UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~January 31,~~April 30, 2019

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

For the transition period from ________ to ________.

Commission File Number: 001-38426

XT Energy Group, Inc.

(Exact name of registrant as specified in its charter)

Nevada		98-0632932
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

No.1, Fuqiao Village, Henggouqiao Town Xianning, Hubei, China		437012
(Address of principal executive offices)		(Zip Code)

+86 (400) 103-7733

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None		None		None

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

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

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

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If 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 ☒

As of ~~March 18,~~June 17, 2019, there were ~~591,042,000~~531,042,000 shares of the issuer’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4244
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5560
Item 4.	Controls and Procedures	5661

PART II – OTHER INFORMATION		5864

Item 1.	Legal Proceedings	5864
Item 1A.	Risk Factors	5864
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6167
Item 3.	Defaults Upon Senior Securities	6167
Item 4.	Mine Safety Disclosures	6167
Item 5.	Other Information	6167
Item 6.	Exhibits	6267

SIGNATURES		6368

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly 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,” “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,” “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” contained in our annual report on Form 10-K filed with the Securities and Exchange Commission on October 30, 2018, which may cause our or our industry’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.Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

	●	our ability to generate revenue and profit;

	●	our ability to market our synthetic fuel and related products to more customers;

	●	our ability to identify and acquire access to additional facilities suitable for production of our synthetic fuel and related products;

	●	our ability to successfully operate our wine and herbal wine businesses;

	●	The effect that changes of government regulations affecting fossil fuel and renewable energy have on the solar power and synthetic fuel industry;

	●	future demand for solar energy solutions, wines and herbal wines;

	●	fluctuations in the market price of petroleum and natural gases;

	●	unexpected delays, operational difficulties, cost-overruns or failures in our production processes;

	●	our ability to effectively design, launch, market, and sell new generations of our products and services;

	●	our ability to manage or expand operations and to fill customers’ orders on time;

	●	the effect of prices of raw materials and components and our ability to source raw materials and components at reasonable prices;

	●	our ability to maintain adequate control of our expenses as we seek to grow;

	●	our ability to establish or protect our intellectual property;

	●	the impact of significant government regulation in China;

	●	our ability to implement marketing and sales strategies and adapt and modify them as needed; and

	●	our implementation of required financial, accounting and disclosure controls and procedures and related corporate governance policies.

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. We 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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

XT Energy Group, Inc. and Subsidiaries

(Formerly Known as Xiangtian (USA) Air Power Co., Ltd.)

Unaudited Condensed Consolidated Balance Sheets

(Stated in U.S. Dollars)

January 31,
2019 July 31,
2018
(Unaudited)
ASSETS
Current assets
Cash $ 7,945,297 $ 14,245,783
Restricted cash 78,801 -
Notes receivable 292,520 1,303,443
Accounts receivable, net 6,287,942 5,142,780
Inventories, net 8,091,533 5,141,533
Advances to suppliers 4,181,383 1,101,472
Costs and estimated earnings in excess of billings - 2,883,408
Prepaid expenses 2,013,105 1,364,501
Other receivables 76,241 77,228
Other receivables - related party 27,855 -
Loan receivables - 1,759,428
Deposit for investment 326,846 439,857
Total current assets 29,321,523 33,459,433

Other assets
Property, plant and equipment, net 17,601,892 11,966,233
Intangible assets, net 12,307,147 9,260,643
Prepaid expenses - non-current 366,718 208,498
Goodwill 5,949,020 4,133,143
Total other assets 36,224,777 25,568,517

Total assets $ 65,546,300 $ 59,027,950

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Note payable $ 78,801 $ -
Short-term loan - bank 746,224 733,095
Current maturities of long-term loan 2,656,558 3,069,113
Short-term loan - third party - 175,943
Short-term loans - related parties - 20,145,446
Accounts payable 3,894,453 5,349,445
Advance from customers 21,391,332 8,326,929
Other payables and accrued liabilities 3,028,054 2,424,228
Other payables - related parties and director 7,528,402 4,230,118
Income taxes payable 1,409,880 898,424
Current maturities of investment payable 140,051 2,505,871
Current maturities of investment payable - related parties 163,898 507,143
Total current liabilities 41,037,653 48,365,755

Other liabilities
Investment payable 225,254 6,700,774
Investment payable - related parties 525,430 504,359
Total other liabilities 750,684 7,205,133

Total liabilities 41,788,337 55,570,888

Commitments and contingencies

Equity
Preferred stock: $0.001 par value, 100,000,000 shares authorized,none issued and outstanding - -
Common stock: $0.001 par value, 1,000,000,000 shares authorized, 591,042,000 shares issued and outstanding as of January 31, 2019 and July 31, 2018 591,042 591,042
Additional paid-in capital 25,325,104 9,860,068
Subscription receivable (310,000 ) (310,000 )
Statutory reserves 481,311 108,487
Accumulated deficit (4,122,957 ) (6,743,399 )
Accumulated other comprehensive loss (327,099 ) (932,061 )
Total XT Energy Group, Inc. common stockholders’ equity 21,637,401 2,574,137

Noncontrolling interest 2,120,562 882,925

Total equity 23,757,963 3,457,062

Total liabilities and equity $ 65,546,300 $ 59,027,950

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

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co., Ltd.)~~

~~Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~

~~(Stated in U.S. Dollars)~~

~~(Unaudited)~~

For the Three Months Ended
January 31, For the Six Months Ended
January 31,
2019 2018 2019 2018

Revenue-products $ 21,913,491 $ 175,821 $ 41,512,447 $ 481,461
Revenue-installation of power systems - 56,422 389,482 105,976
Total revenue 21,913,491 232,243 41,901,929 587,437

Cost of sales-products 16,091,346 122,335 31,526,561 401,980
Cost of sales-installation of power systems -   53,106 357,708 91,105
Total cost of sales 16,091,346 175,441 31,884,269 493,085

Gross profit 5,822,145 56,802 10,017,660 94,352

Operating expenses:
Selling expenses 692,256 48,353 805,318 64,323
General and administrative expenses 2,016,491 791,332 3,722,200 1,659,937
Provision for (recovery of) doubtful accounts 60,959 (114,196 ) (103,928 ) (112,620 )
Change in estimated contingent liabilities 155,744 - 155,744 -
Total operating expenses 2,925,450 725,489 4,579,334 1,611,640

Income (loss) from operations 2,896,695 (668,687 ) 5,438,326 (1,517,288 )

Other income (expenses)
Other income (expenses), net 93,286 423 124,041 (4,008 )
Interest income 16,190 286 25,385 614
Interest expense (226,353 ) -   (703,581 ) -
Total other (expenses) income, net (116,877 ) 709 (554,155 ) (3,394 )

Income (loss) before income taxes 2,779,818 (667,978 ) 4,884,171 (1,520,682 )

Income tax expenses (1,049,774 ) (1,008 ) (1,575,918 ) (3,843 )

Net income (loss) 1,730,044 (668,986 ) 3,308,253 (1,524,525 )

Less:  Net income attributable to non-controlling interest 112,545 - 314,987 -

Net income (loss) attributable to XT Energy Group, Inc. $ 1,617,499 $ (668,986 ) $ 2,993,266 $ (1,524,525 )

Net income (loss) $ 1,730,044 $ (668,986 ) $ 3,308,253 $ (1,524,525 )

Foreign currency translation adjustment 1,046,405 316,017 665,419 405,892

Total comprehensive income (loss) 2,776,449 (352,969 ) 3,973,672 (1,118,633 )

Less:  Comprehensive income attributable to non-controlling interest 195,287 - 375,444 -

Comprehensive income (loss) attributable to XT Energy Group, Inc. $ 2,581,162 $ (352,969 ) $ 3,598,228 $ (1,118,633 )

Net income (loss) per common share - basic and diluted $ 0.00 $ (0.00 ) $ 0.01 $ (0.00 )

Weighted average number of common shares outstanding - basic and diluted 591,042,000 591,042,000 591,042,000 591,042,000

	April 30, 2019			July 31, 2018
	(Unaudited)
ASSETS
Current assets
Cash	$	14,589,699		$	14,245,783
Restricted cash		78,399			-
Short-term investment		445,448			-
Notes receivable		706,296			1,303,443
Accounts receivable, net		5,726,943			5,142,780
Inventories, net		8,207,067			5,141,533
Advances to suppliers		3,524,613			1,101,472
Costs and estimated earnings in excess of billings		-			2,883,408
Prepaid expenses		1,760,959			1,364,501
Other receivables		386,749			77,228
Other receivables - related party		29,070			-
Loan receivables		-			1,759,428
Deposit for investment		325,177			439,857
Total current assets		35,780,420			33,459,433

Other assets
Deposit for property, plant and equipment		224,906			-
Property, plant and equipment, net		18,468,295			11,966,233
Intangible assets, net		12,021,743			9,260,643
Prepaid expenses - non-current		355,274			208,498
Goodwill		5,918,634			4,133,143
Total other assets		36,988,852			25,568,517

Total assets	$	72,769,272		$	59,027,950

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Note payable	$	78,399		$	-
Short-term loan - bank		742,413			733,095
Current maturities of long-term loan		-			3,069,113
Short-term loan - third party		-			175,943
Short-term loans - related parties		-			20,145,446
Accounts payable		3,881,521			5,349,445
Advance from customers		16,537,745			8,326,929
Other payables and accrued liabilities		3,308,257			2,424,228
Other payables - related parties and director		6,631,575			4,230,118
Income taxes payable		1,706,318			898,424
Current maturities of investment payable		139,336			2,505,871
Current maturities of investment payable - related parties		116,054			507,143
Total current liabilities		33,141,618			48,365,755

Other liabilities
Investment payable		-			6,700,774
Investment payable - related parties		370,936			504,359
Total other liabilities		370,936			7,205,133

Total liabilities		33,512,554			55,570,888

Commitments and contingencies

Equity
Preferred stock: $0.001 par value, 100,000,000 shares authorized, none issued and outstanding		-			-
Common stock: $0.001 par value, 1,000,000,000 shares authorized, 531,042,000 and 591,042,000 shares issued and outstanding as of April 30, 2019 and July 31, 2018, respectively		531,042			591,042
Additional paid-in capital		40,680,195			9,860,068
Subscription receivable		(250,000	)		(310,000	)
Statutory reserves		578,389			108,487
Accumulated deficit		(4,128,247	)		(6,743,399	)
Accumulated other comprehensive loss		(548,035	)		(932,061	)
Total XT Energy Group, Inc. common stockholders’ equity		36,863,344			2,574,137

Noncontrolling interest		2,393,374			882,925

Total equity		39,256,718			3,457,062

Total liabilities and equity	$	72,769,272		$	59,027,950

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

XT Energy Group, Inc. and Subsidiaries

(Formerly Known as Xiangtian (USA) Air Power Co., Ltd.)

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Stated in U.S. Dollars)

(Unaudited)

	For the Three Months Ended April 30,						For the Nine Months Ended April 30,
	2019			2018			2019			2018

Revenue-products	$	8,427,067		$	344,943		$	49,936,729		$	826,404
Revenue-installation of power systems		-			78,701			392,267			184,677
Total revenue		8,427,067			423,644			50,328,996			1,011,081

Cost of sales-products		4,778,526			249,736			36,302,530			651,716
Cost of sales-installation of power systems		-			59,019			360,265			150,124
Total cost of sales		4,778,526			308,755			36,662,795			801,840

Gross profit		3,648,541			114,889			13,666,201			209,241

Operating expenses:
Selling expenses		349,326			106,001			1,154,644			170,324
General and administrative expenses		2,158,812			691,141			5,777,084			2,238,458
Change in estimated contingent liabilities		(177,182	)		-			(21,438	)		-
Total operating expenses		2,330,956			797,142			6,910,290			2,408,782

Income (loss) from operations		1,317,585			(682,253	)		6,755,911			(2,199,541	)

Other income (expenses)
Other expenses, net		(417,875	)		(2,340	)		(293,834	)		(6,348	)
Interest income		6,888			3,822			32,273			4,436
Interest expense		(170,845	)		-			(874,426	)		-
Total other (expenses) income, net		(581,832	)		1,482			(1,135,987	)		(1,912	)

Income (loss) before income taxes		735,753			(680,771	)		5,619,924			(2,201,453	)

Income tax expense		(586,228	)		(4,347	)		(2,162,146	)		(8,190	)

Net income (loss)		149,525			(685,118	)		3,457,778			(2,209,643	)

Less: Net income (loss) attributable to non-controlling interest		57,737			(3,361	)		372,724			(3,361	)

Net income (loss) attributable to XT Energy Group, Inc.	$	91,788		$	(681,757	)	$	3,085,054		$	(2,206,282	)

Net income (loss)	$	149,525		$	(685,118	)	$	3,457,778		$	(2,209,643	)

Foreign currency translation adjustment		(229,348	)		(41,628	)		436,071			364,347

Total comprehensive income (loss)		(79,823	)		(726,746	)		3,893,849			(1,845,296	)

Less: Comprehensive income (loss) attributable to non-controlling interest		49,325			(3,361	)		424,769			(3,361	)

Comprehensive income (loss) attributable to XT Energy Group, Inc.	$	(129,148	)	$	(723,385	)	$	3,469,080		$	(1,841,935	)

Earnings (loss) per common share - basic and diluted	$	0.00		$	(0.00	)	$	0.01		$	(0.00	)

Weighted average number of common shares outstanding - basic and diluted		579,808,200			591,042,000			589,497,882			591,042,000

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

XT Energy Group, Inc. and Subsidiaries

(Formerly Known as Xiangtian (USA) Air Power Co., Ltd.)

