises and facilities, equipment, raw materials, environmental hygiene, production management, quality control and customer complaint administration. If a manufacturer meets the GMP standards, the CFDA will issue to the manufacturer a GMP certificate with a five-year validity period.

Secrecy Qualification, according to Circular 8 issued by the National Defense Science and Technology Bureau of PRC, entities engaged in the research and production of classified weapons and equipment are required to implement a confidentiality qualification examination and certification system and obtain the corresponding Secrecy Qualification.

Product Quality

Pursuant to the Product Quality Law of China promulgated by the National People’s Congress Standing Committee in 1993 and amended in 2018, a seller must establish and practice a check-for-acceptance system for replenishment of such seller’s inventory, and examine the quality certificates and other marks and must also adopt measures to keep the products for sale in good quality. Pursuant to the Product Quality Law of China, where a defective product causes physical injury to a person or damage to such person’s property, the victim may claim for damages against the manufacturer or the seller of the product. If the seller pays the damages and it is the manufacturer that should bear the liability, the seller has a right of recourse against the manufacturer. Similarly, if the manufacturer pays damages and it is the seller that should bear the liability, the manufacturer has a right of recourse against the seller. Violations of the Product Quality Law of China could result in various penalties, including the imposition of fines, suspension of business operations, revocation of business licenses and criminal liabilities.

Tort Liability Law

Pursuant to the Tort Liability Law of China, which was promulgated by the National People’s Congress Standing Committee on December 30, 2009 and became effective on July 1, 2010, producers are liable for damages caused by defects in their products and sellers are liable for damages attributable to their fault. If the defects are caused by the fault of third parties such as the transporter or storekeeper, producers and sellers have the right to claim for compensation from these third parties after paying the damages. The producers and sellers are obligated to take remedial measures such as issuing warnings or recalling the products in a timely manner if defects are found in products that are in circulation. If a party knowingly manufactured and sold defective products that cause death or severe personal injuries, the injured person has the right to claim punitive damages.

Regulations Relating to Taxation

The PRC Enterprise Income Tax Law imposes a uniform enterprise income tax rate of 25% on all PRC resident enterprises, including foreign invested enterprises, unless they qualify for certain exceptions. The enterprise income tax is calculated based on the PRC resident enterprise’s global income as determined under PRC tax laws and accounting standards. If a non-resident enterprise sets up an organization or establishment in the PRC, it will be subject to enterprise income tax for the income derived from such organization or establishment in the PRC and for the income derived from outside the PRC but with an actual connection with such organization or establishment in the PRC.

The PRC Enterprise Income Tax Law and its implementation rules permit certain “high and new technology enterprises strongly supported by the state” that independently own core intellectual property and meet statutory criteria, to enjoy a reduced 15% enterprise income tax rate. In January 2016, the SAT, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises specifying the criteria and procedures for the certification of High and New Technology Enterprises.

Pursuant to the PRC Provisional Regulations on Value-Added Tax and their implementation regulations, unless otherwise specified by relevant laws and regulations, any entity or individual engaged in the sale of goods, provision of processing, repairs and replacement services and importation of goods into China is generally required to pay a value-added tax, or VAT, at the rate of 13% on revenues generated from sales of goods, less any deductible VAT already paid or borne by such entity.

Pursuant to the PRC Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%.

Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise.

Pursuant to the Notice of the SAT on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. Furthermore, the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, which became effective in November 2015 and replaced Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), provide that any non-resident enterprise meeting conditions for enjoying the convention treatment may be entitled to the convention treatment itself when filing a tax return or making a withholding declaration through a withholding agent, subject to the subsequent administration by the tax authorities.

Pursuant to the Law on the Administration of Tax Collection of the PRC which was enacted by the Standing Committee of the National People’s Congress on September 4, 1992 and most recently amended in April 2015, if a taxpayer fails to pay tax pursuant to applicable tax laws or regulations, the tax authorities may, subject to the specific circumstances in each case, impose penalties on such taxpayer, including without limitation, imposing surcharge or imposing a fine of not more than five times the amount of the underpaid tax.

Regulations on Employee Stock Incentive Plan

In February 2012, SAFE promulgated the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, replacing earlier rules promulgated in March 2007, to regulate the foreign exchange administration of PRC citizens and non-PRC citizens who reside in the PRC for a continuous period of not less than one year, with a few exceptions, who participate in stock incentive plans of overseas publicly-listed companies. Pursuant to these rules, these individuals who participate in any stock incentive plan of an overseas publicly listed company, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas listed company, and complete certain other procedures. Failure of our PRC option holders or restricted shareholders to complete their SAFE registrations may subject us and these employees to fines and other legal sanctions. The SAT has issued certain circulars concerning employee share options or restricted shares. Under these circulars, our employees working in the PRC who exercise share options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If our manufacturing process.employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC government authorities.

Regulations Relating to Labor and Employment

Pursuant to the PRC Labor Law effective in 1995 and amended in 2009, and the PRC Labor Contract Law effective in 2008 and amended in 2012, a written labor contract is required when an employment relationship is established between an employer and an employee. Other labor-related regulations and rules of China stipulate the maximum number of working hours per day and per week as well as the minimum wages. An employer is required to set up occupational safety and sanitation systems, implement the national occupational safety and sanitation rules and standards, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational hazards.

An employer is obligated to sign an indefinite term labor contract with an employee if the employer continues to employ the employee after two consecutive fixed-term labor contracts, with certain exceptions. The employer also has to pay compensation to the employee if the employer terminates an indefinite term labor contract, with certain exceptions. Except where the employer proposes to renew a labor contract by maintaining or raising the conditions of the labor contract and the employee is not agreeable to the renewal, an employer is required to compensate the employee when a definite term labor contract expires. Furthermore, under the Regulations on Paid Annual Leave for Employees issued by the State Council in December 2007 and effective as of January 2008, an employee who has served an employer for more than one year and less than ten years is entitled to a 5-day paid vacation, those whose service period ranges from 10 to 20 years are entitled to a 10-day paid vacation, and those who have served for more than 20 years are entitled to a 15-day paid vacation. An employee who does not use such vacation time at the request of the employer must be compensated at three times their normal salaries for each waived vacation day.

Pursuant to the Regulations on Occupational Injury Insurance effective in 2004, as amended in 2010, and the Interim Measures concerning the Maternity Insurance for Enterprise Employees effective in 1995, PRC companies must pay occupational injury insurance premiums and maternity insurance premiums for their employees.

Pursuant to the Interim Regulations on the Collection and Payment of Social Insurance Premiums effective in1999 and the Interim Measures concerning the Administration of the Registration of Social Insurance effective in 1999, basic pension insurance, medical insurance and unemployment insurance are collectively referred to as social insurance. Both PRC companies and their employees are required to contribute to the social insurance plans. The aforesaid measures are reiterated in the Social Insurance Law of China effective in July 2011, which stipulates the system of social insurance of China, including basic pension insurance, medical insurance, unemployment insurance, occupational injury insurance and maternity insurance. Pursuant to the Regulations on the Administration of Housing Fund effective in 1999, as amended in 2002, PRC companies must register with applicable housing fund management centers and establish a special housing fund account in an entrusted bank.