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Stated in U.S. Dollars)

(Unaudited)

																			Accumulated
									Additional					Accumulated deficit					other
	Preferred stock				Common stock				paid-in		Subscription			Statutory					comprehensive			Noncontrolling
	Shares		Par Value		Shares		Par value		capital		receivable			reserves		Unrestricted			income (loss)			interest			Total
BALANCE, August 1, 2017		-	$	-		591,042,000	$	591,042	$	9,962,555	$	(310,000	)	$	-	$	(5,377,094	)	$	(860,369	)	$	-		$	4,006,134
Rent contributed by shareholders		-		-		-		-		1,500		-			-		-			-			-			1,500
Foreign currency translation adjustment		-		-		-		-		-		-			-		-			89,875			-			89,875
Net loss		-		-		-		-		-		-			-		(855,540	)		-			-			(855,540	)
BALANCE, October 31, 2017 (Unaudited)		-		-		591,042,000		591,042		9,964,055		(310,000	)		-		(6,232,634	)		(770,494	)		-			3,241,969
Rent contributed by shareholders		-		-		-		-		1,500		-			-		-			-			-			1,500
Foreign currency translation adjustment		-		-		-		-		-		-			-		-			316,100			-			316,100
Net loss		-		-		-		-		-		-			-		(668,985	)		-			-			(668,985	)
BALANCE, January 31, 2018 (Unaudited)		-		-		591,042,000		591,042		9,965,555		(310,000	)		-		(6,901,619	)		(454,394	)		-			2,890,584
Rent contributed by shareholders		-		-		-		-		1,500.00		-			-		-			-			-			1,500
Foreign currency translation adjustment		-		-		-		-		-		-			-		-			(41,628	)		-			(41,628	)
Net loss		-		-		-		-		-		-			-		(681,757	)		-			(3,361	)		(685,118	)
BALANCE, April 30, 2018 (Unaudited)		-	$	-		591,042,000	$	591,042	$	9,967,055	$	(310,000	)	$	-	$	(7,583,376	)	$	(496,022	)	$	(3,361	)	$	2,165,338

																				Accumulated
										Additional					Accumulated deficit					other
	Preferred stock			Common stock						paid-in		Subscription			Statutory					comprehensive			Noncontrolling
	Shares		Par Value	Shares			Par value			capital		receivable			reserves		Unrestricted			income (loss)			interest			Total
BALANCE, August 1, 2018	-	$	-	591,042,000		$	591,042		$	9,860,068	$	(310,000	)	$	108,487	$	(6,743,399	)	$	(932,061	)	$	882,925		$	3,457,062
Contribution by shareholder	-		-	-			-			14,533,003		-			-		-			-			-			14,533,003
Statutory reserves	-		-	-			-					-			149,543		(149,543	)		-			-			-
Foreign currency translation adjustment	-		-	-			-			-		-			-		-			(358,701	)		(22,285	)		(380,986	)
Net income attributable to XT Energy Group, Inc.	-		-	-			-			-		-			-		1,375,767			-			-			1,375,767
Net income attributable to noncontrolling interest	-		-	-			-			-		-			-		-			-			202,442			202,442
BALANCE, October 31, 2018 (Unaudited)	-		-	591,042,000			591,042			24,393,071		(310,000	)		258,030		(5,517,175	)		(1,290,762	)		1,063,082			19,187,288
Contribution by shareholder	-		-	-			-			932,033		-			-		-			-			-			932,033
Statutory reserves	-		-	-			-			-		-			223,281		(223,281	)		-			-			-
Foreign currency translation adjustment	-		-	-			-			-		-			-		-			963,663			82,742			1,046,405
Net income attributable to XT Energy Group, Inc.	-		-	-			-			-		-			-		1,617,499			-			-			1,617,499
Noncontrolling interest from acquisition	-		-	-			-			-		-			-		-			-			862,193			862,193
Net income attributable to noncontrolling interest	-		-	-			-			-		-			-		-			-			112,545			112,545
BALANCE, January 31, 2019 (Unaudited)	-		-	591,042,000			591,042			25,325,104		(310,000	)		481,311		(4,122,957	)		(327,099	)		2,120,562			23,757,963
Contribution by shareholder	-		-	-			-			15,355,091		-			-		-			-			-			15,355,091
Statutory reserves	-		-	-			-					-			97,078		(97,078	)		-			-			-
Cancellation of issued shares	-		-	(60,000,000	)		(60,000	)		-		60,000			-		-			-			-			-
Foreign currency translation adjustment	-		-	-			-			-		-			-		-			(220,936	)		(8,412	)		(229,348	)
Net income attributable to XT Energy Group, Inc.	-		-	-			-			-		-			-		91,788			-			-			91,788
Contribution by noncontrolling interest shareholder	-		-	-			-			-		-			-		-			-			223,487			223,487
Net income attributable to noncontrolling interest	-		-	-			-			-		-			-		-			-			57,737			57,737
BALANCE, April 30, 2019 (Unaudited)	-	$	-	531,042,000		$	531,042		$	40,680,195	$	(250,000	)	$	578,389	$	(4,128,247	)	$	(548,035	)	$	2,393,374		$	39,256,718

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

XT Energy Group, Inc. and Subsidiaries

(Formerly Known as Xiangtian (USA) Air Power Co., Ltd.)

Unaudited Condensed Consolidated Statements of Cash Flows

(Stated in U.S. Dollars)

For the Six Months Ended
January 31,
2019 2018
Cash flows from operating activities:
Net income (loss) $ 3,308,253 $ (1,524,525 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense 541,127 195,881
Amortization expense 395,902 -
Recovery of allowance for doubtful accounts (103,928 ) (112,620 )
Amortization of debt discount 249,175 -
Rent contributed by shareholders - 3,000
Change in estimated contingent liabilities

155,744
-
Changes in operating assets and liabilities
Notes receivable 1,007,956 -
Accounts receivable (898,442 ) 1,111,483
Inventories (1,596,989 ) (379,861 )
Advances to suppliers (2,956,304 ) (200,208 )
Costs and estimated earnings in excess of billings 2,860,384 (83,434 )
Prepaid expenses (511,592 ) -
Other receivables 2,309 (8,247 )
Accounts payable (1,511,350 ) (1,137,806 )
Advance from customers 12,572,648 607,097
Taxes payable - 21,957
Other payables and accrued liabilities (5,330,159 ) (117,851 )
Net cash provided by (used in) operating activities 8,184,734 (1,625,134 )

Cash flows from investing activities:
Payment to former shareholders on businesses acquired (8,838,640 ) -
Purchases of property and equipment (1,419,780 ) -
Refund of long-term investment 117,813 -
Purchase of intangible assets (4,357 ) -
Collection of loan receivable 1,745,378 -
Issuance of notes receivable - (159,132 )
Net cash used in investing activities (8,399,586 ) (159,132 )

Cash flows from financing activities:
(Repayments to) borrowings from related parties (998,239 ) 11,025
Capital contribution from stockholders 15,465,036 -
Payments of short-term loan - bank (455,628 ) -
Payments of third party loan (174,538 ) -
Proceeds from related party loans 2,036,275 356,474
Payments of related party loans (22,020,857 ) -
Proceeds from note payable 76,797 465,197
Net cash (Used in) provided by financing activities (6,071,154 ) 832,696

Effect of exchange rate change on cash 64,321 365,574

Net change in cash and restricted cash (6,221,685 ) (585,996 )

Cash and restricted cash - beginning of period 14,245,783 1,156,969

Cash and restricted cash- end of period $ 8,024,098 $ 570,973

Supplemental disclosure of cash flow information:
Interest paid $ 84,548 $ -
Income tax paid $ 1,206,057 $ 19,268

Supplemental non-cash investing and financing information:
Rent contributed by shareholders $ - $ 3,000
Receipt of property, plant and equipment from deposit made in prior year $ - $ 2,033,664
Transfers from advances to suppliers to inventories $ - $ 316,591
Loan to third party offset with investment payable $ 519,286 $ -

	For the Nine Months Ended April 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	3,457,778		$	(2,209,643	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation expense		790,980			317,293
Amortization expense		620,369			-
Recovery of allowance for doubtful accounts		(65,221	)		-
Gain from sales of equipment		(51,457	)		-
Amortization of debt discount		378,632			-
Rent contributed by shareholders		-			4,500
Change in estimated contingent liabilities		(21,438	)		-
Changes in operating assets and liabilities
Notes receivable		605,470			-
Accounts receivable		(422,537	)		1,261,155
Inventories		(1,763,162	)		(776,757	)
Advances to suppliers		(2,572,447	)		(1,369,080	)
Costs and estimated earnings in excess of billings		2,880,832			62,576
Prepaid expenses		(267,192	)		-
Other receivables		(2,247	)		(912,656	)
Accounts payable		(1,515,289	)		(1,161,195	)
Advance from customers		7,981,930			2,371,167
Taxes payable		785,776			22,028
Other payables and accrued liabilities		(5,419,975	)		(136,400	)
Net cash provided by (used in) operating activities		5,400,802			(2,527,012	)

Cash flows from investing activities:
Payment to former shareholders on businesses acquired		(9,446,738	)		-
Purchases of property and equipment		(2,834,724	)		(98,642	)
Purchase of short-term investment		(445,448	)		-
Refund of long-term investment		118,655			-
Purchase of intangible assets		(6,471	)		-
Collection of loan receivable		1,757,855			-
Deposit made to investment		-			(473,747	)
Net cash used in investing activities		(10,856,871	)		(572,389	)

Cash flows from financing activities:
(Repayments to) borrowings from related parties		(1,893,774	)		1,802,781
Capital contribution from stockholders		30,820,127			-
Contribution by noncontrolling interest shareholder		223,487			-
Payments of short-term loan - bank		(3,066,371	)		-
Payments of third party loan		(175,786	)		-
Proceeds from related party loans		15,234,747			500,410
Payments of related party loans		(35,362,191	)		-
Proceeds from note payable		77,346			2,179,234
Net cash provided by financing activities		5,857,585			4,482,425

Effect of exchange rate change on cash		20,799			505,475

Net change in cash and restricted cash		422,315			1,769,800

Cash and restricted cash - beginning of period		14,245,783			1,156,969

Cash and restricted cash - end of period	$	14,668,098		$	2,926,769

Supplemental disclosure of cash flow information:
Interest paid	$	299,699		$	582
Income tax paid	$	1,166,544		$	19,537

Supplemental non-cash investing and financing information:
Rent contributed by shareholders	$	-		$	4,500
Receipt of property, plant and equipment from deposit made in prior year	$	-		$	2,061,683
Transfers from advances to suppliers to inventories	$	-		$	321,013
Loan to third party offset with investment payable	$	522,998		$	-
Other receivables outstanding from sales of equipment	$	301,205		$	-

The following table provides a reconciliation of cash and restricted cash reported within the statements of financial position that sum to the total of the same amounts shown in the statements of cash flows:

	January 31,		July 31,		April, 30		July, 31
	2019		2018		2019		2018
	(Unaudited)				(Unaudited)
Cash	$	7,945,297	$	14,245,783	$	14,589,699	$	14,245,783
Restricted cash		78,801		-		78,399		-
Total cash and restricted cash shown in the consolidated statements of cash flows	$	8,024,098	$	14,245,783	$	14,668,098	$	14,245,783

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

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 1 – Nature of business and organization

XT Energy Group, Inc., formerly known as Xiangtian (USA) Air Power Co. Ltd. (the “Company” or “XT Energy”) was incorporated in the State of Delaware on September 2, 2008 as Goa Sweet Tours Ltd. On April 17, 2012, the Company entered into certain share purchase agreements, by and among Luck Sky International Investment Holdings Limited (“Luck Sky”), an entity owned and controlled by Zhou Deng Rong, the former Chief Executive Officer and director of the Company, and certain of the Company’s former stockholders who owned, in the aggregate, 7,200,000 shares of the Company’s common stock (90% of the then outstanding shares). On May 15, 2012, Luck Sky purchased all 7,200,000 shares for an aggregate of $235,000. Effective May 29, 2012, the Company’s name was changed to “Xiangtian (USA) Air Power Co., Ltd.”

On May 30, 2014, the Company purchased 100% of the issued and outstanding shares of Luck Sky (Hong Kong) Aerodynamic Electricity Limited (“Xiangtian HK”) from its sole shareholder, Zhou Jian, who is also the Chairman of the Company. As a result of the acquisition, Xiangtian HK became the Company’s wholly owned subsidiary and the wholly owned subsidiary of Xiangtian HK in the People’s Republic of China (“China,” or the “PRC”), Luck Sky (Shenzhen) Aerodynamic Electricity Limited (“Xiangtian Shenzhen”) became the Company’s indirect subsidiary through Xiangtian HK.

Effective October 31, 2016, the Company was reincorporated in Nevada as a result of its merger with and into our wholly owned Nevada subsidiary.

The Company is engaged in a variety of energy-related businesses through its subsidiaries and controlled entities in China. One of the businesses is in the field of Compressed Air Energy Storage in China andthe Company produces electricity generation systems that combine its compressed air storage technology with photovoltaic (“PV”) panels to achieve a continuous supply of power under weather conditions that are unfavorable to the generation of electricity from PV panels alone. The sales and installation of power generation systems and PV systems and the sales of PV panels, air compression equipment and heat pump products have been carried out through the Company’s variable interest entities (“VIEs”), formerly Sanhe Luck Sky Electrical Engineering Co., Ltd. (“Sanhe Xiangtian”) and now Xianning Xiangtian Energy Holding Group Co. Ltd. (“Xianning Xiangtian”), formerly known as Xianning Sanhe Power Equipment Manufacturing Co. Ltd.

In March 2018, Xianning Xiangtian formed Xiangtian Zhongdian (Hubei) New Energy Co. Ltd. (“Xiangtian Zhongdian”), a joint venture in China, in which Xianning Xiangtian holds a 70% ownership interest with the remaining 30% ownership held by Nanjing Zhongdian Photovoltaic Co. Ltd. Xiangtian Zhongdian is in the business of manufacturing and sales of PV panels.

In April 2018, Xianning Xiangtian formed a wholly owned subsidiary, Jingshan Sanhe Xiangtian New Energy Technology Co. Ltd. (“Jingshan Sanhe”), which is engaged in the business of researching, manufacturing and sales of high-grade synthetic fuel products.