Regulations on Foreign Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the SAFE improves foreign exchange administration in direct investment by repealing or adjusting certain approval items for foreign exchange administration in direct investment. On March 30, 2015, SAFE promulgated Circular on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular No. 19, which came into effect on June 1, 2015. According to SAFE Circular No. 19, the foreign currency capital contribution to a foreign invested enterprise, or an FIE, in its capital account may be converted into RMB on a discretional basis. Furthermore, on June 15, 2016, SAFE promulgated Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular No. 16. SAFE Circular No 16 provides, in addition to foreign currency capital, enterprises registered in the PRC may also convert their foreign debts, as well as repatriated funds raised through overseas listing, from foreign currency to RMB on a discretional basis. SAFE Circular No. 16 also reiterates that the use of capital so converted shall follow “the principle of authenticity and self-use” within the business scope of the enterprise. According to SAFE Circular No. 16, the RMB funds so converted shall not be used for the purposes of, whether directly or indirectly, (i) paying expenditures beyond the business scope of the enterprises or prohibited by laws and regulations; (ii) making securities investment or other investments (except for banks’ principal-secured products); (iii) granting loans to nonaffiliated enterprises, except as expressly permitted in the business license; and (iv) purchasing non-self-used real estate (except for the foreign invested real estate enterprises).

SAFE Regulations on Offshore Special Purpose Companies Held by PRC Residents

SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular No. 37, issued by SAFE and effective in July 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under SAFE Circular No. 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular No. 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular No. 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch. SAFE Circular No. 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular No. 75. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular No. 13, in February 2015, which took effect on June 1, 2015. SAFE Circular No. 13 has amended SAFE Circular No. 37 by requiring PRC residents or entities to register with qualified banks instead of SAFE or its local branch in connection with their establishment of an SPV. PRC residents who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation of SAFE Circular No. 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to the registration is required if there is a material change involving the SPV registered, such as any change of basic information (including change of such PRC residents, change of name and operation term of the SPV), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions. failure to disclose controllers of foreign-invested enterprise that is established through round-trip investment, may result in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent company or affiliates and the capital inflow from the offshore parent company, and may also subject the relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations.

Regulations on Dividend Distribution

Wholly foreign-owned companies in China, such as our PRC subsidiary, may pay dividends only out of their accumulated profits after tax as determined in accordance with PRC accounting standards. Remittance of dividends by a wholly foreign-owned enterprise out of China is subject to examination by commercial banks. Wholly foreign-owned companies are not permitted to pay dividends unless they set aside at least 10% of their respective accumulated profits after-tax each year, if any, to fund certain reserve funds, until such time as the accumulative amount of such fund reaches 50% of their registered capital. In addition, these companies also may allocate a portion of their after-tax profits based on PRC accounting standards to other funds at their discretion. These statutory reserve funds and other funds are not distributable as cash dividends. Our PRC subsidiary is a wholly foreign-owned enterprise subject to the described regulations.

Regulations Relating to Intellectual Property Rights

The PRC has adopted comprehensive legislation governing intellectual property rights, including trademarks, patent and copyrights.

Patent.Patents in the PRC are principally protected under the Patent Law of the PRC. The duration of a patent right is either 10 years or 20 years from the date of its application, depending on the type of patent right.

Trademark.Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the State Administration for Industry and Commerce. If a pending trademark that is identical or similar to a registered trademark or a trademark under preliminary examination and approval for use in the same or similar category of commodities or services, the application for such trademark could be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.

Copyright.Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Regulations Relating to Property Lease

In December 2010, the Ministry of Housing and Urban-Rural Development issued the Administrative Measures for Leasing of Commodity Housing, effective on February 1, 2011. According to the Administrative Measures for Leasing of Commodity Housing, the landlords and tenants are required to enter into lease with specific provisions, including but not limited to, the floor space per tenant cannot be less than the minimum living space stipulated by the local government, no kitchens, lavatories, balconies or basement storerooms can be rented out as residence, and the lease should be registered with the relevant construction or housing governmental authorities at municipal or county level within 30 days after its execution. If the lease is extended or terminated or if there is any change to the registered items, the landlord and the tenant are required to make an amended registration, an extension of registration or a deregistration with the relevant construction or housing authorities within 30 days after the occurrence of such amendment, extension or termination.

Product Quality Certification

Our air energy storage power generation products require certification by the National Quality Supervision Department.Department of China. As our air compression products are nonstandard, there is no ISO or other qualifying standard for the industry. The certification is therefore based on our design specifications. We have provided the government with our design specifications and begun discussions with the standard. We believe that there is no material risk that the government will not accept our product as the government is encouraging new technology in power generation.

EmployeesRegulations on Wine and Herbal Wine

We set out below

Various regulations of alcoholic beverages in China, including spirits regulations in China, are in place. The Ministry of Commerce of China (MOFCOM) issued the total numbernew version of ourthe Food Safety Law of China in 2015 and amended it in 2018 as the document to regulate the Chinese spirits market. In 2005, MOFCOM also issued two standards, Management standard for alcohol commodities retailing and Management standard for alcohol commodities wholesale, to instruct alcohol business entities to undertake the purchasing, selling, distributing and storage of alcoholic drinks in China. At the same time, regional administrative bodies, such as provincial governments, also issued local spirits regulations as complementary documents to China’s alcoholic beverage market. In 2017, MOFCOM issued the Shang Yun Fa [2017] No. 47 Guidance on Promoting the Healthy Development of Alcohol Circulation in the 13th Five-Year Plan Period, which purpose is to further strengthen the circulation management of alcohol and promote the healthy and stable development of the industry.

Employees

As of July 31, 2019, we had approximately 418 full-time employees and the various functions which they serve as of October 30, 2017.

Functions

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two part-time employees. All of our employees are based in the PRC. Our PRC permanent employees are not unionized.China, except for our Chief Financial Officer, who is based in New York. We have not experienced any strikes, labor disputes or work stoppages byconsider our employees and believe our relationship with our employees isemployee relations to be good.

Seasonality

Our business is not seasonal, except to the extent that construction projects in northern China are more likely to be delayed by weather.

Website Access to our SEC Reports

You may obtain a copy of the following reports, free of charge through the SEC’s website at www.sec.gov as soon as reasonably practicable after electronically filing them with, or furnishing them to, the SEC: our previous Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

The public may also read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The Public Reference Room may be contact at (800) SEC-0330. You may also access our other reports via that link to the SEC website.

Item 1A —ITEM 1A. Risk Factors

You should carefully consider the risks described below, which constitute all of the material risks facing us. If any of the following risks actually occur, our business could be harmed. You should also refer to the other information about us contained in this Reportannual report including our financial statements and released notes.

Our business operations are conducted entirely in the PRC. Because China’s economy and its laws, regulations and policies are different from those typically found in the west and are continually changing, we face certain risks, including but not limited to those summarized below.

Risks Related to Our Business

We have a limited operating history in the industries we recently entered into, which makes it difficult to evaluate our Businessfuture prospects and makes our business subject to inherent risk.

There is Concern about

Although we have been in existence for many years, we only began the production and sales of synthetic fuel products in June 2018 and started manufacturing and sales of hydraulic parts, electronic components and liquor through companies acquired in 2018. Our lack of familiarity with these new industries and lack of relevant client data relating to these new products may make it more difficult for us to keep pace with the evolving client demands, identify and recruit new third-party merchants, manage inventory as well as acquire more customers. Our limited history in operating the new businesses may not provide a meaningful basis for investors to evaluate our Ability to Continue as a Going Concern due To Recurring Losses from Operations, All of Which Means That Weoverall business, financial performance and prospects. If we cannot successfully address challenges in connection with our expansion into new markets, we may not be Ableable to Continue Operations.continue to generate revenue in the future.

The accompanying consolidatedFailure to produce our synthetic fuel products as scheduled and budgeted would materially and adversely affect our business and financial statementscondition.