In June 2018, Xianning Xiangtian acquired Hubei Jinli Hydraulic Co., Ltd. (“Hubei Jinli”), which is engaged in the business of manufacturing and sales of hydraulic parts and electronic components, and acquired Tianjin Jiabaili Petroleum Products Co. Ltd. (“Tianjin Jiabaili”), which is engaged in the business of manufacturing and sales of petroleum products (See Note 3 – Business combinations).

In August 2018, Xianning Xiangtian formed a wholly owned subsidiary, Xianning Xiangtian Trade Co. Ltd. (“Xiangtian Trade”), which is expected to engage in trading chemical raw materials for the purpose of providing a stable supply for fuel products operation.

In September and October 2018, January 2019 and ~~January~~March 2019, Mr. Jian Zhou, the Company’s ~~chairman~~Chairman and principal ~~stockholder~~shareholder as well as a shareholder of Xianning Xiangtian, and Zhou Deng Rong, the Company’s former Chief Executive Officer and director, injected an aggregate of Renminbi (“RMB”) ~~106,260,000~~209,260,000 (approximately ~~$15.5~~$30.8 million) as capital contribution to Xianning Xiangtian.

On November 5, 2018, the Company changed its name to XT Energy Group, Inc. through a merger with and into a newly formed, wholly-owned subsidiary, which subsidiary was formed for purposes of the name change.

In December 2018, Xianning Xiangtian acquired 90% of the equity interest in each of Hubei Rongentang Wine Co., Ltd. (“Wine Co.”), which is engaged in the business of manufacturing and sales of wine, and Hubei Rongentang Herbal Wine Co., Ltd. (“Herbal Wine Co.,” collectively with “Wine Co.,” “Rongentang”), which is engaged in the business of manufacturing and sales of herbal wine products (See Note 3 – Business combinations). The Company believes the acquisition of Rongentang represented a good investment in that Rongentang possesses land and buildings worth approximately $6.8 million and the Company believes it can recoup its investment within a short period of time by selling Rongentang’s wine and herbal wine inventories through its distribution network.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Reorganization

On September 30, 2018, Xiangtian Shenzhen terminated its variable interest entity agreements (the “VIE Agreements”) as part of its restructuring to facilitate the shift of business focus between entities controlled by the Company. After the restructuring, the Company’s headquarters is located in the city of Xianning, Hubei Province, and Sanhe Xiangtian, the Company’s previous headquarters, located in the city of Sanhe, Hebei Province, became the Company’s sales office. The VIE Agreements include the following:

●

Framework Agreement on Business Cooperation, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian;

●

Exclusive Management, Consulting and Training and Technical Service Agreement, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian;

●

Exclusive Option Agreement, dated July 25, 2014, by and among Xiangtian Shenzhen, Sanhe Xiangtian and all the shareholders of Sanhe Xiangtian (“Shanhe Xiangtian Shareholders”);

●

Equity Pledge Agreement, dated July 25, 2014, by and among Xiangtian Shenzhen, Sanhe Xiangtian and the Shanhe Xiangtian Shareholders;

●

Know-How Sub-License Agreement, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian; and

●

Powers of Attorney of the Sanhe Xiangtian Shareholders dated July 25, 2014.

In connection with the termination of the VIE Agreements, on September 30, 2018, 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 the same day, 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:

●

exercise effective control over Xianning Xiangtian;

●

receive substantially all of the economic benefits of Xianning Xiangtian; and

●

have an exclusive option to purchase all or part of the equity interests in Xianning Xiangtian when and to the extent permitted by the laws of the PRC.

Framework Agreement on Business Cooperation

Pursuant to 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, 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 operative 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 engaged 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.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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 granted 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 pledged 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 the 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 of the pledged 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 air energy storage power generation technology (“Technology”) but without sublease right in the territory of China, exclusive of the Hong Kong Special Administrative Region, the Macao Special Administrative Region and the Taiwan Region 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. The shareholders of Xianning Xiangtian pledged 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 Xianning Xiangtian operations, unless terminated by Xiangtian Shenzhen with a 30-day prior written notice.

Power of Attorney

Pursuant to the Powers of Attorney executed by the Xianning Xiangtian Shareholders, each of the shareholders 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 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.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Spousal Consent Letters

Pursuant to the Spousal Consent Letters, each of the spouses of the Xianning Xiangtian Shareholders unconditionally and irrevocably agreed to the execution of the 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 agreement 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.

All of the Company’s operations are through its VIEs located in the PRC.

The accompanying unaudited condensed consolidated financial statements reflect the activities of XT Energy and each of the following entities:

Name	Background	Ownership
Xiangtian HK	● A Hong Kong company	100% owned by XT Energy

Xiangtian BVI	● A British Virgin Islands company	100% owned by XT Energy

Xiangtian Shenzhen	● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”)	100% owned by Xiangtian HK

Sanhe Xiangtian	● A PRC limited liability company ● Incorporated on July 8, 2013 ● Sales and installation of power generation systems and PV systems and sales of PV Panels, air compression equipment and heat pump products	VIE of Xiangtian Shenzhen prior to September 30, 2018 and became subsidiary of Xianning Xiangtian on September 30, 2018 and thereafter

Xianning Xiangtian	● A PRC limited liability company ● Incorporated on May 30, 2016 ● Manufacturing and sales of air compression equipment and heat pump products	100% owned by Sanhe Xiangtian prior to September 30, 2018 and became VIE of Xiangtian Shenzhen on September 30, 2018 and thereafter

Xiangtian Zhongdian	● A PRC limited liability company ● Incorporated on March 7, 2018 ● Manufacturing and sales of PV panels	70% owned by Xianning Xiangtian

Jingshan Sanhe	● A PRC limited liability company ● Incorporated on April 17, 2018 ● Researching, manufacturing and sales of high-grade synthetic fuel products	100% owned by Xianning Xiangtian

Hubei Jinli	● A PRC limited liability company ● Incorporated on December 27, 2004 and acquired on June 30, 2018 ● Manufacturing and sales of hydraulic parts and electronic components	100% owned by Xianning Xiangtian

Tianjin Jiabaili	● A PRC limited liability company ● Incorporated on April 10, 2007 and acquired on June 30, 2018 ● Manufacturing and sales of petroleum products	100% owned by Xianning Xiangtian

Xiangtian Trade	● A PRC limited liability company ● Incorporated on August 9, 2018 ● Expected to engage in trading chemical raw materials to support fuel production	100% owned by Xianning Xiangtian

Wine Co.	● A PRC limited liability company ● Incorporated on August 9, 2011 and acquired on December 14, 2018 ● Manufacturing and sales of wine products	90% owned by Xianning Xiangtian

Herbal Wine Co.	● A PRC limited liability company ● Incorporated on August 9, 2018 and acquired on December 14, 2018 ● Manufacturing and sales of herbal wine products	90% owned by Xianning Xiangtian

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 2 – Summary of significant accounting policies

Liquidity

In assessing the Company’s liquidity, the Company monitors and analyzes its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Debt financing in the form of loans payable and loans from related parties have been utilized to finance the working capital requirements of the Company and acquisitions of businesses. As of ~~January 31,~~April 30, 2019, the Company’s working ~~deficiencies~~capital was approximately ~~$11.7~~$2.6 million and the Company had cash of approximately ~~$8.0~~$14.6 million. Although the Company believes that it can realize its current assets in the normal course of business, the Company’s ability to repay its current obligations will depend on the future realization of its current assets and the future operating revenues generated from its operations.

The Company expects to realize the balance of its current assets within the normal operating cycle of a twelve month period. If the Company is unable to realize its current assets within the normal operating cycle of a twelve month period, the Company may have to consider supplementing its available sources of funds through the following sources:

	●	the Company will continuously seek equity financing (including an a proposed underwritten public offering ~~recently~~pursuant to a registration statement on Form S-1 filed with the SEC ~~on the Form S-1~~ on February 1, 2019) to support its working capital;

	●	other available sources of financing from PRC banks and other financial institutions;

	●	financial support and credit guarantee commitments from the Company’s related parties.

Based on the above considerations, the Company’s management is of the opinion that it has sufficient funds to meet the Company’s working capital requirements and debt obligations as they become due one year from the date of this report. However, there is no assurance that management will be successful in their plans. There are a number of factors that could potentially arise that could undermine the Company’s plans, such as changes in the demand for the Company’s products or installations, PRC government policy, economic conditions, and competitive pricing in the industries that the Company operated in.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Basis of presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s unaudited condensed consolidated financial statements are expressed in U.S. dollars.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s financial position, its results of operations and its cash flows, as applicable, have been made. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s July 31, 2018 annual report on Form 10-K filed on October 30, 2018.

Principles of consolidation

The unaudited condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs for which the Company or its subsidiary is the primary beneficiary and the VIEs’ subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates and assumptions

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited condensed consolidated financial statements include the estimated cost used to calculate the percentage of completion recognized in the Company’s revenues, the useful lives of property, plant and equipment, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory obsolescence reserve, allowance for advance to suppliers doubtful accounts, allowance for deferred tax assets, fair value of the assets and the liabilities of the entity acquired through its business combination, valuation of warranty reserves, contingent consideration liabilities, and the accrual of potential liabilities. Actual results could differ from these estimates.

Variable interest entities

On September 30, 2018, Xiangtian Shenzhen terminated the VIE Agreements as part of its restructuring to facilitate the shift of business focus between entities controlled by the Company. After the restructuring, the Company’s headquarter is now located in the city of Xianning, Hubei Province, and Sanhe Xiangtian, the Company’s previous headquarters, located in the city of Sanhe, Hebei Province, has become the Company’s sales office. The VIE Agreements include the following:

●

Framework Agreement on Business Cooperation, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian;

●

Exclusive Management, Consulting and Training and Technical Service Agreement, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian;

●

Exclusive Option Agreement, dated July 25, 2014, by and among Xiangtian Shenzhen, Sanhe Xiangtian and Shanhe Xiangtian Shareholders;

●

Equity Pledge Agreement, dated July 25, 2014, by and among Xiangtian Shenzhen, Sanhe Xiangtian and the Shanhe Xiangtian Shareholders;

●

Know-How Sub-License Agreement, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian; and

●

Powers of Attorney of the Sanhe Xiangtian Shareholders dated July 25, 2014.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

On the same day, the Company, through Xiangtian Shenzhen and Xiangtian HK, entered into the New VIE Agreements, pursuant to which Xianning Xiangtian became the Company’s new contractually controlled affiliate.

The principal terms of the agreements entered into among Xianning Xiangtian and Xiangtian Shenzhen, the primary beneficiary, are described below:

●

Framework Agreement on Business Cooperation, entered between Xiangtian Shenzhen and Xianning Xiangtian, pursuant to which Xiangtian Shenzhen and Xianning Xiangtian have agreed to enter into a series of VIE agreements and to cooperate in all prospective of Xianning Xiangtian’s business operation and management.

●

Agreement of Exclusive Management, Consulting and Training and Technical Service, entered between Xiangtian Shenzhen and Xianning Xiangtian, pursuant to which Xiangtian Shenzhen has agreed to provide Xianning Xiangtian with complete business support and technical support and related management, training and consulting services. In consideration for such services, Xiangtian Shenzhen is entitled to receive an amount equal to 100% of Xianning Xiangtian’s net income.

●

Exclusive Option Agreement, entered among Xiangtian HK, Xiangtian Shenzhen, Zhou Deng Rong, Zhou Jian and Xianning Xiangtian, pursuant to which Zhou Deng Rong and Zhou Jian, the owners of Xianning Xiangtian, have granted to Xiangtian Shenzhen and Xiangtian HK the irrevocable right and option to acquire all of their equity interests in Xianning Xiangtian.

●

Equity Pledge Agreement, entered among Xiangtian Shenzhen, Zhou Deng Rong, Zhou Jian, and Xianning Xiangtian, pursuant to which Zhou Deng Rong and Zhou Jian, the owners of Xianning Xiangtian, have pledged all of their rights, titles and interests in Xianning Xiangtian to Xiangtian Shenzhen to guarantee Xianning Xiangtian’s performance of its obligations under all the other VIE Agreements.

●

Know-How Sub-License Agreement, entered between Xiangtian Shenzhen and Xianning Xiangtian, pursuant to which Xiangtian Shenzhen has granted Xianning Xiangtian an exclusive right to use and develop a series of aerodynamics related patents and technologies with respect to electrical generation for commercial and residential structures, not including automobile and wind towers. Xiangtian Shenzhen possesses the rights licensed under this agreement through two license agreements dated September 30, 2018 with Zhou Deng Rong, Zhou Jian and Lucksky Group, the owners of the aforesaid patents and technologies. For the sublicense contemplated under this agreement, Xianning Xiangtian will pay Xiangtian Shenzhen an annual royalty fee of five percent of revenue. For the ~~six~~nine months ended ~~January 31,~~April 30, 2019, the annual royalty fee was waived by Xiangtian Shenzhen; and

●

Power of Attorney. Pursuant to a power of attorney, each of the Xianning Xiangtian stockholders agreed to irrevocably entrust Xiangtian Shenzhen with the stockholder voting rights and other stockholder rights for representing them to exercise such rights at the stockholders’ meeting of Xianning Xiangtian in accordance with applicable laws and its Article of Association, including, but not limited to, the right to sell or transfer all or any of their equity interest in Xianning Xiangtian, and appoint and vote for the directors and Chairman of Xianning Xiangtian as the authorized representative of the Xianning Xiangtian stockholders. The term of each proxy and voting agreement is as long as each of the Xianning Xiangtian stockholders is a shareholder of Xianning Xiangtian and is binding on any transferee.

●

Spousal Consent Letters. Pursuant to the Powers of Attorney executed by the Xianning Xiangtian Shareholders, each of the shareholders irrevocably appoints 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 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.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The Framework Agreement and the Exclusive Management Agreement have initial terms of ten years but each contains a renewal provision that allows Xiangtian Shenzhen to extend the term of such agreements at its sole option by written notice with no limitation as to such extensions. The Know-How Sub-License Agreement is valid for the duration of Xianning Xiangtian’s operation. The other agreements are of unlimited duration.

The Company’s total assets and liabilities presented in the accompanying unaudited condensed consolidated financial statements represent substantially all of total assets and liabilities of the VIE because the other entities in the consolidation are non-operating holding entities with nominal assets and liabilities. The following financial statement amounts and balances of the VIE were included in the accompanying unaudited condensed consolidated financial statements as of ~~January 31,~~April 30, 2019 and July 31, 2018 and for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively:

January 31,
2019 July 31,
2018

Current assets $ 28,182,784 $ 33,240,433
Non-current assets 36,224,777 25,568,517
Total assets $ 64,407,561 $ 58,808,950

Current liabilities $ 37,260,922 $ 46,576,026
Non-current liabilities 750,684 7,205,133
Total liabilities $ 38,011,606 $ 53,781,159

	April 30, 2019		July 31, 2018

Current assets	$	35,074,836	$	33,240,433
Non-current assets		36,970,352		25,568,517
Total assets	$	72,045,188	$	58,808,950

Current liabilities	$	29,300,888	$	46,576,026
Non-current liabilities		370,936		7,205,133
Total liabilities	$	29,671,824	$	53,781,159

For the three months ended
January 31,
2019 For the three months ended
January 31,
2018 For the six months ended
January 31,
2019 For the six months ended
January 31,
2018

Revenues $ 21,913,491 $ 232,243 $ 41,901,929 $ 587,437
Gross Profit $ 5,822,145 $ 56,802 $ 10,017,660 $ 94,352
Income (loss) from operations $ 3,659,973 $ (349,352 ) $ 6,697,035 $ (1,037,029 )
Net income (loss) $ 2,224,043 $ (348,827 ) $ 4,093,827 $ (1,040,629 )

	For the Three Months Ended April 30, 2019		For the Three Months Ended April 30, 2018			For the Nine Months Ended April 30, 2019		For the Nine Months Ended April 30, 2018

Revenues	$	8,427,067	$	423,644		$	50,328,996	$	1,011,081
Gross Profit	$	3,648,541	$	114,889		$	13,666,201	$	209,241
Income (loss) from operations	$	1,612,546	$	(517,261	)	$	8,309,581	$	(1,554,290	)
Net income (loss)	$	561,588	$	(520,007	)	$	4,655,415	$	(1,560,636	)

Business Combinations

The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Cash

Cash denominated in RMB with a U.S. dollar equivalent of ~~$7,001,823~~$14,085,235 and $14,207,358 at ~~January 31,~~April 30, 2019 and July 31, 2018, respectively, were held in accounts at financial institutions located in the PRC‚ which is not freely convertible into foreign currencies. In addition, these balances are not covered by insurance. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit ~~worthiness~~worthiness. The Company, ~~and~~ its subsidiaries and VIE have not experienced any losses in such accounts and do not believe the cash is exposed to any significant risk. As of April 30, 2019 and July 31, 2018, cash balance of $472,902 and $2,481, respectively, were maintained at U.S. financial institutions, and were insured by the Federal Deposit Insurance Corporation or other programs subject to certain limitations up to $250,000 per depositor. As of April 30, 2019 and July 31, 2018, cash balance of $26,496 and $26,402, respectively, were maintained at financial institutions in Hong Kong, and were insured by the Hong Kong Deposit Protection Board up to a limit of HK $500,000 (approximately $64,000).

Restricted Cash

Restricted cash represents cash held by banks as guarantee deposit collateralizing notes payable.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (230): Restricted Cash. The amendments in this Update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. Earlier adoption is permitted. The amendments in this Update should be applied using a retrospective transition method to each period presented. On August 1, 2018, the Company adopted this guidance on a retrospective basis.

Short-term Investment

Short-term investment consists of time deposit placed with a bank, which contains a fixed or variable interest rate and has original maturity within one year. Such investment is permitted to be redeemed early without penalties prior to maturity. Given the short-term nature, the carrying value of short-term investment approximates its fair value. The Company does not intend to withdraw early. There was no other-than-temporary impairment of short-term investment for the three and nine months ended April 30, 2019 and July 31, 2018.

Notes Receivable

Notes receivable represents commercial notes due from various customers where the customers’ banks have guaranteed the payments. The notes are noninterest bearing and normally paid within three to six months. The Company has the ability to submit requests for payments to the customer’s banks earlier than the scheduled payments date, but will incur an interest charge and a processing fee.

Accounts Receivable, net

Accounts receivables, net, are recognized and carried at original invoiced amount less an allowance for any uncollectible accounts. The Company uses the aging method to estimate the valuation allowance for anticipated uncollectible receivable balances. Under the aging method, bad debts determined by management are based on historical experience as well as the current economic climate and are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary.

Inventories, net

Inventories, net, consist of raw materials, work in progress and finished goods and are stated at the lower of cost or net realizable value using the weighted average method. When appropriate, allowances to inventories are recorded to write down the cost of inventories to their net realizable value. As of ~~January 31,~~April 30, 2019 and July 31, 2018, there were no such allowances.

Advances to Suppliers, net

Advances to suppliers, net, are cash deposited or advanced to outside vendors or services providers for future inventory purchases or future services. This amount is refundable and bears no interest. For any advances to suppliers determined by management that such advances will not be in receipts of inventories or refundable, the Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular basis to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. As of ~~January 31,~~April 30, 2019 and July 31, 2018, there were no such allowances.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Costs and Estimated Earnings in Excess of Billings

Costs and estimated earnings in excess of billings represents revenues recognized in excess of amounts billed. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the unaudited condensed consolidated financial statements.

Prepaid Expenses

Prepaid expenses represent advance payments made to vendors for services such as rent, consulting and certification.

Other Receivables

Other receivables primarily include advances to employees and other deposits. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. No allowance was required as of April 30, 2019 and July 31, 2018, respectively.

Loans Receivables

Loans receivables represents interest free advances to the former shareholder of Hubei Jinli by the Company prior to the acquisition of Hubei Jinli on June 30, 2018. These advances were unsecured and due on demand. Full outstanding balance in amount of $1,759,428 as of July 31, 2018 was repaid in August 2018.

Property, Plant and Equipment, net

Property, plant and equipment are stated at cost net of accumulated depreciation and impairment losses. Depreciation is provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows, taking into account the assets’ estimated residual value:

Classification	Estimated Useful Life	Estimated Residual Value
Plant and buildings	5-20 years	0-5%
Machinery equipment	5-10 years	0-5%
Computer and office equipment	3-10 years	0-5%
Vehicles	5-10 years	0-5%
Plant improvement	20 years	0-5%

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of operations and other comprehensive loss. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized.

Construction-in-progress represents contractor and labor costs, design fees and inspection fees in connection with the construction of the Company’s production warehouses, cafeteria, and employee dormitory. No depreciation is provided for construction-in-progress until it is completed and placed into service.

Intangible Assets, net

Intangible assets, net, are stated at cost, less accumulated amortization. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets as follows:

Classification		Estimated Useful Life
Land use rights		50 years
Technology know-hows		10 years
Patents, licenses and certifications		3-10 years
Software		3 years

All land in the PRC is owned by the government; however, the government grants “land use rights.” The Company has obtained rights to use various parcels of land for 50 years through the acquisition of Hubei Jinli in June 2018 and through the acquisition of Wine Co. in December 2018.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Technology know-hows, including LSC Hand-Held Diesel Pump, CB-39 Motor Oil Pump, 0-16 MPa series hydraulic cylinder, brake cylinder and hydraulic value, and certain special operating and production licenses were acquired through the acquisition of Hubei Jinli and Tianjin Jiabaili in June 2018 and through the acquisition of Herbal Wine Co. and Wine Co. in December 2018 with estimated finite useful lives between 4.5 years to 10 years.

Certain PV panel certifications were contributed by the Company’s noncontrolling interest shareholders as capital contribution in March 2018 with an estimated finite useful lives of 10 years.

The Company also acquired a safety production license and an accounting software with a finite useful life of 3 years in June 2018 and January 2019, respectively.

In-Process Research and Development

In~~-process~~In-process R&D is a type of ginseng antler wine which was acquired through the acquisition of Wine Co. The wine is currently in the development stage and the Company will be applying for its patent. Once the patent is applied and approved the Company is expected to amortize the wine patent with an estimated useful life of approximately 10 years.

Goodwill

Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive loss. Impairment losses on goodwill are not reversed. As of ~~January 31,~~April 30, 2019 and July 31, 2018, no impairment of goodwill was recognized.

Impairment for Long-Lived Assets

Long-lived assets, including plant and equipment and intangible with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of ~~January 31,~~April 30, 2019 and July 31, 2018, no impairment of long-lived assets was recognized.

Subscription Receivable

Subscription receivable represents unpaid capital contribution from its shareholders.

Short-Term Note Payable

Short-term note payable is a line of credit extended by a bank. The bank in-turn issues the Company a banker’s acceptance note, which can be endorsed and assigned to vendors as payments for purchases. The note payable is generally payable at a determinable period, generally three to six months. This short-term note payable bears no interest and is guaranteed by the bank for its complete face value and usually matures within three to ~~six-month~~six month period. The bank usually requires the Company to deposit a certain amount of cash at the bank as a guarantee deposit, which is classified on the balance sheet as restricted cash.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Fair Value Measurement

The Company applies the provisions of Accounting Standards Codification (“ASC”) Subtopic 820-10, “Fair Value Measurements”, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

	●	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

	●	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

	●	Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

There were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of ~~January 31,~~April 30, 2019.

The following table sets forth by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of ~~January~~April 30, 2019 and July 31, ~~2019:~~2018:

Financial liabilities Carrying
Value as of
January 31, 2019 Fair Value Measurements at January 31, 2019 Using Fair Value Hierarchy
Level 1 Level 2 Level 3
Contingent payment consideration liabilities (see Note 3) $ 497,253 $ - $ - $ 497,253

Financial liabilities Carrying
Value as of
July 31,
2018 Fair Value Measurements at July 31, 2018
Using Fair Value Hierarchy
Level 1 Level 2 Level 3
Contingent payment consideration liabilities (see Note 3) $ 331,505 $ - $ - $ 331,505

Financial Assets	Carrying Value as of April 30, 2019		Fair Value Measurements at April 30, 2019 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Short-term investment	$	445,448	$	445,448	$	-	$	-

Financial Liabilities	Carrying Value as of April 30, 2019		Fair Value Measurements at April 30, 2019 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Contingent payment consideration liabilities (see Note 3)	$	313,990	$	-	$	-	$	313,990

Financial Liabilities	Carrying Value as of July 31, 2018		Fair Value Measurements at July 31, 2018 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Contingent payment consideration liabilities (see Note 3)	$	331,505	$	-	$	-	$	331,505

The following is a reconciliation of the beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and for the year ended July 31, 2018:

January 31,
2019 July 31,
2018
Beginning balance $ 331,505 $ -
Contingent liability obligated from business combinations - 341,411
Change in estimated contingent liabilities 155,744 -
Exchange rate effect 10,004 (9,906 )
Ending balance $ 497,253 $ 331,505

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

	April 30, 2019			July 31, 2018
Beginning balance	$	331,505		$	-
Contingent liability obligated from business combinations		-			341,411
Change in estimated contingent liabilities		(21,438	)		-
Exchange rate effect		3,923			(9,906	)
Ending balance	$	313,990		$	331,505

The Company believes the carrying amount reported in the unaudited condensed consolidated balance sheet for cash, restricted cash, notes receivable, accounts receivable, inventories, advance to suppliers, costs and estimated earnings in excess of billings, prepaid expenses, other receivables, loan receivables, deposit for prepayments, note payable, short-term loans, accounts payable, advances from customers, other payables and accrued liabilities, tax payables and short-term investment payable approximate fair value because of the short-term nature of such instruments. The carrying amount of long-term investment payable reported in the consolidated balance sheets at carrying value, which approximates fair value as the rate of amortization of investment payment discount used were similar to interest rate charged by the bank in the PRC. The carrying amount of long-term loan – related party reported in the consolidated balance sheets at carrying value, which approximates fair value as the interest rate of the loan were similar to interest rate charged by the bank in the PRC. As of ~~January 31,~~April 30, 2019 and July 31, 2018, long-term investment payable balance was ~~$750,684,~~$370,936, net of discount of ~~$784,027~~$45,543 and $7,205,133, net of discount of $869,173, respectively.

Revenue Recognition

On August 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC Topic 606) using the modified retrospective method for contracts that were not completed as of July 31, 2018. This did not result in an adjustment to the retained earnings upon adoption of this new guidance as the Company’s revenue was recognized based on the amount of consideration expected to receive in exchange for satisfying the performance obligations.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized over time for the Company’s sale and installation of power generation systems and are recognized at a point in time for the Company’s sale of products.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

Gross versus Net Revenue Reporting

In the normal course of the Company’s trading business, the Company orders products directly from its suppliers and drop ships the products directly to its customers. In these situations, the Company generally collects the sales proceeds directly from its customers and pays for the inventory purchases to its suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Because the Company is not the primary obligor and is not responsible for (i) fulfilling the resale products delivery, (ii) establishing the selling prices for delivery of the resale products , (iii) performing all billing and collection activities including retaining credit risk and (iv) baring the back-end risk of inventory loss with respect to any product return from its customer, the Company has concluded that it is the agent in these arrangements, and therefore reports revenues and cost of revenues on a net basis.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Sale and installation of power generation systems

Sales of power generation system in conjunction of system installation are generally recognized based on the Company’s efforts or inputs to the satisfaction of a performance obligation using an input measure method, which essentially the same as the percentage of completion method prior to August 1, 2018 for its installation project. Therefore, take into account the costs, estimated earnings and revenue to date on contracts not yet completed. Revenue recognized is that percentage of the total contract price that costs expended to date bear to anticipated final total costs, based on current estimates of costs to complete. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and supplies. Adjustments to the original estimates of the total contract revenue, total contract costs, or the extent of progress toward completion are often required as work progresses. Such changes and refinements in estimation are reflected in reported results of operations as they occur; if material, the effects of changes in estimates are disclosed in the notes to the unaudited condensed consolidated financial statements.