We cannot be certain that we will deliver ordered products in a timely manner. We have limited production capacity for our synthetic fuel products. From June 2018 to November 2018, we received significant purchase orders for our synthetic fuel products with deposits totaling approximately $27.4 million of which approximately $15.4 million worth of orders have been prepared assumingfulfilled as of July 31, 2019 and the Companyremainder is expected to be delivered by the end of March 2020. In order to meet the customer demand, we are currently expanding our own production capacity at our Jingshan Sanhe facility from 800 tons to 1,000 tons per day, as well as seeking to lease new production facilities from third parties. We have leased the production facility from Jiadeli which is capable of producing 300 tons a day and started production at this facility in July 2019.  Based on existing capacity and planned expansion, we believe we will continue asbe able to fulfill the orders for our synthetic fuel products in time. However, there is no assurance that we will be successful. Any delays in production   will increase our costs, reduce future production capacity and could negatively impact our business, financial condition and operating results and diminish brand loyalty. If we could not fulfill the purchase orders, we may need to return the customer deposit and indemnify for any losses suffered by our customers.

Failure to accurately forecast customer demand could lead to excess supplies or supply shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.

We may fail to correctly anticipate product supply requirements or suffer delays in production resulting from issues with our suppliers. Our suppliers may not supply us with a going concern. The Company incurredsufficient amount of components or components of adequate quality, or they may provide components at significantly increased prices. We have in the past and may in the future, experience delays or reductions in supply shipments, which could reduce our revenue and profitability. If key components or materials are unavailable, our costs would increase and our revenue would decline.

Some of our components are currently available only from a losssingle source or limited sources. We may experience delays in production if we fail to identify alternative suppliers, or if any parts supply is interrupted, each of $4,564,159 inwhich could materially adversely affect our business and operations. We currently rely on a few key suppliers to provide a significant percentage of components to our products. For the fiscal year ended July 31, 20172019, two vendors accounted for 35.0% and has incurred losses since its inception resulting in an accumulated deficit20.5% of $5,377,094 atour total supply purchases. For the fiscal year ended July 31, 2017. While2018, four vendors accounted for 19.0%, 18.3%, 15.4% and 10.9% of our total supply purchases, respectively.

If we fail to anticipate customer demand properly, an oversupply of parts could result in excess or obsolete inventories, which could adversely affect our business. Additionally, if we fail to correctly anticipate our internal supply requirements, an undersupply of parts could limit our production capacity. Our inability to meet volume commitments with suppliers could affect the Company is continuing to generate revenueavailability or pricing of our parts and components. A reduction or interruption in supply, a significant increase in price of one or more components or a decrease in demand of products could materially adversely affect our business and operations and could materially damage our customer relationships. Financial problems of suppliers on whom we rely could limit our supply of components or increase our costs. Also, we cannot guarantee that any of the parts or components that we purchase will be of adequate quality or that the prices we pay for the parts or components will not increase. Inadequate quality of products from new projects, further losses are anticipated in the development of its business raising substantial doubt about the Company’ssuppliers could interrupt our ability to continue assupply quality products to our customers in a going concern. timely manner. Additionally, defects in materials or products supplied by our suppliers that are not identified before our products are placed in service by our customers could result in higher warranty costs and damage to our reputation.

The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.

Because we rely upon third party vendors to supply part of our solar panels and heat pumps, problems with these suppliers could impair our ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financingmeet our obligations to meet its obligationsour customers and repay its liabilities arising from normal business operations when they become due. The Company expects to finance operations primarily through cash flow from revenue and capital contributions from principal shareholders. There can be no assurance that the Company will be successful in its plans described above or in attracting equity or alternative financing on acceptable terms, or if at all.affect our profitability. 

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Any prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial condition. Economic conditions in China are sensitive to global economic conditions. The global financial markets have experienced significant volatility in recent years, which may continue. While the Chinese economy has experienced significant growth over past decades, growth has been unsteady, both geographically and among various sectors of the PRC Government Could Have a Significant Impact uponeconomy. There are also uncertainties (and resulting capital market turbulence) regarding the Business We May Be Able to Conductlikelihood and timing of policy changes (including the imposition of tariffs on Chinese goods) by the Trump Administration in the PRCUnited States and the Profitabilitysubsequent impact on world economy. Also, there are considerable uncertainties over the long-term effects of Such Business.

The PRC’s economy is in a transition from a planned economy to a market oriented economy subject to five-yearthe expansionary monetary and annual plansfiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have also been concerns over the unrest in the Middle East and Africa, which have resulted in volatility of financial and other markets. In addition, significant uncertainty exists regarding the timing of the United Kingdom’s anticipated withdrawal from the European Union and the effects such withdrawal may have on world economy. There have also been concerns regarding the economic effects involving the tensions between China and other surrounding Asian countries.

If present Chinese and global economic uncertainties persist, the taxable and other income of the local government that set nationaland fiscal support from central government may be limited and the government’s demand and budget to procure our products and services may decline. Should any of this situation occur, our operating income would decline, and our business and financial condition would be negatively impacted. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

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

We are required under PRC laws and regulations 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 our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development goals. Policiesin different locations. We have not made adequate employee benefit payments. As of July 31, 2019 and July 31, 2018, the outstanding employee  benefits payments due to the local labor bureau were $199,500 and $174,971, respectively. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.

Uncertainties with respect to the PRC government can have significant effects on the economic conditions of the PRC. The PRC government has confirmed that economic development will follow the model of a market economy. Under this direction, we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries and business development in the PRC will follow market forces. While we believe that this trend will continue, we cannot assure you that this will be the case. A change in policies by the PRC governmentlegal system could adversely affect our interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on currency conversion, imports or sources of supplies, or the expropriation or nationalization of private enterprises. Although the PRC government has been pursuing economic reform policies for more than two decades, we cannot assure you that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting the PRC's political, economic and social environment.us.

Introduction of New Laws or Changes to Existing Laws by the PRC Government May Adversely Affect Our Business.

The PRC legal system is a codifiedcivil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protection afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, made upand recently enacted laws and regulations may not sufficiently cover all aspects of writteneconomic activities in China. In particular, the interpretation and enforcement of these laws and regulations circulars,involve uncertainties. Since PRC administrative directivesand court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us.

Furthermore, the PRC legal system is based in part on government policies and internal guidelines. Unlike common law jurisdictions likerules, some of which are not published on a timely basis. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the U.S., decided cases (whichviolation. In addition, any administrative and court proceedings in China may be taken as reference) do not form partprotracted, resulting in substantial costs and diversion of resources and management attention.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the report based on foreign laws.

We are a company incorporated under the laws of Nevada, but we conduct substantially all of our operations in China, and substantially all of our assets are located in China. In addition, all our senior executive officers reside within China for a significant portion of the legal structuretime and most are PRC nationals. As a result, it may be difficult for our shareholders to effect service of process upon us or upon those located in China. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States or many other countries or regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business.

We are a Nevada holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiary and consolidated affiliates for our cash requirements, including for services of any debt we may incur. Our PRC subsidiary and consolidated affiliates’ ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiary and consolidated affiliates to pay dividends to their shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary and consolidated affiliates are required to set aside at least 10% of their after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of their registered capital. Our PRC subsidiary as a “foreign invested enterprise” under PRC law 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 its discretion. These reserves are not distributable as cash dividends. If our PRC subsidiary and consolidated affiliates incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiary and consolidated affiliates to distribute dividends or other payments to their shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated, excluding Hong Kong resident enterprises.

Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law, and thus have no binding effect on subsequent casesits enactment may materially and adversely affect our business and financial condition.