The key assumptions used in the estimate of costs to complete relate to the unit material cost, the quantity of materials to be used, the installation cost and those indirect costs related to contract performance. The estimate of unit material cost is reviewed and updated on a quarterly basis, based on the updated information available in the supply markets. The estimate of material quantity to be used for completion and the installation cost is also reviewed and updated on a quarterly basis, based on the updated information on the progress of project execution. If the supply market conditions or the progress of project execution were different, it is likely that materially different amounts of contract costs would be used in the percentage of completion method of accounting. Thus the uncertainty associated with those estimates may impact the Company’s unaudited condensed consolidated financial statements. Selling, general, and administrative costs are charged to expense as incurred. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the unaudited condensed consolidated financial statements. Claims for additional contract costs are recognized upon a signed change order from the customer.

The installation revenues and sales of equipment and system component are combined and considered as one performance obligation. The promises to transfer the equipment and system component and installation are not separately identifiable, which is evidencing by the fact that the Company provides a significant services of integrating the goods and services into a power generation system for which the customer has contracted. The Company currently does not have any modification of contract and the contract currently does not have any variable consideration.

Sales of products

The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or other incentive. Such revenues are recognized at a point in time after all performance obligations are satisfied and based on when control of goods transfer to a customer, which is generally similar to when its delivery has occurred prior to August 1, 2018.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The Company’s disaggregate sale of products streams for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018 are summarized as follows:

	For the Three Months Ended January 31, 2019		For the Three Months Ended January 31, 2018		For the Six Months Ended January 31, 2019		For the Six Months Ended January 31, 2018		For the Three Months Ended April 30, 2019		For the Three Months Ended April 30, 2018		For the Nine Months Ended April 30, 2019		For the Nine Months Ended April 30, 2018
Revenues
PV panels and others	$	11,311,830	$	175,821	$	20,413,524	$	481,461	$	849,720	$	344,943	$	21,259,433	$	826,404
Air compression equipment and other components		389,477				1,390,688		-		-		-		1,391,714		-
Heat pumps		3,338,872				7,582,436		-		417,146		-		7,999,582		-
High-grade synthetic fuel		4,183,310				8,280,062		-		4,585,464		-		12,865,526		-
Hydraulic parts and electronic components		2,188,559				3,344,294		-		1,137,823		-		4,482,117		-
Wine and herbal wine		501,443				501,443				1,436,914		-		1,938,357		-
Total revenue	$	21,913,491	$	175,821	$	41,512,447	$	481,461	$	8,427,067	$	344,943	$	49,936,729	$	826,404

Warranty

The Company generally provides limited warranties for work performed under its contracts. The warranty periods typically extend for up to five years following substantial completion of the Company’s work on a project. At the time a sale is recognized, the Company records estimated future warranty costs under ASC 460. Such estimated costs for warranties are estimated at completion and these warrants are not service warranties separately sold by the Company. Generally, the estimated claim rates of warranty are based on actual warranty experience or Company’s best estimate. There were no such reserves record for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018. No right of return exists on sales of inventory. As of ~~January 31,~~April 30, 2019 and July 31, 2018, accrued warranty expense amounted to ~~$66,969~~$66,627 and $67,651, respectively, and classified in the caption “other payables and accrued liabilities” in the accompanying unaudited condensed consolidated balance sheets.

Advertising costs

Advertising costs are expensed as incurred and included in selling and general and administrative expenses. Advertising costs amounted to ~~$9,039~~$20,157 and ~~$3,031~~$2,081 for the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively. Advertising costs amounted to ~~$41,011~~$61,168 and ~~$3,031~~$5,112 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively.

Employee benefit

The full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are government mandated defined contribution plans. The Company is required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. Total expenses for the plans were ~~$92,377~~$61,996 and ~~$17,385~~$27,822 for the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively. Total expenses for the plans were ~~$135,099~~$197,095 and ~~$43,712~~$71,534 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively.

Value added taxes

The Company is subject to value added tax (“VAT”). Revenue from sales of goods purchased from other entities is generally subject to VAT at the rate of 13% to 16% starting in ~~May 2018 or at the rate of~~April 2019 and 17% in April 2018 and prior for all of its products except Herbal Wine which is at the rate of 3%. The Company is entitled to a refund for VAT already paid on goods purchased. The VAT balance is recorded in other payables on the consolidated balance sheets. Revenues are presented net of applicable VAT.

Income taxes

The Company accounts for income taxes in accordance with U.S. GAAP for income taxes. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the unaudited condensed consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. No penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. PRC tax returns filed in 2015 to 2018 are subject to examination by any applicable tax authorities.

Comprehensive Income (Loss)

The Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) ASC 220 “Reporting Comprehensive Income”. Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company had other comprehensive ~~income~~loss of ~~$1,046,405~~$229,348 and ~~$316,017~~$41,628 for the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively, from foreign currency translation adjustments. The Company had other comprehensive income of ~~$665,419~~$436,071 and ~~$405,892~~$364,347 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively, from foreign currency translation adjustments.

Foreign Currency Translation

The reporting currency of the Company is the U.S. dollar. The functional currency of the Company is the RMB as substantially all of the Company’s PRC subsidiaries’ operations use this denomination. Foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Non-monetary assets and liabilities are translated at the exchange rates prevailing at the transaction date. Revenues and expenses are translated at average rates of exchange during the year. Gains or losses resulting from foreign currency transactions are included in results of operations.

For the purpose of presenting these financial statements of subsidiaries in PRC, the Company’s assets and liabilities are expressed in U.S. dollars at the exchange rate on the balance sheet date, which is ~~6.7004~~6.7348 and 6.8204 as of ~~January 31,~~April 30, 2019 and July 31, 2018, respectively; stockholders’ equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period, which is ~~6.8732~~6.7233 and ~~6.5452~~6.3172 for the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively. Weighted average exchange rate is ~~6.8753~~6.8265 and ~~6.5841~~6.4934 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively. The resulting translation adjustments are reported under accumulated other comprehensive income (loss) in the stockholders’ equity section of the unaudited condensed consolidated balance sheets.

For the purpose of presenting these financial statements of the subsidiary in Hong Kong, the Company’s assets and liabilities are expressed in U.S. dollars at the exchange rate on the balance sheet date, which is ~~7.8467~~7.8456 and 7.8490 as of ~~January 31,~~April 30, 2019 and July 31, 2018, respectively; stockholders’ equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period, which is ~~7.8304~~7.8473 and ~~7.8126~~7.8374 for the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively. Weighted average exchange rate is ~~7.8361, 7.8130~~7.8397, 7.8212 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively. The resulting translation adjustments are reported under accumulated other comprehensive loss in the stockholders’ equity section of the unaudited condensed consolidated balance sheets.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number ofshares of common stock outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted loss per share gives effect to all dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Loss per share excludes all potential dilutive shares of common stock if their effect is anti-dilutive. There were no potential dilutive securities for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018.

Statutory Reserves

Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable statutory surplus reserve fund. Subject to certain cumulative limits, the statutory surplus reserve fund requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the reserve fund. For foreign invested enterprises, the annual appropriation for the reserve fund cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss. For the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, the Company has contributed ~~$372,824~~$469,902 and $0, respectively, to the statutory reserves.

Contingencies

From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would have a material adverse impact on the Company’s unaudited condensed consolidated financial position, results of operations and cash flows.

Recently issued accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)~~. This update will require~~, to increase the ~~recognition of~~transparency and comparability about leases among entities. The new guidance requires lessees to recognize a ~~right-of-use asset~~lease liability and a corresponding lease ~~liability, initially measured at the present value of the~~asset for virtually all lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows.contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and ~~interim~~requires a modified retrospective approach to adoption assuming the Company will remain an emerging growth company at that date. Early adoption is permitted. In September 2017, the FASB issued ASU No. 2017-13, which to clarify effective dates that public business entities and other entities were required to adopt ASC Topic 842 for annual reporting. A public business entity that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC adopting ASC Topic 842 for annual reporting periods beginning after December 15, ~~2018. Early adoption is permitted. Upon adoption, leases will~~2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. ASU No. 2017-13 also amended that all components of a leveraged lease be ~~recognized and measured at the beginning~~recalculated from inception of the ~~earliest period presented using a modified retrospective approach.~~lease based on the revised after tax cash flows arising from the change in the tax law, including revised tax rates. The difference between the amounts originally recorded and the recalculated amounts must be included in income of the year in which the tax law is enacted. The Company plans to adopt this update in the first quarter of fiscal year 2020. The Company is currently evaluating the impact of ~~the adoption of ASU 2016-02~~this new standard on its unaudited condensed consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Management does not believe the adoption of this ASU would have a material effect on the Company’s unaudited condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, modifies disclosures for investments that are valued based on net asset value, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. ASU 2018-13 is effective for the Company for annual and interim reporting periods beginning July 1, 2020. The Company is currently evaluating the impact ASU 2018-13 will have on its unaudited condensed consolidated financial statements.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation such as segregating the selling and general and administrative expenses for comparative purpose. These reclassifications have no effect on the reported revenues, net income (loss) or total assets.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 3 – Business combinations

Acquisition of Hubei Jinli

On June 21, 2018, Xianning Xiangtian entered into a share purchase agreement (the “Jinli Agreement”) with Sheng Zhou and Heping Zhang, former shareholders of Hubei Jinli (collectively the “Jinli Sellers”). Neither Xianning Xiangtian nor its affiliates have any material relationship with the Jinli Sellers other than with respect to the Jinli Agreement.

Pursuant to the Jinli Agreement, Xianning Xiangtian agreed to acquire 100% of the capital stock of Hubei Jinli collectively held by the Jinli Sellers (the “Jinli Acquisition”), for an aggregate consideration of RMB 150 million (approximately $23.18 million), consisting of the following: (a) RMB 40 million (approximately $6.18 million) in cash (the “Jinli Cash Portion”); and (b) shares of the Company’s common stock (the “Jinli Stock Portion”) which shall have a value equal to RMB 80.07 million (approximately $12.37 million). The price per share will be determined by the average daily closing price of Xiangtian’s common stock for the period from January 1, 2018 to June 30, 2018; and (c) an assumption by Xianning Sanhe of Hubei Jinli’s existing bank loan from Hubei Xianning Rural Commercial Bank in the principal amount of RMB 29.93 million (approximately $4.63 million). The existing bank loan did not count toward the purchase price as it is considered to be assumed debt as part of the Hubei Jinli’s net assets. Pursuant to the Jinli Agreement, the Jinli Cash Portion shall be paid within seven days of the Jinli Agreement, and the Jinli Acquisition shall be closed within one month after payment of the Jinli Cash Portion. On June 21, 2018, Xianning Xiangtian, entered into a supplemental agreement to the Stock Purchase Agreement (the “Supplement Agreement”) with the Jinli Sellers, pursuant to which the Jinli Sellers have the right to demand that Xianning Xiangtian pay RMB 80.07 million (approximately $12.37 million) plus interest to repurchase the Stock Portion if the Company does not list its common stock on the Nasdaq Stock Market by June 21, 2019.

On June 30, 2018, the parties consummated the Jinli Acquisition.

Pursuant to the Supplement Agreement, after the Jinli Acquisition, should Hubei Jinli’s annual net profit (the “Jinli Net Profit”) exceed RMB 10 million (approximately $1.55 million), Xianning Xiangtian shall pay the Jinli Sellers 20% of the Jinli Net Profit and if the Jinli Net Profit reaches RMB 5 million (approximately $773,000), but less than RMB 10 million (approximately $1.55 million), Xianning Xiangtian shall pay the Jinli Sellers 10% of the Jinli Net Profit. On August 25, 2018, Xianning Xiangtian and the Jinli Sellers amended this annual net profit sharing clause to define the annual net profit sharing period to be one year from June 21, 2018 to June 20, 2019.

On August 11, 2018, Xianning Xiangtian and the Jinli Sellers amended the payment term of the Jinli Stock Portion which shall have a value equal to RMB 80.07 million (approximately $12.37 million) to comprise three cash installments of 1) first installment of RMB 25 million (approximately $3.95 million) payable by June 20, 2019, 2) second installment of RMB 25 million (approximately $3.95 million) payable by June 20, 2020, and 3) third installment of RMB 30.07 million (approximately $4.75 million) payable by June 20, 2021.

The Company’s acquisition of Hubei Jinli was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Hubei Jinli based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the business combination standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The following table summarizes the consideration transferred to acquire Hubei Jinli at the date of acquisition:

Cash	$	6,040,015
Present value of cash installments		10,996,129
Contingent purchase prices payment		137,561
Total consideration at fair value	$	17,173,705

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Hubei Jinli based on a valuation performed by an independent valuation firm engaged by the Company:

	Fair Value
Cash	$	33,402
Accounts receivable, net		2,561,863
Inventories, net		455,247
Advances to suppliers		143,129
Other receivables		8,622
Loan receivables		2,434,381
Plant and equipment		6,550,446
Intangible assets		7,899,887
Deferred tax assets		9,295
Goodwill		3,906,599
Total assets		24,002,871

Short-term loan - bank		(2,114,005	)
Current maturities of long-term loan		(3,160,828	)
Accounts payable		(357,188	)
Advance from customers		(4,099	)
Other payables and accrued liabilities		(844,926	)
Other payables - related party		(30,200	)
Income taxes payable		(317,920	)
Total liabilities		(6,829,166	)
Net assets acquired	$	17,173,705

The above fair value valuation is a preliminary assessment. The Company will continue to evaluate the fair value and to be finalized within one year from the acquisition date on June 30, 2018.

Approximately $3.9 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of Xianning Xiangtian and Hubei Jinli. None of the goodwill is expected to be deductible for income tax purposes.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~$113,539.