In December 2018, the National People’s Congress of China published a discussion draft of a new proposed Foreign Investment Law aiming to replace the major existing laws governing foreign direct investment in China. The draft Foreign Investment Law applies to PRC enterprises established, acquired or otherwise invested wholly or partially by foreign investors in a manner prescribed under applicable PRC laws and regulations. It also governs investment activities in China by foreign investors. The draft Foreign Investment Law does not clearly define “foreign investor”. Therefore, we cannot assure you if Xiangtian Shenzhen, our wholly owned subsidiary in China will be deemed as a “foreign investor” and subject to the draft Foreign Investment Law once such proposed legislation becomes effective.

Once an entity is determined to be an FIE and its investment amount exceeds certain thresholds or its business operations fall within a restricted industry under the “negative list” issued or approved by the State Council, such entity will be required to obtain market entry clearance from the PRC Ministry of Commerce (“MOFCOM”) or its local counterparts and other relevant PRC government agencies. If a foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor may be required to, among other aspects, suspend its investment activities, dispose of its equity interests or assets of the FIEs and forfeit its income.

In addition, Xiangtian Shenzhen may enter into procurement agreements with similar issueslocal government agencies, and fact patterns.

Inflationthe relevant business carried out by our Xiangtian Shenzhen and our investment in the Xiangtian Shenzhen currently are not subject to the national security review under applicable PRC laws and regulations. However, if Xiangtian Shenzhen is deemed as a “foreign investor” and our future business operations or potential mergers and acquisitions we enter into in the PRC Could Negatively Affect are related to material infrastructure or other national security sensitive areas or industries involving certain key technologies, national security review requirements will likely apply. According to the draft Foreign Investment Law as proposed, if a foreign investor fails to apply for the national security review, a joint committee established by the State Council may require the investor to suspend or terminate its investment, dispose of relevant equity interests in the FIE or take other actions to mitigate or eliminate the national security risk. Under such circumstances, our business, operations, financial conditions and future investments may be adversely affected.

The approval of the China Securities Regulatory Commission may be required in connection with this offering under a regulation adopted in August 2006, as amended, and, if required, we cannot predict whether we will be able to obtain such approval.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), adopted by six PRC regulatory agencies in August 2006 and amended in 2009, requires an overseas special purpose vehicle 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 (the “CSRC”), prior to the listing and trading of such special purpose vehicle’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 special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&A Rules remains unclear.

Our ProfitabilityPRC counsel, Beijing Docvit Law Firm, has advised us based on their understanding of the current PRC laws, rules and Growth.regulations that the CSRC’s approval is not required for the listing and trading of our securities on the Nasdaq in the context of this offering, given that:

While

However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering and the CSRC’s 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 government agencies, including the CSRC, would reach the same conclusion as we do. If the CSRC or any other PRC regulatory agencies subsequently determines that we need to obtain the CSRC’s approval for this offering or if the CSRC or any other PRC government agencies promulgates any interpretation or implements rules before our listing that would require us to obtain CSRC or other governmental approvals for this offering, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies. Sanctions may include fines and penalties on our operations in the PRC, economy has experienced rapid growth, such growth has been uneven among various sectorslimitations on our operating privileges in the PRC, delays in or restrictions on the repatriation of the economy and in different geographical areasproceeds from this offering into the PRC, restrictions on or prohibition of the country. Rapid economic growth can leadpayments or remittance of dividends by our PRC subsidiary, or other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our securities. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to growthhalt this offering before the settlement and delivery of the securities 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 securities we are offering, you would be doing so at the risk that the settlement and delivery may not occur. In addition, if the CSRC or other PRC regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such approval requirement could have a material adverse effect on the trading price of our securities.

Fluctuations in the money supply and rising inflation. In order to control inflationvalue of the Renminbi could have a material adverse effect on your investment.

The change in the past,value of the Renminbi against the U.S. dollar and other currencies is affected by various factors such as changes in political and economic conditions in the PRC. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has imposed controlsfluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policies may impact the exchange rate between the Renminbi and the U.S. dollar in the future.

Any significant appreciation or revaluation of the Renminbi may have a material adverse effect on bank credits, limitsthe value of, and any dividends payable on, loansour common stock in foreign currency terms. More specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars that we receive from our initial public offering into Renminbi for fixed assets and restrictions on state bank lending. Such an austere policy can lead to a slowingour operations, appreciation of economic growth, which maythe Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount that we receive from the conversion. In addition, appreciation or depreciation in the exchange rate of the Renminbi to the U.S. dollar could materially and adversely affect the price of our common stock in U.S. dollars without giving effect to any underlying change in our business operations and financial condition.or results of operations.

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Governmental Controlcontrol of Currency Conversion May Affectcurrency conversion may limit our ability to utilize our operating income effectively and affect the Valuevalue of Your Investment.your investment.

The PRC government imposes controls on the convertibility of the Renminbi or RMB, into foreign currencies and, in certain cases, the remittance of currency out of the PRC.China. We receive substantially all of our revenuesoperating income in RMB, which is currently not a freely convertible currency. Shortages in the availability of foreign currencyRenminbi. Under our current corporate structure, our Nevada holding company primarily relies on dividend payments from our PRC subsidiary and consolidated entities to fund any cash and financing requirements we may restrict our ability to remit sufficient foreign currency to pay expenses and dividends, or otherwise satisfy foreign currency dominated obligations.have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction,trade and service-related foreign exchange transactions, can be made inconverted into foreign currencies without prior approval from the PRC State Administration of Foreign Exchange, or SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiary and consolidated entities in China may be used to pay dividends to our company. However, approval from or registration with appropriate governmentalgovernment authorities is required where RMBRenminbi is to be converted into foreign currency and remitted out of PRCChina to pay capital expenses such as the repayment of bank loans denominated in foreign currencies.

As a result, we need to obtain SAFE approval to use cash generated from the operations of PRC subsidiary and consolidated entities to pay off their respective debt in a currency other than Renminbi owed to entities outside of China, or to make other capital expenditure payments outside of China in a currency other than Renminbi. The PRC government also may at its own discretion restrict access in the future to foreign currencies for current account transactions.transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencycurrencies to satisfy our foreign currency demands, we may not be able to pay certaindividends in foreign currencies to our stockholders, including holders of our expenses as they come due.common stock.

The FluctuationPRC regulations relating to the establishment of RMB May Materiallyoffshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital directly into our PRC subsidiary, limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us.

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Adversely Affect Your Investment.

The valueFinancing and Roundtrip Investment Through Special Purpose Vehicles (“SAFE Circular 37”), to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles (“SAFE Circular 75”), which ceased to be effective upon the promulgation of the RMB against the U.S. dollarSAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and other currenciesPRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our stockholders who are PRC residents and may fluctuate and is affected by, among other things, changesbe applicable to any offshore acquisitions that we make in the PRC's politicalfuture.

Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles (the “SPVs”), will be required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and economic conditions. As we rely entirelythe SPV may also be prohibited from making additional capital contributions into its subsidiary in China. On February 13, 2015, the SAFE promulgated a Notice on revenues earnedFurther Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

Our PRC stockholders are subject to SAFE regulations, and are in the process of obtaining necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you, however, that all of these individuals will obtain necessary SAFE registrations or may continue to make required filings or updates on a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be informed of identities of all PRC any significant revaluation of RMBresidents holding direct or indirect interest in our company. Any failure or inability by such individuals to comply with SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiary’s ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

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, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our cash flows, revenuesfinancial condition and financial condition. For example,results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company (the “Stock Option Rules”, replacing earlier rules promulgated in 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiaries of such overseas-listed company, and complete certain other procedures. In addition, an overseas-entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. Failure to complete the SAFE registrations may subject the grantees of stock incentive awards to fines and legal sanctions, there may be additional restrictions on the ability of them to exercise their stock options or remit proceeds gained from the sale of their stock into the PRC. We also face regulatory uncertainties that could restrict our ability to adopt incentive plans for our directors, executive officers and employees under PRC law. See “Regulation – Regulations on Employee Stock Incentive Plans.”