The following unaudited pro forma combined results of operations present the Company’s financial results as if the acquisition of Hubei Jinli had been completed on August 1, 2017. The unaudited pro forma results do not reflect operating efficiencies or potential cost savings which may result from the consolidation of operations. Accordingly, the unaudited pro forma financial information is not necessarily indicative of the results of operations that the Company would have recognized hadit completed the transaction on August 1, 2017. Future results may vary significantly from the results in this pro forma information because of future events and transactions, as well as other factors.

	For the Three Months Ended			For the Six Months Ended			For the Three Months Ended			For the Nine Months Ended
	January 31, 2018			January 31, 2018			April 30, 2018			April 30, 2018
Revenue	$	11,427,157		$	12,506,093		$	954,373		$	3,352,028
Cost of revenue		7,340,163			7,903,481			617,767			2,236,351
Gross profit		4,086,994			4,602,612			336,606			1,115,677
Total operating expenses		4,089,428			5,220,063			1,051,515			3,211,206
Loss from operations		(2,434	)		(617,451	)		(714,908	)		(2,095,529	)
Other income (expenses), net		709			(3,394	)		28,513			(26,715	)
Loss before income taxes		(1,725	)		(620,845	)		(686,395	)		(2,122,244	)
Income tax expense		(1,008	)		(3,843	)		(5,422	)		(86,192	)
Net loss attributable to XT Energy Group, Inc.	$	(2,733	)	$	(624,688	)	$	(691,817	)	$	(2,208,436	)
Weighted average number of common shares outstanding - basic and diluted		591,042,000			591,042,000			591,042,000			591,042,000
Net loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

Acquisition of Tianjin Jiabaili

On June 21, 2018, Xianning Xiangtian entered into a share purchase agreement (the “Jiabaili Agreement”) with Wenhe Han and Guifen Wang, former shareholders of Tianjin Jiabaili (collectively the “Jiabaili Sellers”). Neither Xianning Xiangtian nor its affiliates have any material relationship with the Jiabaili Sellers other than with respect to the Jiabaili Agreement.

Pursuant to the Jiabaili Agreement, Xianning Xiangtian agreed to acquire 90% of the capital stock of Tianjin Jiabaili collectively held by the Jiabaili Sellers (the “Jiabaili Acquisition”), for an aggregate consideration of RMB 6,120,000 (approximately $0.9 million), consisting of the following: (a) RMB 3,672,000 (approximately $0.5 million) in cash (the “Jiabaili Cash Portion”); and (b) shares of the Company’s common stock (the “Jiabaili Stock Portion”) which shall have a value equal to RMB 2,448,000 (approximately $0.4 million).

On June 30, 2018, the parties consummated the Jiabaili Acquisition.

On August 12, 2018, Xianning Xiangtian and the Jiabaili Sellers amended the ownership transfer from 90% to 100% and the full payment term of acquisition price of RMB 6,800,000 (approximately $1.0 million) amended to be all cash payment. In addition, Xianning Xiangtian will indefinitely provide 10% of profit sharing of Tianjin Jiabaili to the Jiabaili Sellers.

The Company’s acquisition of Tianjin Jiabaili was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Tianjin Jiabaili based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the business combination standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The following table summarizes the consideration transferred to acquire Tianjin Jiabaili at the date of acquisition:

Cash	$	1,026,803
Contingent purchase prices payment		203,850
Total consideration at fair value	$	1,230,653

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, which represents the net purchase price allocation at the date of the acquisition of Tianjin Jiabaili based on a valuation performed by an independent valuation firm engaged by the Company:

	Fair Value
Cash	$	2,731
Other current assets		2,065
Intangible assets		875,802
Goodwill		350,055
Total assets		1,230,653
Total liabilities		-
Net assets acquired	$	1,230,653

Approximately $0.4 million of goodwill arising from the acquisition consists largely of synergies expected from combining the operations of Xianning Xiangtian and Tianjin Jiabaili. None of the goodwill is expected to be deductible for income tax purposes. The above fair value valuation is a preliminary assessment. The Company will continue to evaluate the fair value and to be finalized within one year from the acquisition date on June 30, 2018.

For three and ~~six~~nine months ended ~~January 31,~~April 30, 2018, the impact of the acquisition of Tianjin Jiabaili to the unaudited condensed consolidated statements of operations and other comprehensive loss was not material.

Acquisition of Wine Co. and Herbal Wine Co.

On December 21, 2018, Xianning Xiangtian completed its acquisition (the “Transaction”) of 90% of the equity interests in each of Wine Co. and Herbal Wine Co., each a limited liability company incorporated in the PRC, pursuant to an equity investment agreement dated December 14, 2018 (the “Agreement”), by and between Xianning Xiangtian and the Rongentang Shareholders, who are unrelated to the Company or Xianning Xiangtian. Wine Co. is engaged in the business of manufacturing and sales of compound wine products and Herbal Wine Co. is engaged in the business of manufacturing and sales of herbal wine products.

Pursuant to the Agreement, Xianning Xiangtian paid a total cash consideration of RMB67.5 million (approximately $9,786,488) (“Total Consideration”) to the Rongentang Shareholders, the full amount of which would be contributed into Wine Co. as registered capital. RMB60 million (approximately $8,699,100) of the Total Consideration was deposited into an escrow account held by Xianning Wenquan Branch of Agricultural Bank of China as escrow agent on December 14, 2018. As of December 21, 2018, the Rongentang Shareholders completed the equity interest transfer registration with relevant PRC government authorities and the fund in the escrow was released.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

In addition, Rongentang Shareholders completed the title transfer procedures with the PRC government authorities for all the real property and land use rights possessed by Rongentang to Wine Co. (“Title Transfer”) from the owner of such real property and land use rights, Xianning Rongentang Wine Co., Ltd. (“Xianning Rongentang”), an entity controlled by the Rongentang Shareholders, in February 2019. Rongentang also obtained a three-year royalty-free license from Xianning Rongentang, the owner of the trademark “Rongentang,” to use such trademark, in January 2019. The Company paid the remaining RMB7.5 million (approximately $1,087,388) of the Total Consideration to ~~be contributed to~~ Wine Co. as registered capital ~~will be paid off by~~in March 2019.

Rongentang Shareholders were responsible for taxes and undisclosed liabilities of Rongentang prior to the closing, including but not limited to, the guarantee liability of Wine Co. under certain loan agreement, pursuant to which a security interest in the real property possessed by Rongentang was granted to secure the repayment of a loan of a party related to Rongentang Shareholders of up to RMB10 million (approximately $1,449,850) to a PRC commercial bank. RMB10 million (approximately $1,449,850) of the funds received by the Rongentang Shareholders in connection with the Transaction was used to pay off this loan on January 18, 2019.

Upon closing of the Transaction, Rongentang became majority owned subsidiaries of Xianning Xiangtian and the Company is now engaged in the production and sales of compound wine and herbal wine products through Rongentang.

The Company’s acquisition of Wine Co. and Herbal Wine Co. was accounted for as a business combination in accordance with ASC 805. The Company has allocated the purchase price of Wine Co. and Herbal Wine Co. based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the business combination standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumedon the acquisition date, which represents the net purchase price allocation on the date of the acquisition of Wine Co. and Herbal Wine Co. based on a valuation performed by an independent valuation firm engaged by the Company:

	Fair Value
Cash	$	6,890
Accounts receivable, net		23,612
Inventories, net		1,173,938
Advances to suppliers		25,719
Other receivable		244,279
Plant and equipment		4,351,805
Intangible assets		3,160,442
Goodwill		1,677,127
Total assets		10,663,812

Advance from customers		13,906
Other payables and accrued liabilities		6,128,289
Other payables – related parties and director		3,653,843
Taxes payable		5,582
Total liabilities		9,801,620
Net assets acquired prior to capital contribution	$	862,193
Total consideration for capital injection		9,699,669
Additional capital contribution by noncontrolling shareholder		215,548
Net assets acquired after capital contribution		10,777,410
Percentage of interest acquired		90.0	%
Total net assets acquired	$	9,699,669

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The above fair value valuation is a preliminary assessment. The Company will continue to evaluate the fair value and to be finalized within one year from acquisition ~~date.~~date on December 21, 2018.

Approximately $1.7 million of goodwill arising from the acquisition consists largely of synergies expected from the sales distribution networks of the Company to boost its wine and herbal wine sales. None of the goodwill is expected to be deductible for income tax purposes.

For the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, the impact of the acquisition of Wine Co. and Herbal Wine Co. to the unaudited condensed consolidated statements of operations and comprehensive income (loss) was not material.

Contingent liabilities

Contingent liabilities represent estimated contingent profit sharing payments that the Company agreed to as a purchase price consideration in relation to the acquisition of Hubei Jinli and Tianjin Jiabaili to the former shareholders’ of Hubei Jinli and Tianjin Jiabaili.

Profit sharing payments to former shareholders of Hubei Jinli

If Jinli Net Profit exceed RMB 10 million (approximately $1.55 million), Xianning Xiangtian shall pay the former shareholders of Hubei Jinli 20% of the Jinli Net Profit and if the Jinli Net Profit reaches RMB 5 million (approximately $773,000), but less than RMB 10 million (approximately $1.55 million), Xianning Xiangtian shall pay the former shareholders of Hubei Jinli 10% of the Jinli Net Profit and the annual net profit sharing period is one year from June 21, 2018 to June 20, 2019.

The change in fair value measurement of contingent liability amounted to ~~$155,744~~$177,182 and $21,438 for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 as the operations result of Hubei Jinli has changed. As of ~~January 31,~~April 30, 2019, estimated contingent liabilities payables to the former shareholders of Hubei Jinli was ~~$295,772~~$113,539 and classified in the caption “other payables and accrued liabilities” in the accompanying unaudited condensed consolidated balance sheets.

Profit sharing payments to former shareholders of Tianjin Jiabaili

Xianning Xiangtian shall pay the former shareholders of Tianjin Jiabaili 10% of the Tianjin Jiabaili’s annual net profit indefinitely from the date of acquisition on June 30, 2018. As of ~~January 31,~~April 30, 2019, estimated contingent liabilities payables to the former shareholders of Tianjin Jiabaili was ~~$201,481~~$200,451 and classified in the caption “other payables and accrued liabilities” in the accompanying unaudited condensed consolidated balance sheets. No change to the fair value since June 30, 2018 as the estimated potential profit sharing payments remained the same as of the acquisition date.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Investment payable

Investment payable consists of the following:

Name of Payee	Relationship	Nature	January 31, 2019			July 31, 2018			Relationship	Nature	April 30, 2019			July 31, 2018

Sheng Zhou	Former shareholder of Hubei Jinli	Payment for acquisition of Hubei Jinli	$	225,254		$	9,069,058		Former shareholder of Hubei Jinli	Payment for acquisition of Hubei Jinli	$	-		$	9,069,058
Guifen Wang	Former shareholder of Hubei Jinli	Payment for acquisition of Tianjin Jiabaili		140,051			137,587		Former shareholder of Hubei Jinli	Payment for acquisition of Tianjin Jiabaili		139,336			137,587
Total				365,305			9,206,645					139,336			9,206,645
Short-term				(140,051	)		(2,505,871	)				(139,336	)		(2,505,871	)
Long-term			$	225,254		$	6,700,774				$	-		$	6,700,774

The maturities schedule is as follows as of ~~January 31,~~April 30, 2019:

Repayment date	Amount			Amount
Due on demand	$	140,051		$	139,336
June 2019		-
June 2020		220,489			18,990
June 2021		733,911			188,121
Debt discount		(729,146	)		(207,111	)
Total	$	365,305		$	139,336

Investment payable – related parties

Investment payable – related parties consist of the following:

Name of Related Party	Relationship	Nature	January 31, 2019			July 31, 2018			Relationship	Nature	April 30, 2019			July 31, 2018

Wenhe Han	Vice general manager of Tianjin Jiabaili	Payment for acquisition of Tianjin Jiabaili	$	116,650		$	261,216		Vice general manager of Tianjin Jiabaili	Payment for acquisition of Tianjin Jiabaili	$	116,054		$	261,216
Heping Zhang	General manager of Hubei Jinli	Payment for acquisition of Hubei Jinli		572,678			750,286		General manager of Hubei Jinli	Payment for acquisition of Hubei Jinli		370,936			750,286
Total				689,328			1,011,502					486,990			1,011,502
Short-term				(163,898	)		(507,143	)				(116,054	)		(507,143	)
Long-term			$	525,430		$	504,359				$	370,936		$	504,359

The maturities schedule is as follows as of ~~January 31,~~April 30, 2019:

Repayment date	Amount			Amount
Due on demand	$	116,650		$	116,054
June 2019		52,236			-
June 2020		261,178			103,938
June 2021		314,145			312,541
Debt discount		(54,881	)		(45,543	)
Total	$	689,328		$	486,990

Debt discount

Debt discount, net of accumulated amortization, totaled ~~$784,027~~$252,654 and $1,021,413 as of ~~January 31,~~April 30, 2019 and July 31, 2018, respectively, are recognized as a reduction of investment payable. Amortization expense related to the debt discount, included in interest expense, was ~~$125,356~~$129,457 and $0 for the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively. Amortization expense related to the debt discount, included in interest expense, was ~~$249,175~~$378,632 and $0 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively.

~~XT Energy Group, Inc.~~

The Company repaid the payment for acquisition of Hubei Jinli prior to the original due date, as a result, the Company recognized a one-time finance expenses of $392,609 at the time for which the discount portion of the original due date payment were prepaid for the three and ~~Subsidiaries~~nine months ended April 30, 2019 and is included in the caption “other expenses, net” on the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss).

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 4 – Accounts receivable, net

Accounts receivable, net consist of the following:

	January 31, 2019			July 31, 2018			April 30, 2019			July 31, 2018

Accounts receivable	$	7,613,192		$	6,516,935		$	7,085,411		$	6,516,935
Less: allowance for doubtful accounts		(1,325,250	)		(1,374,155	)		(1,358,468	)		(1,374,155	)
Accounts receivable, net	$	6,287,942		$	5,142,780		$	5,726,943		$	5,142,780

For the three months ended ~~January 31,~~April 30, 2019 and 2018, the Company ~~provided~~recorded provision for ~~a total~~doubtful accounts of ~~$60,959~~$38,707 and ~~$114,196~~recognized $6,380 in recovery of allowance for doubtful accounts, respectively.

During the ~~six~~nine months ended ~~January 31,~~April 30, 2019, the Company recognized a total of ~~$103,928~~$65,221 of recovery of allowance for doubtful accounts. Addition of ~~$32,283~~$32,514 was attributable to theacquisition of Wine Co. and Herbal Wine Co. Foreign currency translation effect amounted to ~~$22,740.~~$17,020. During the ~~six~~nine months ended ~~January 31,~~April 30, 2018, the Company recognized ~~$112,620~~$119,000 of recovery of allowance for doubtful accounts.

Note 5 – Inventories, net

Inventories, net, consist of the following:

	January 31, 2019		July 31, 2018		April 30, 2019		July 31, 2018

Raw materials and parts	$	1,541,218	$	1,725,258	$	1,738,731	$	1,725,258
Work in progress		146,565		124,507		221,416		124,507
Semi-finished goods		456,936		-		443,589		-
Finished goods		5,946,814		3,291,768		5,803,331		3,291,768
Total		8,091,533		5,141,533		8,207,067		5,141,533
Less: allowance for inventory reserve		-		-		-		-
Inventory, net	$	8,091,533	$	5,141,533	$	8,207,067	$	5,141,533

Note 6 – Costs and estimated earnings in excess of billings

Costs in excess of billings related to certain contracts consist of the following:

January 31,
2019 July 31,
2018
Costs and estimated earnings incurred on uncompleted contracts $ 5,518,204 $ 5,025,892
Billings to date (5,518,204 ) (2,142,484 )
Costs and estimated earnings in excess of billings $ - $ 2,883,408

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

	April 30, 2019			July 31, 2018
Costs and estimated earnings incurred on uncompleted contracts	$	5,490,019		$	5,025,892
Billings to date		(5,490,019	)		(2,142,484	)
Costs and estimated earnings in excess of billings	$	-		$	2,883,408

Note 7 – Deposit for investment

On March 16, 2018, the Company entered into a letter of intent to establish a 60% majority-owned subsidiary for a proposed supermarket project. Pursuant to the letter of intent, the Company paid a deposit to an unrelated party that will be the 40% noncontrolling interest in the proposed project. The deposit was $439,857 (RMB 3,000,000) and is expected to be used as working capital once the subsidiary is formed. On July 20, 2018, the Company rescinded the letter of intent and the unrelated party is required to fund the deposit to the Company by October 20, 2018. The Company collected $14,539 (RMB 100,000) as of October 31, 2018. The Company has received additional approximately $0.1 million (RMB 710,000) in November 2018. In ~~November 2018,~~May 2019, the Company entered an extension agreement with the unrelated party to extend thedeadline for refunding the remaining balance of approximately $0.3 million (RMB 2,190,000) ~~to April~~in July 2019.

Note 8 – Property, plant and equipment, net

Property, plant and equipment consist of the following:

	January 31, 2019			July 31, 2018			April 30, 2019			July 31, 2018

Plant and buildings	$	11,385,443		$	6,662,554		$	11,345,391		$	6,662,554
Machinery equipment		8,768,779			6,711,556			9,116,804			6,711,556
Computer and office equipment		431,926			251,965			468,098			251,965
Vehicle		302,873			121,211			452,097			121,211
Plant improvement		742,836			729,766			739,041			729,766
Construction in progress		817,094			256,503			1,215,373			256,503
Subtotal		22,448,951			14,733,555			23,336,804			14,733,555
Less: accumulated depreciation		(4,847,059	)		(2,767,322	)		(4,868,509	)		(2,767,322	)
Property, plant and equipment, net	$	17,601,892		$	11,966,233		$	18,468,295		$	11,966,233

Depreciation expenses for the three months ended ~~January 31,~~April 30, 2019 and 2018 were ~~$325,021~~$249,853 and ~~$113,748,~~$121,412, respectively. For the three months ended ~~January 31,~~April 30, 2019 and 2018, depreciation included in cost of sales was ~~$210,664~~$136,872 and ~~$18,~~$44, respectively. For the three months ended ~~January 31,~~April 30, 2019 and 2018, depreciation included in selling, general and administrative expenses was ~~$114,357~~$112,981 and ~~$113,730,~~$121,368, respectively.

Depreciation expenses for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018 were ~~$541,127~~$790,980 and ~~$195,881,~~$317,293, respectively. For the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, depreciation included in cost of sales was ~~$327,553~~$464,425 and ~~$3,149,~~$3,193, respectively. For the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, depreciation included in selling, general and administrative expenses was ~~$213,574~~$326,555 and ~~$192,732,~~$314,100, respectively.

Construction-in-progress consist of the following as of ~~January 31,~~April 30, 2019:

Construction-in-progress description Value Estimated Completion date Estimated Additional Cost to Complete
Synthetic fuel raw materials production line $ 473,700 March 2019 $ 5,257
Factory plantation 188,048 February 2019 2,227
Fire safety equipment installation 143,766 March 2019 14,924
Other miscellaneous items 11,579 February 2019 -
Total construction-in-progress $ 817,093 $ 22,408

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Construction-in-progress description	Value		Estimated Completion date	Estimated Additional Cost to Complete
Synthetic fuel raw materials production line	$	505,810	June 2019	$	163,331
Employee housing		262,308	July 2019		296,965
Factory plantation		224,074	July 2019		14,848
Fire safety equipment installation		143,359	October 2019		-
Piping		68,302	August 2019		59,393
Other miscellaneous items		11,520	May 2019		-
Total construction-in-progress	$	1,215,373		$	534,537

Note 9 – Intangible assets, net

Intangible assets consist of the following:

	January 31, 2019			July 31, 2018			April 30, 2019			July 31, 2018

Land use rights	$	7,535,819		$	4,581,842		$	7,497,327		$	4,581,842
Technology know-hows		1,861,829			1,829,072			1,852,319			1,829,072
Patents, licenses and certifications		3,340,080			2,935,293			3,323,020			2,935,293
Software		5,532			-			7,616			-
Less: accumulated amortization		(493,333	)		(85,564	)		(715,467	)		(85,564	)
Subtotal		12,249,927			9,260,643			11,964,815			9,260,643
In-process R&D		57,220			-			56,928			-
Intangible assets, net	$	12,307,147		$	9,260,643		$	12,021,743		$	9,260,643

Amortization expenses for the three months ended ~~January 31,~~April 30, 2019 and 2018 amounted to ~~$209,000~~$224,467 and $0, respectively. Amortization expenses for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018 amounted to ~~$395,902~~$620,369 and $0, respectively.

Based on the finite-lived intangible assets as of ~~January 31,~~April 30, 2019, the expected amortization expenses are estimated as follows:

Twelve Months Ending January 31, Estimated
Amortization Expense

2020 $ 900,120
2021 900,120
2022 898,776
2023 880,644
2024 704,209
Thereafter 7,966,058
Total $ 12,249,927

Twelve Months Ending April 30,	Estimated Amortization Expense

2020	$	896,789
2021		896,061
2022		893,657
2023		828,197
2024		700,612
Thereafter		7,749,499
Total	$	11,964,815

Note 10 – Goodwill

The changes in the carrying amount of goodwill by reportable segment are as follows:

Hubei Jinli Tianjin Jiabaili Wine Co. and Herbal Wine Co. Total
Balance as of July 31, 2018 $ 3,793,245 $ 339,898 $ - $ 4,133,143
Goodwill acquired in the Wine Co. and Herbal Wine Co. acquisition - - 1,741,855 1,741,855
Foreign currency translation adjustment 67,935 6,087 - 74,022
Balance as of January 31, 2019 $ 3,861,180 $ 345,985 $ 1,741,855 $ 5,949,020

	Hubei Jinli		Tianjin Jiabaili		Wine Co. and Herbal Wine Co.		Total
Balance as of July 31, 2018	$	3,793,245	$	339,898	$	-	$	4,133,143
Goodwill acquired in the Wine Co. and Herbal Wine Co. acquisition		-		-		1,709,680		1,709,680
Foreign currency translation adjustment		48,213		4,320		23,278		75,811
Balance as of April 30, 2019	$	3,841,458	$	344,218	$	1,732,958	$	5,918,634

Note 11 – Debt

Short-term loan - bank

Outstanding balance of short-term loan - bank consisted of the following:

Bank Name Maturities Interest rate Collateral/ Guarantee January 31,
2019 July 31,
2018

Wuhan Rural Commercial Bank May 2019 7.00 % Guarantee by Sheng Zhou and Heping Zheng, former shareholders of Hubei Jinli, and three other companies related to Sheng Zhou $ 746,224 $ 733,095

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Bank Name	Maturities	Interest rate			Collateral/Guarantee	April 30, 2019		July 31, 2018

Wuhan Rural Commercial Bank	May 2019 (Repaid infull in May 2019)		7.00	%	Guarantee by Sheng Zhou and Heping Zheng, former shareholders of Hubei Jinli, and three other companies related to Sheng Zhou	$	742,413	$	733,095

Current maturities of long-term loan

Outstanding balance of current maturities of long-term loan consisted of the following:

Bank Name	Maturities	Interest rate			Collateral/ Guarantee	January 31, 2019		July 31, 2018		Maturities	Interest rate			Collateral/Guarantee	April 30, 2019		July 31, 2018

Xianning Rural Commercial Bank*	April 2019		5.83	%	Land use rights, plant and equipment, inventories	$	2,656,558	$	3,069,113	Repaid in April 2019		5.83	%	Land use rights, plant and equipment, inventories	$	-	$	3,069,113

The current maturities of long-term loan was acquired through the acquisition of Hubei Jinli on June 30, 2018 (see Note 3).

Short-term loan – third party

Outstanding balance of short-term loan – third party consisted of the following:

Lender Name	Maturities	Interest rate			Collateral/ Guarantee	January 31, 2019		July 31, 2018		Maturities	Interest rate			Collateral/Guarantee	April 30, 2019		July 31, 2018

Xianning Zhongying New Energy Service Co. Ltd.	Repaid in October 2018		4.75	%	None	$	-	$	175,943	Repaid in October 2018		4.75	%	None	$	-	$	175,943

Short-term loans – related parties

Name of Related Party	Relationship	Maturities	Interest rate			Collateral/ Guarantee	January 31, 2019		July 31, 2018		Relationship	Maturities	Interest rate			Collateral/ Guarantee	April 30, 2019		July 31, 2018

Zhou Deng Hua	Chief Executive Officer of the Company	April 2019 & July 2019		None		None	$	-	$	5,864,759	Chief Executive Officer of the Company	April 2019 & July 2019		None		None	$	-	$	5,864,759
Jian Zhou	Chairman of the Company	May 2019		None		None		-		703,771	Chairman of the Company	May 2019		None		None		-		703,771
Hubei Henghao Real Estate Development Co., Ltd.	Bin Zhou, son of Zhou Deng Hua, is the executive director and general manager	Repaid in October 2018		12.00	%	None		-		13,195,707	Bin Zhou, son of Zhou Deng Hua, is the executive director and general manager	Repaid in October 2018		12.00	%	None		-		13,195,707
Hubei Henghao Real Estate Development Co., Ltd	Bin Zhou, son of Zhou Deng Hua, is the executive director and general manager	January 2019		4.75	%	None		-		381,209	Bin Zhou, son of Zhou Deng Hua, is the executive director and general manager	January 2019		4.75	%	None		-		381,209
Total							$	-	$	20,145,446							$	-	$	20,145,446

Interest expense for the three months ended ~~January 31,~~April 30, 2019 amounted to ~~$100,997,~~$41,388, including ~~$49,779~~$2,431 related parties interest expenses. Interest expense for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 amounted to ~~$454,406,~~$495,794, including ~~$345,107~~$342,584 related parties interest expenses. There was no interest expense for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2018.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 12 – Related party balances and transactions

Sales to related parties

Sanhe Liguang Kelitai Equipment Ltd (“Sanhe Kelitai”)

In August 2016, Sanhe Xiangtian began three construction projects for installation of PV panels with Sanhe Kelitai. Sanhe Kelitai is majority (95%) owned by Zhou Jian, the Company’s Chairman of the Board. During the three months ended ~~January 31,~~April 30, 2018, revenue of ~~$46,050~~$72,228 and costs of sales of ~~$39,884~~$46,530 were recognized related to these projects. During the ~~six~~nine months ended ~~January 31,~~April 30, 2018, revenue of ~~$54,798~~$127,026 and costs of sales of ~~$47,434~~$93,964 were recognized related to these projects. There was no revenue for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019.

Leases with related parties

Sanhe Xiangtian leases its principal office, factory and dormitory from LuckSky Group in ~~Sanhe~~Xianning City, ~~Hebei~~Hubei Province, PRC. LuckSky Group is owned by Zhou Deng Rong, the Company’s former Chief Executive ~~Officer.~~Officer, and Zhou Jian, the Company’s Chairman. The space in the office, factory and dormitory being leased are 1296, 5160 and 1200 square meters, respectively. The office and factory space are leased for a rent of $105,053 (RMB 697,248) per year and the dormitory is leased for a rent of $19,527 (RMB 129,600) per year. The leases expire on April 30, 2024 and are subject to renewal with a two-month advance written notice. This lease is terminated in April 2019. For the three months ended ~~January 31,~~April 30, 2019 and 2018, rent expense for the lease with Lucksky Group was ~~$30,078~~$30,710 and ~~$31,579,~~$32,711, respectively. For the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, rent expense for the lease with Lucksky Group was ~~$60,132~~$90,842 and ~~$62,791, respectively. As of January 31, 2019 and July 31, 2018, the amount due under the leases was $586,162 and $515,234,~~$95,502, respectively.