If we are classified as a PRC resident enterprise for PRC enterprise income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC stockholders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the extententerprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts, and properties of an enterprise. In 2009, the State Administration of Taxation (“SAT”), issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

We do not believe our company is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to the determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that our company is a PRC resident enterprise for enterprise income tax purposes, we will be subject to PRC enterprise income tax on our worldwide income at the rate of 25%. Furthermore, we will be required to withhold a 10% withholding tax from dividends we pay to our stockholders that are non-resident enterprises, including the holders of our common stock. In addition, non-resident enterprise stockholders may be subject to PRC tax at a rate of 10% on gains realized on the sale or other disposition of common stock, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual stockholders and any gain realized on the transfer of our common stock by such stockholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC stockholders of our 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 we needare treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our common stock.

We face uncertainty with respect to convert U.S. dollars we receive from an offeringindirect transfers of ourequity interests in PRC resident enterprises by their non-PRC holding companies.

On February 3, 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises (“SAT Bulletin 7”). SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through the offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities into RMBmarket. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or another person who is obligated to pay for our operations, appreciationthe transfer) of taxable assets.

On October 17, 2017, the SAT issued the Announcement of the RMB againstState Administration of Taxation on Issues Concerning the U.S. dollar could causeWithholding of Nonresident Enterprise Income Tax at Source (“SAT Bulletin 37”), which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the RMB equivalentpractice and procedure of U.S. dollarswithholding of nonresident enterprise income tax.

Where a nonresident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the nonresident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. 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 if it was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be reducedsubject to PRC enterprise income tax, and therefore couldthe transferee or another 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. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, the sale of the shares in our offshore subsidiaries and 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 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 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 business, financial condition and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making dividend payments on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. Recently, the RMB has depreciated against the U.S. dollar. In addition, the depreciation of significant U.S. dollar denominated assets could result in a change to our operations and a reduction in the value of these assets.

Because Our Principal Assets Are Located Outside of the United States and All of Our Directors and All Our Officers Reside Outside of the United States, It May Be Difficult for You to Enforce Your Rights Based on U.S. Altered, Especially in the Event of a Change in Leadership, Social or Political Disruption, or Other Circumstances Affecting the PRC's Political, Economic and Social Environment.

All of our directors and officers reside outside of the United States. In addition, substantially all of our assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. Federal securities laws against us in the courts of either the U.S. or the PRC and, even if civil judgments are obtained in U.S. courts, to enforce such judgments in PRC courts. Further, it is unclear if extradition treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors of criminal penalties, under the U.S. Federal securities laws or otherwise.

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Failure to Complycomply with the U.S. Foreign Corrupt Practices Act and Chinese Anti-Corruption Laws Could Subject Uslaws could subject us to Penaltiespenalties and Other Adverse Consequences.other adverse consequences.

We are required to comply with China’s anti-corruption laws and the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. In addition, we are required to maintain records that accurately and fairly represent our transactions and have an adequate system of internal accounting controls. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. In addition, our brand and reputation, our sales activities or the price of our ordinary sharescommon stock could be adversely affected if we become the target of any negative publicity as a result of actions taken by our employees or other agents.

We Do not have Liability Business Interruption, LitigationPRC laws and 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.

PRC laws and regulations, such as the M&A Rules, the Anti-Monopoly Law promulgated by the PRC National People’s Congress in 2007 and the Notice on the Establishment of the Security Review System in Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by the State Council, or Natural Disaster Insurance.

The insurancethe Security Review Rule, establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors and companies more time-consuming and complex, including requirements in some instances that various governmental authorities be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. For example, on February 3, 2011, the State Council promulgated the Security Review Rule, which provides, among other things, that merger and acquisition transactions by foreign investors of PRC enterprises in sensitive sectors or industries, such as Internet information service industry, in China is still at an early stage of development. In particular, PRC insurance companies offer limited business products. As a result, we do not have any product liability, business liability, disruption insurance or any other forms of insurance coverage forwhich our operations fall within, could be subject to security review. Consequently, any such transaction could be blocked due to their effect on the national defense security, national economic stability, basic social life order, or capacity of indigenous research and development of key technologies. On August 25, 2011, the Ministry of Commerce promulgated the Regulations on Implementing the Security Review System in China. Any potential liability, business interruption, litigation or natural disaster may result inMergers and Acquisition of Domestic Enterprises by Foreign Investors, which, among other things, set forth detailed provisions on how the security review of relevant transactions would be conducted, and provide for that foreign investors could not for any reason evade the security review process through entrustment, phased-in investment, leasing, loans and control agreement, and overseas transactions. We could expand our business incurring substantial costs andin part by acquiring complementary businesses. Complying with the diversionrequirements of resources.

Restrictions Underthe relevant PRC Law on Our PRC Subsidiary's Ability to Make Dividends and Other Distributions Could Materially and Adversely Affect Our Ability to Grow, Make Investments or Complete Acquisitions That Could Benefit Our Business, Pay Dividends to You, and Otherwise Fund and Conduct Our Businesses.

Substantially all of our revenues are earned by our PRC subsidiary. However, PRC regulations restrict the ability of our PRC subsidiary to make dividend and other payments to its offshore parent company. PRC legal restrictions permit payments of dividend by our PRC subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiary is also required under PRC’s laws and regulations to set aside at least 10% of its after-tax profitscomplete such transactions could be time-consuming, and any required approval processes could delay or inhibit our ability to fund certain statutory reserve until the reserve reaches 50% of its registered capital. Allocationscomplete such transactions, which could affect our ability to these statutory reserve funds can only be used for specific purposes and are not transferable to usexpand our business or maintain our market share.

Increases in labor costs in the formPRC may adversely affect our business and results of loans, advances or cash dividends. Any limitations onoperations.

The economy of China has been experiencing increases in inflation and labor costs in recent years. As a result, the abilityaverage wages in the PRC are expected to continue to grow. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments of the requisite statutory employee benefits, and those employers who fail to make adequate payments could be subject to late payment fees, fines and/ or other penalties. If the relevant PRC subsidiaryauthorities determine that we should make supplemental social insurance and that we are subject to transfer fundsfines and legal sanctions, our business, financial condition and results of operations could be adversely affected.

The enforcement of stricter labor laws and regulations in the PRC could adversely affect our business and our profitability.

We have been subject to usstricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees.

Pursuant to the PRC Labor Contract Law, or the Labor Contract law, that became effective in January 2008, as amended on December 28, 2012 and effective as of July 1, 2013, and its implementation rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and ability to unilaterally terminating labor contracts. In the event that we decide to terminate the employment of any of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules could materially and adversely limit our ability to grow, make investmentseffect these changes in a desirable or acquisitions thatcost-effective manner, which could adversely affect our business and results of operations.

On October 28, 2010, the Standing Committee of the National People’s Congress promulgated the PRC Social Insurance Law, or the Social Insurance Law, which became effective on July 1, 2011. According to the Social Insurance Law, employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the employers must, together with their employees or separately, pay the social insurance premiums for such employees.

According to our current internal system, we only pay social insurance for part of our employees and some of our employees have not signed the Labor Contract. This is in violation of Social Security Law and Labor Contract law. Moreover, base number or the rate of the social insurance premium payment had been changed when we pay for employee’s social insurance premium, which could lead to imposition of penalties on the personnel directly in charge and other personnel subject to direct liability.

As the interpretation and implementation of labor-related laws and regulations are still evolving, we could be beneficialliable for payments and fines arising from our delinquent payments of previous social insurance and that we did not anticipate. Moreover, we cannot assure you that our employment practices do not and will not violate labor-related laws and regulations in China, which could subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, our business pay dividends and otherwise fund and conduct our business.

Our Independent Registered Public Accounting Firm’s Audit Documentation related to their Audit Report included in this Annual Report may include Audit Documentation Located in the People’s Republicresults of China. The Public Company Accounting Oversight Board Currently cannot Inspect Audit Documentation Located in China and, as such, you mayoperations could be Deprived of the Benefits of such Inspection.adversely affected.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (“PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Our operations are conducted in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities. Accordingly, no audit documentation located in China related to our independent registered public accounting firm’s reports included in our filings with the U.S. Securities and Exchange Commission is currently inspected by the PCAOB.

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Inspections conducted by the PCAOB outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audit documentation located in China and its related quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Risks Related to the New VIE Agreements

The PRC Governmentgovernment may Determinedetermine that the New VIE Agreements are not in Compliancecompliance with Applicableapplicable PRC Laws, Ruleslaws, rules and Regulations.regulations.

Details of the New VIE Agreements are set out in the under “Description of Business –Variable“Business – Variable Interest Entity Agreements with Sanhe”.Xianning Xiangtian.” There are risks involved with the operation of our business in reliance on the New VIE Agreements, including the risk that the New VIE Agreements may be determined by PRC regulators or courts to be unenforceable. Our PRC counsel has provided a legal opinion that the New VIE Agreements are binding and enforceable under PRC law, but has further advised that if the New VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such breach, including:

Any of these actions could adversely affect our ability to manage, operate and gain the financial benefits of Sanhe,Xianning Xiangtian, which would have a material adverse impact on our business, financial condition and results of operations.

Our Abilityability to Control Sanhe Undercontrol Xianning Xiangtian under the New VIE Agreements May Not Bemay not be as Effectiveeffective as Direct Ownership.direct ownership.

We conduct our business in the PRC and currently generate virtually all of our revenues through the New VIE Agreements. Our plans for future growth are based substantially on growing the operations of Sanhe.Xianning Xiangtian. However, the New VIE Agreements may not be as effective in providing us with control over SanheXianning Xiangtian as direct ownership. The New VIE Agreements provide us with day-to-day control over the operations of SanheXianning Xiangtian as we provide SanheXianning Xiangtian with complete business support and technical support and related management, training and consulting services. Under the current VIE arrangements, as a legal matter, if SanheXianning Xiangtian fails to perform its obligations under these contractual arrangements, we may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely on legal remedies under PRC law, which we cannot be sure would be effective. Therefore, if we are unable to effectively control Sanhe,Xianning Xiangtian, it may have an adverse effect on our ability to achieve our business objectives and grow our revenues.

As the New VIE Agreements are governed by PRC law, we would be required to rely on PRC law to enforce our rights and remedies under them; however, PRC law may not provide us with the same rights and remedies as are available in contractual disputes governed by the law of other jurisdictions.

The New VIE Agreements are governed by PRC law and provide for the resolution of disputes through the jurisdiction of the courtsarbitration institute in the PRC. If SanheXianning Xiangtian or its shareholders fail to perform the obligations under the New VIE Agreements, we would be required to resort to legal remedies available under PRC law, including seeking specific performance or injunctive relief, or claiming damages. We cannot be sure that such remedies would provide us with effective means of causing SanheXianning Xiangtian or its shareholders to meet their obligations, or recovering any losses or damages as a result of non-performance. Further, the legal environment in China is not as developed as in other jurisdictions. Uncertainties in the application of various laws, rules, regulations or policies in PRC legal system could limit our liability to enforce the New VIE Agreements and protect our interests.

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Any failure by our variable interest entity or its shareholders to perform their obligations under the New VIE Agreements would have a material adverse effect on our business.

If our variable interest entity or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For example, if the shareholders of Xianning Xiangtian were to refuse to transfer their equity interest in Xianning Xiangtian to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

All the agreements under our contractual arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over our variable interest entity, and our ability to conduct our business may be negatively affected.

The Payment Arrangementpayment arrangement under the New VIE Agreements may be Challengedchallenged by the PRC Tax Authorities.tax authorities.

We generate our revenues through the payments we receive pursuant to the New VIE Agreements. Currently, all of our operations reside in the VIE which is required to pay our wholly ownedwholly-owned subsidiary, Luck Sky Shen Zhen,Xiangtian Shenzhen, 100% of the total annual net profit, as defined. We could face adverse tax consequences if the PRC tax authorities determine that the New VIE Agreements were not entered into based on arm’s length negotiations. For example, PRC tax authorities may adjust our income and expenses for PRC tax purposes which could result in our being subject to higher taxes liability, or cause other adverse financial consequences.

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We may lose the ability to use and enjoy assets held by our variable interest entity that are material to the operation of our business if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

Our variable interest entity holds certain assets that are material to the operation of our business. Under the contractual arrangements, our variable interest entity may not and its shareholders may not cause it to, in any manner, sell, transfer, mortgage or dispose of its assets or its legal or beneficial interests in the business without our prior consent. However, in the event our variable interest entity’s equity holders breach the these contractual arrangements and voluntarily liquidate our variable interest entity, or our variable interest entity declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If our variable interest entity undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

If the chops of our PRC subsidiary, variable interest entity and its subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary, variable interest entity or its subsidiaries are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations.

PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion could limit our use of the proceeds we receive from the proposed offering to fund our expansion or operations.

As an offshore holding company with PRC subsidiaries and affiliated entities, we may transfer funds to our PRC Entities or finance our operating entity by means of loans or capital contributions. Any loans to our PRC Entities, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with SAFE, or its local counterparts. Furthermore, any capital increase contributions we make to our PRC Entities, which are foreign-invested enterprises, shall be approved by China’s Ministry of Commerce, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital to increase contributions to our PRC Entities may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

Risks Related to Our Common Stock

The market price for our common stock may be volatile.

The trading prices of our common stock are likely volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial decline in their trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our common stock, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse effect on the market price of our common stock.

In addition to the above factors, the price and trading volume of our common stock may be highly volatile due to multiple factors, including the following:

Our common stock has been very thinly traded, liquidity is limited, and we may be unable to obtain listing of our common stock on a more liquid market.

Our Common Stock is quoted on the OTCQB, which provides significantly less liquidity than a securities exchange (such as the NYSE American, New York Stock Exchange or the Nasdaq). There is uncertainty that we will ever be accepted for a listing on a national securities exchange.

There is currently a very limited volume of trading in our Common Stock, and on many days there has been no trading activity. The purchasers of shares of our Common Stock may find it difficult to resell their shares at prices quoted in the market or at all.

Two persons have significant voting power and may take actions that may not be in the best interests of other stockholders.

Zhou Jian, our Chairman, and Zhou Deng Hua, our Chief Executive Officer, who are also on our Board, control an aggregate of 61.5% of our voting securities. If Zhou Jian and Zhou Deng Hua act together, they will be able to exert significant control over the Company’s management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of the common stock. This concentration of ownership may not be in the best interests of all of the Company’s stockholders.

Certain judgments which may be obtained against us by our stockholders in the future may not be enforceable.

We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, most of our directors and executive officers reside within China, and most of the assets of these persons are located within China. As a result, it may be difficult or impossible for you to effect service of process within the United States upon these individuals, or to bring an action against us or against these individuals in the United States in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

Future sales of our common stock by our existing stockholders may negatively impact the trading price of our common stock.

If a substantial number of our existing stockholders decide to sell shares of their common stock in the public market following the completion of the proposed offering, the price at which our common stock trades could decline.  Additionally, the public market’s perception that such sales might occur may also depress the price of our common stock.

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 common stock if the market price of our common stock increases.

ITEM 1B. Unresolved Staff Comments

None

ItemNone. 

ITEM 2. Properties

Our corporate headquarters are located at No.1, Fuqiao Village, Henggouqiao Town, Xianning, Hubei, China 437012, where we lease an office area of approximately 3,128 square meters for our management, sales and marketing, product development and administrative departments.

A summary of the properties owned or leased by us as of the date of this report is shown below:

Sanhe leases its principalXiangtian’s office factory and dormitorywith an annual rent of $7,000 was leased from LuckSky Group in Sanhe City, Hebei Province. LuckSky Group is owneda company controlled by Zhou Deng Rong, our former CEO and Zhou Jian, our General Manager and Chairman of the Board. The space in the office, factory and dormitory beingRong. All other leased are 1296, 5160 and 1200 square meters, respectively. The office and factory spacefacilities that we currently occupy are leased from independent third parties. We believe that the facilities that we currently own or lease are adequate to meet our needs for a rentthe foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through leasing of $102,295 (RMB 697,248) per year and the dormitory is leased for a rent of $19,014 (RMB 129,600) per year. The leases expire in April 30, 2024 andadditional properties, to accommodate our future expansion plans. We are subject to renewalPRC regulations on property lease. See “Business – PRC Governmental Regulations – Regulations Relating to Property Lease.”

ITEM 3. Legal Proceedings

Cancellation of restricted common stock

On September 23, 2013, the Company issued 60,000,000 shares of restricted common stock at $0.001 per share to Mr. Roy Thomas Phillips, who was then a consultant to the Company and later served as the acting Chief Financial Officer of the Company beginning July 29, 2014, and two other non-related parties obtained a total of 7,000,000 shares of restricted common stock. The shares were issued in contemplation of a secondary offering. The Company takes the position that these shares should be cancelled since no secondary offering was consummated. The Company is taking steps to have these shares canceled. The Company valued the 67,000,000 shares of common stock issued at $67,000 as there was no market for the Company’s common stock and it has limited or no trading; and there is thought to be minimal value in the Company at the time of issuance, therefore the par value is thought to match the assumed market price of the Company’s common stock which is at $0.001 per share. The Company might incur additional expenses to have these shares canceled. On July 24, 2015, 7,000,000 shares issued to two other non-related parties were cancelled. On January 29, 2019, the Company commenced an action against Global Select Advisors Ltd. (“Global Select”) in the First Judicial District Court of Nevada (the “Court”) to cancel 60 million shares of common stock of the Company that, without proper authorization, were issued to Roy Thomas Phillips, a former consultant and acting Chief Financial Officer of the Company, and subsequently transferred to Global Select.  On February 25, 2019, the Clerk of the Court entered a default against Global Select as a result of Global Select’s failure to respond to the Company’s complaint. The Company filed a motion for default judgment pursuant to which the Company sought an order authorizing the Company to cancel the 60 million shares. The Company’s motion for default judgement was granted and the shares were cancelled in April 2019.

Contract dispute – Sanhe Xiangtian vs. Shandong Taidai

Sanhe Xiangtian is involved in a litigation with Shandong Taidai Photovoltaic Technology Co., Ltd. (“Shandong Taidai”) for contractual dispute. Sanhe Xiangtian filed a prior two-month written notice. LuckSky Groupcomplaint on January 24, 2018 with the Sanhe People’s Court and claimed for damages of RMB 1,000,000 (approximately $149,245) caused by Shandong Taidai as it provided the unqualified construction project. On June 5, 2019, the court ruled Shandong Taidai to pay for the damages of Sanhe Xiangtian in the amount RMB 15,826,000 (approximately $2.3 million) and other associated fees of RMB 23,000 (approximately $3,000). As of the date of this report, the Company has not received any appealing notice from Shandong Taidai. The Company does not believe the litigation will have significant impact on its consolidated financial statements as the Company will record the gain contingency upon receiving the settlement charges.

Shandong Taidai filed a lawsuit against Sanhe Xiangtian with Dongying City Intermediate People’s Court of Shandong Province on November 29, 2018 regarding the same project and claimed unpaid work of RMB 4,089,150 (approximately $610,284) and liquidated damages of RMB 2,025,139 (approximately $302,242). As of December 19, 2018, Sanhe Xiangtian has submitted an application objecting to the jurisdiction of Dongying City Intermediate People’s Court of but the application was rejected. On January 23, 2019, Sanhe Xiangtian appealed the ruling in the jurisdiction of Dongying City Intermediate People’s Court. Currently, the case is under review by the Dongying City Intermediate People’s Court. The Company does not believe the litigation will have a material impact on its current operations and financial statements as the accounts payable amount has been properly accrued.

Acquisition payment dispute – Sanhe Xiangtian vs. Wehhan Han and Guifen Wang

On March 19, 2019, Wenhe Han and Guifen Wang, former shareholders of Tianjin Jiabaili (collectively known as the “Plaintiffs”), filed a lawsuit against Xianning Xiangtian in People’s Court of Jizhou District, Tianjin City for a dispute over the equity transfer of Tianjin Jiabaili between Plaintiffs and Xianning Xiangtian. The Plaintiffs claimed a damage amounting to RMB 2,000,000 (approximately $0.3 million) for breach of contract and demanded immediate payment on the unpaid equity transfer balance of RMB 1,720,000 (approximately $0.3 million). A hearing was held on April 23, 2019 and the court approved the request of the Plaintiffs to freeze Xianning Xiangtian’s assets worth of RMB 3,720,000 (approximately $0.6 million) before a judgement is rendered. As of the date of this report, the freeze order has not been enforced and the Company has not received the list of assets subject to this order. Management currently cannot estimate the outcome of the litigation.

On April 15, 2019, Xianning Xiangtian filed a lawsuit against Wenhan Han and Guifen Wang, former shareholders of Tianjin Jiabaili, for the same dispute over the equity transfer of Tianjin Jiabaili in the People’s Court of Jizhou District, Tianjin City. Xianning Xiangtian claimed a damage amounting to RMB 2,000,000 (approximately $0.3 million) and demanded immediate refund of RMB 5,080,000 (approximately $0.8 million) plus a 6% annual interest starting from April 15, 2019 due to misrepresentation of the production facility of Tianjin Jiabaili from the former shareholders of Tianjin Jiabiali. A hearing is scheduled on June 11, 2019 and the court approved the request of the Company to freeze Wenhan Han and Guifen Wang’s personal assets worth of RMB 7,080,000 (approximately $1.0 million). Currently, the case is under review by the Dongying City Intermediate People’s Court. Management currently cannot estimate the outcome of the litigation.

Labor dispute – Qiao Lijuan vs. Tianjin JiaBaiLi

Regarding the labor dispute lawsuit between Qiao Lijuan and Tianjin JiaBaiLi Petroleum Products Co., Ltd. (Hereinafter referred to as “JiaBaiLi”), on July 23, 2019, Qiao Lijuan sued JiaBaiLi (Defendant A) and the 1st Sales Company of JiaBaiLi (Defendant B) before Jizhou Court claiming Defendant B to pay RMB 7,000 (approximately $1,000) for salary, Defendant A to bear the joint and several liability and both Defendant A and B to bear the litigation fees. Currently, such case is in the process of obtainingcourt hearing and deliberation. The Company does not believe the land use approvallitigation will have a material impact on its current operations and ownership certificatefinancial statements.

Negotiable instruments dispute – Kelin Environmental Protection Equipment, Inc.

Regarding the negotiable instruments dispute of Kelin Environmental Protection Equipment, Inc. (Hereinafter referred to as “Kelin”), as Kelinhad not paid the draft due and expired, it was pursued by the holders. Xiangtian Zhongdian, as the one of the leased building.endorsers, are involved in 14 lawsuits currently and the amount is RMB 4.1 million (approximately $0.6 million). Xiangtian Zhongdian may be jointly and severally liable in the above cases, but it may recourse to the former endorsers after compensation.

Shimen Government Inquiry

On April 28, 2012, Zhou Jian obtained the right of usage to 44.3 acres of agricultural land where our principal office, factory and dormitory are located for 18 years and 8 months, starting May 1, 2012. The annual price paid for such usage rights is $5,200 (RMB 34,510). On May 1, 2012, Zhou Jian signed a commitment letter that allowed Xiangtian Kelitai, Yanjiao Branch, a division of LuckSky Group to use this agricultural land. LuckSky Group constructed the buildings on such agricultural land. In the event we are unable to use our principal factory and office space as a result of this usage issue, the lease provides that LuckSky Group will use every effort to complete and perfect the ownership and usage rights, or provide Sanhe with equivalent space.

On July 27, 2016,June 10, 2019, Xianning Xiangtian Air Energy Electric Co., Ltd. (“received an inquiry from Shimen County Market Supervision Bureau (the "Bureau") with respect to a formal investigation it initiated against Xianning Xiangtian”),Xiangtian on May 10, 2019.  The Bureau stated it is investigating that Xianning Xiangtian was selling its shares to the wholly-owned subsidiarypublic in anticipation of a Nasdaq listing in the near future as part of a multi-level marketing scheme.  On June 14, 2019, Xianning Xiangtian issued a Letter of Statement in response to the inquiry and stated Xianning Xiangtian never issued any shares to the unspecified public since its incorporation and that all of the Company, entered into a rental agreementCompany's shares are registered with VStock Transfer Agent. Following Xianning Lucksky. The space inXiangtian’s delivery of its Letter of Statement, it has not received any further inquiries from the factory in Xianning in Hubei Province being leased is 4628 square meters. The factory space is leased for a rent of $77,598 (RMB 528,914) per year. The lease expires on July 31, 2018Bureau. We believe that these allegations are false and is subjectwithout merit, and intends to renewal with a prior one-month written notice.vigorously defend against it.

Item 3. Legal Proceedings

 There are no material pending legal proceedings to which we are a party or to which any of our property is subject and to the best of our knowledge, no such actions against us are contemplated or threatened.

ItemITEM 4. Mine Safety Disclosures

Not applicableapplicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIESMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

Market Information

Our common stock, $0.0001 par value per share, began tradingCommon Stock is quoted on the OCT Market on June 28, 2012, where its prices are quotedOCTQB tier of the OTC Markets (“OTCQB”) under the symbol “XTNY.“XTEG.”

The following table sets forthshows, for each quarter of the 2019 and 2018 fiscal years, the range of reported high and low sales pricesbid quotations of our common stock for the indicated periods,Common Stock as regularly quoted on the OCT Market: The price range per share of common stock presented below represents the highest and lowest intra-day sales prices for the Company's common stock onreported by the OTCQB. Since our common stock is traded infrequently, such over-the-counter marketThe quotations mayfrom the OTCQB reflect inter-dealer prices without markup, markdownretail mark-up, mark-down, or commissions and domay not represent a liquid trading market.actual transactions.

Empire

The last reported sale price for our Common Stock on OTCQB on October 14, 2019 was $3.88 per share.

VSTOCK Transfer, Co., Inc. of Henderson, NevadaLLC is our stock transfer agent. They can be contacted by telephone at (702) 818-5898(212) 828-8436 and by facsimile at (702) 974-1444.(646) 536-3179.

Holders

As of October 30, 2017, 591,042,00014, 2019, 531,042,000 shares of common stockCommon Stock were issued and outstanding and there were 362371 shareholders of record of our common stock, including 262,092,740 shares beneficially owned by Zhou Jian, the Chairman of the Board, and 101,831,136 owned by Zhou Deng Hua, our Chief Executive Officer and Director. Except for the 100,000,000 shares of Zhou Jian being offered in the prospectus dated September 14, 2017, the shares owned by Zhou Jian and Zhou Deng Hua may only be resold in compliance with Rule 144 of the Securities Act of 1933.Common Stock.

Recent Sales of Unregistered Securities- NoneSecurities

None.

Dividends

We have never declared or paid any cash dividends on our common stock.Common Stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on its common stock.Common Stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the board of directors considers relevant.

The payment of dividends is contingent on the ability of our PRC based operating subsidiary to obtain approval to send monies out of the PRC. The PRC's national currency, the Yuan or renminbi,RMB is not a freely convertible currency. The PRC government imposes controls on the convertibility of renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. Shortages in the availability of foreign currency may restrict our ability to remit sufficient foreign currency to pay dividends.

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Securities authorizedAuthorized for issuanceIssuance under equity compensation plansEquity Compensation Plans

In June 2017, the CompanyCompany’s Board of Directors adopted without the approval of the stockholders a stock incentive plan, the Xiangtian (USA) Air Power Co. Ltd. 2017 Stock Incentive Plan, but has no pension plan, non-equity incentive plan or deferred compensation arrangement. We have not made any awards under the plan. We adopted the plan to attract and retain members of management, directors or key employees.

Stock Price Performance Graph

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any filing of Xiangtian (USA) Air Power Co., Ltd. No securities have been issued under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.plan.

 This performance chart compares the cumulative total return on our common stock with that of the NASDAQ Composite Index and the NASDAQ Clean Edge U.S. Liquid Series Index, or NASDAQ CELS Index. The chart assumes $100 was invested on June 31, 2012 in the common stock of Xiangtian (USA) Air Power Co., Ltd., the NASDAQ Composite Index and the NASDAQ CELS Index, and assumes the reinvestment of any dividends. We have a very limited volume of trading in our Common Stock, and on many days there has been no trading activity. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

ITEMItem 6. SELECTED FINANCIAL DATASelected Financial Data

You should read the following selected consolidated financial data below in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results of Operationsand the consolidated financial statements, the accompanying notes and other financial information included elsewhere in this annual report. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and the accompanying notes included elsewhere in this elsewhere in this annual report.

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The consolidated statements of operations data for the years ended July 31, 2019, 2018, and 2017 and the consolidated balance sheets data as of July 31, 2019 and 2018 are derived from our audited consolidated financial statements included elsewhere in this annual report. The consolidated statements of operations data for the years ended July 31, 2016 and 2015 and the consolidated balance sheets data as of July 31, 2017, 2016 and 2015 are derived from our audited consolidated financial statements included elsewhere in thisour prior annual report. The amounts for the years ending July 31, 2014 and 2013, and as of July 31, 2013, have not been presented as the amounts are not practically determinable from the Company’s historical records.reports. Our historical results are not necessarily indicative of the results that may be expected in any future period.