During year ended July 31, 2018, Sanhe Xiangtian leased another office in Sanhe City from Sanhe Dong Yi Glass Machine Company Ltd (“Sanhe Dong Yi”) which is owned by Zhou Deng Rong with the lease term expiring on June 14, 2019 for a rent of approximately $7,000 (RMB 48,000) per year. Sanhe Xiangtian intends to renew such lease for another year. For the three months ended ~~January 31, 2018,~~April 30, 2019, rent expense for this lease with Sanhe Dong Yi was $1,746. For the ~~six~~nine months ended ~~January 31, 2018,~~April 30, 2019, rent expense for this lease with Sanhe Dong Yi was ~~$3,491.~~$5,274.

Related party balances

Short-term loans – related parties (See Note 11)

Other receivable – related parties:

Name of Related Party	Relationship	Nature	January 31, 2019		July 31, 2018		Relationship	Nature	April 30, 2019		July 31, 2018

Tianyu Ma	General Manager of Tianjin Jiabaili	Employee advances	$	10,679	$	-	General Manager of Tianjin Jiabaili	Employee advances	$	10,622	$	-
Lei Su	Legal representative of Tianjin Jiabaili	Employee advances		1,492		-	Legal representative of Tianjin Jiabaili	Employee advances		2,227		-
Zhimin Feng	Legal representative of Jingshan Sanhe	Employee advances		4,894		-	Legal representative of Jingshan Sanhe	Employee advances		5,505		-
Heping Zhang	General Manager of Hubei Jinli	Employee advances		1,492		-	General Manager of Hubei Jinli	Employee advances		1,485		-
Ping Yu	General Manager of Jingshan Sanhe	Employee advances		3,881		-	General Manager of Jingshan Sanhe	Employee advances		3,862		-
Kairui Tong	Legal representative and general Manager of Wine Co. and Herbal Wine Co.	Employee advances		5,417		-	Legal representative and general Manager of Wine Co. and Herbal Wine Co.	Employee advances		5,369		-
				27,855		-				29,070		-

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Other payables – related parties:

Name of Related Party	Relationship	Nature	January 31, 2019		July 31, 2018		Relationship	Nature	April 30, 2019		July 31, 2018

Luck Sky International Investment Holdings Ltd.	Owned by Zhou Deng Rong, former Chief Executive Officer and director	Advances for payment of U.S. professional fee	$	530,941	$	-	Owned by Zhou Deng Rong, former Chief Executive Officer and director	Advances for payment of U.S. professional fee	$	530,941	$	-
Lucksky Group	Owned by Zhou Deng Rong, former Chief Executive Officer and director	Lease payable		586,163		515,234	Owned by Zhou Deng Rong, former Chief Executive Officer and director, and Zhou Jian, Chairman	Lease payable		613,862		515,234
Sanhe Dong Yi	Owned by Zhou Deng Rong, former Chief Executive Officer and director	Lease payable		-		21,113	Owned by Zhou Deng Rong, former Chief Executive Officer and director	Lease payable		-		21,113
Hubei Henghao Real Estate Development Co., Ltd.	Bin Zhou, son of Zhou Deng Hua, is the executive director and generate manager	Interest payable		250,391		211,441	Bin Zhou, son of Zhou Deng Hua, is the executive director and generate manager	Interest payable		546,078		211,441
Zhou Deng Rong	Former Chief Executive Officer and director	Advances for payment of U.S. professional fee		2,748,260		2,748,260	Former Chief Executive Officer and director	Advances for payment of U.S. professional fee		2,748,260		2,748,260
Zhou Deng Hua	Chief Executive Officer	Advances for operational purpose		294,759		289,572	Chief Executive Officer	Advances for operational purpose		293,253		289,572
Jian Zhou	Chairman	Advances for operational purpose		1,899,122		436,444	Chairman	Advances for operational purpose		1,899,181		436,444
Zhimin Feng	Legal representative of Jingshan Sanhe	Advances for operational purpose		-		1,191	Legal representative of Jingshan Sanhe	Advances for operational purpose		-		1,191
Wei Gu	General manager of Xiangtian Zhongdian	Advances for operational purpose		-		6,863	General manager of Xiangtian Zhongdian	Advances for operational purpose		-		6,863
Xianning Matang Rheumatology Hospital	Indirectly and partially owned by the noncontrolling shareholder of Wine Co. and Herbal Wine Co.	Advances for operational purpose		333,417		-
Xianning Rongentang	Partially owned by the noncontrolling shareholder of Wine Co.. and Herbal Wine Co.	Advances for operational purpose		136,139		-
Dahuan Chen	Noncontrolling shareholder of Wine Co. and Herbal Wine Co.	Advances for operational purpose		208,943		-
Shuiqing Zhen	Shareholder and legal representative of Xiangtian Trade	Advances for operational purpose		540,267		-
Total			$	7,528,402	$	4,230,118			$	6,631,575	$	4,230,118

Investment payables – related parties (See Note 3)

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 13 – Significant customer, former related party

Prior to April 10, 2014, Zhou Deng Rong, the Company’s former Chief Executive Officer and director, owned 70% equity interest, and Zhou Jian, the Company’s Chairman, owned the remaining 30% equity interest of Xianning Lucksky Aerodynamic Electricity (“Xianning Lucksky”). Through April 10, 2014, Xianning Lucksky’s primary asset was a land use right for approximately 70 acres of land located in Xianning, Hubei Province, PRC. On April 8, 2014, Zhou Deng Rong sold his 70% equity interest in Xianning Lucksky to an individual, and Zhou Jian sold his 30% equity interest in Xianning Lucksky to another individual. The two individuals are unrelated to Zhou Deng Rong or Jian Zhou, or any member of management of the Company, or any of its consolidated subsidiaries or VIE. As such, as of April 8, 2014, the Company, or any of its shareholders, had no relationship to Xianning Lucksky.

As of ~~January 31,~~April 30, 2019, the Company entered into a series of sales contracts with Xianning Lucksky. These contracts represented approximately ~~$813,315~~$17,338 and $0 of the Company’s revenue during the three months ended ~~January 31,~~April 30, 2019 and 2018, respectively. These contracts represented approximately ~~$1,824,694~~$1,842,032 and $0 of the Company’s revenue during the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively.

On July 27, 2016, Xianning Xiangtian entered into a rental agreement with Xianning Lucksky to lease 4,628 square meters’ space in a factory in Xianning, Hubei Province, PRC. The space is leased for a rent of $83,132 (RMB 555,360) per year. The lease would expire on July 31, 2018 but the Company terminated the lease early in February 2018 when the Company through Xiangtian Zhongdian signed another lease agreement which expired on February 5, 2019 with a rent of approximately $25,000 (RMB 168,922) per year. Xiangtian Zhongdian renewed such lease under the same terms from February 6, 2019 to February 5, 2021. During the three months ended ~~January 31,~~April 30, 2019 and 2018, rent expense related to these leases was $6,250 and ~~$42,008,~~$32,711, respectively. During the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, rent expense related to these leases was ~~$12,500~~$18,750 and ~~$62,791,~~$95,502, respectively.

On July 27, 2018, Xianning Xiangtian entered into a lease with Xianning Lucksky for a space of 3,128 square meters in the factory in Xianning, Hubei province. The factory space is leased for a rent of approximately $17,000 (RMB 114,172) per year from August 1, 2018 to July 31, 2020 and is subject to renewal with a one-month advance written notice. Rent expense for this lease amounted to ~~$145,450~~$147,553 and ~~$148,914~~$296,467 for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019, respectively.

Note 14 – Employee benefits government plan

The Company participates in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. PRC labor regulations require the Company to pay to the local labor bureau a monthly contribution calculated at a stated contribution rate based on the basic monthly compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution. As of ~~January 31,~~April 30, 2019 and July 31, 2018, the outstanding amount due to the local labor bureau was ~~$191,537~~$197,241 and $174,971, respectively, and is included in Other Payables and Accrued Liabilities on the accompanying balance sheets.

Note 15 – Income taxes

Income tax

United States

On December 22, 2017, the “Tax Cuts and Jobs Act” (the “Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21%. As the Company has a July 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28.6% for the Company’s fiscal year ending July 31, 2018, and 21% for subsequent fiscal years. Accordingly, the Company has remeasured the Company’s deferred tax assets on net operating loss carryforwards (“NOLs”) in the U.S at the lower enacted cooperated tax rate of 21%. However, this remeasurement has no effect on the Company’s income tax expenses as the Company has provided a 100% valuation allowance on its deferred tax assets previously.

Additionally, the Act imposes a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries, and future foreign earnings are subject to U.S. taxation. The change in rate has caused us to remeasure all U.S. deferred income tax assets and liabilities for temporary differences and NOLs and recorded one time income tax payable to be paid in 8 years. However, this one-time transition tax has no effect on the Company’s income tax expenses as the Company has no undistributed foreign earnings prior to December 31, 2017 which the Company has foreign cumulative losses at December 31, 2017.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

British Virgin Islands

Xiangtian BVI is incorporated in the British Virgin Islands and is not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.

Hong Kong

Xiangtian HK is incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, Xiangtian HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

PRC

The Company PRC subsidiaries and VIEs and their controlled entities are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC, Chinese enterprises are subject to income tax at a rate of 25% after appropriate tax adjustments.

Significant components of the income tax expense consisted of the following for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018:

Three Months Ended
January 31, Six Months Ended
January 31,
2019 2018 2019 2018
Current $ 1,032,405 $ 1,008 $ 1,575,918 $ 3,843
Deferred 17,369 - - -
Provision for income tax $ 1,049,774 $ 1,008 $ 1,575,918 $ 3,843

	Three Months Ended April 30,				Nine Months Ended April 30,
	2019		2018		2019		2018
Current	$	586,228	$	4,347	$	2,162,146	$	8,190
Deferred		-		-		-		-
Provision for income tax	$	586,228	$	4,347	$	2,162,146	$	8,190

Significant components of the Company’s deferred tax assets as of ~~January 31,~~April 30, 2019 and July 31, 2018 are approximately as follows:

	January 31, 2019			July 31, 2018			April 30, 2019			July 31, 2018
Deferred tax assets:
Net operating loss carry forwards	$	1,096,700		$	911,400		$	1,338,400		$	911,400
Accounts receivable allowance		331,300			343,500			339,600			343,500
Accrued liabilities		87,000			50,600			85,300			50,600
Warranty and other		16,700			16,400			16,700			16,400
Deferred tax assets before valuation allowance		1,531,700			1,321,900			1,780,000			1,321,900
Less: valuation allowance		(1,531,700	)		(1,321,900	)		(1,780,000	)		(1,321,900	)
Net deferred tax assets	$	-		$	-		$	-		$	-

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

As of ~~January 31,~~April 30, 2019, the Company had U.S. federal NOLs of approximately ~~$4,254,000~~$4,717,000 that expire beginning in 2029 to 2038 with deferred tax assets of approximately ~~$893,000.~~$991,000. As of ~~January 31,~~April 30, 2019, the Company had approximately ~~$794,000~~$1,406,000 of NOLs related to its PRC subsidiaries and VIEs that expire in years 2019 through 2023 with deferred tax assets of approximately ~~$198,000.~~$348,000. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance as of ~~January 31,~~April 30, 2019.

The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other Income (Expense)” in the statement of operations. Penalties would be recognized as a component of “General and Administrative Expenses” in the statement of operations. The Company filed its July 31, 2016 and 2017 corporation income tax return in November 2018. No interest or penalty on unpaid tax in relation to the late filings was recorded during the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively. As of ~~January 31,~~April 30, 2019 and July 31, 2018, other than discussed above, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next quarter.

Note 16 – Commitments and contingencies

Operating leases

The total future minimum lease payments under the non-cancellable operating leases as of ~~January 31,~~April 30, 2019 are payable as follows:

Twelve months ending January 31,	Minimum Lease Payment
Twelve months ending April 30,			Minimum Lease Payment
2020	$	395,460	$	1,171,457
2021		1,163,505		1,083,066
2022		1,133,641		763,052
2023		591,882		447,526
2024		217,129		445
Thereafter		31,970		1,002
Total minimum payments required	$	3,533,587	$	3,466,548

Rental expense of the Company for the three months ended ~~January 31,~~April 30, 2019 and 2018 were ~~$303,587~~$325,922 and ~~$89,817,~~$72,266, respectively. Rental expense of the Company for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018 were ~~$461,605~~$787,527 and ~~$109,527,~~$181,793, respectively.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

~~Purchase commitment~~

~~The total future minimum purchase commitment under the non-cancellable purchase contracts as of January 31, 2019 are payable as follows:~~

Twelve Months Ending January 31, Minimum Purchase Commitment
2020 $ 47,488
Thereafter -
Total minimum payments required $ 47,488

Contingencies

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. For the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, the dilutive effect of not canceling the 60,000,000 shares is incorporated in the unaudited condensed consolidated financial statements as the Company recorded such shares as issued and outstanding. For the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, not canceling the 60,000,000 shares has an anti-dilutive effect.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 ~~intends to file~~filed a motion for default judgment pursuant to which the Company ~~will seek~~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.

Sanhe Xiangtian is involved in a litigation with Shandong Taidai Photovoltaic Technology Co., Ltd. (“Shandong Taidai”) for contractual dispute. Sanhe Xiangtian filed a complaint 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. ~~As of~~On May 22, 2019, a hearing was held by the ~~date of this report,~~court and the ~~litigation is still in the process of verifying the damages.~~final judgement will be issued at a later date. The Company does not believe the litigation will have significant impact on their unaudited condensed consolidated financial statements.

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.

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. Currently, the case is under review by the Dongying City Intermediate People’s Court. Management currently cannot estimate the outcome of the litigation.

Variable interest entity structure

In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the New VIE Agreements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of Xiangtian Shenzhen and the VIE are in compliance with existing PRC laws and regulations in all material respects.

However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its management. If the current corporate structure of the Company or the New VIE Agreements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the New VIE Agreements is remote based on current facts and circumstances.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Note 17 – Stockholders’ equity

In June 2017, the Board of Directors of the Company adopted the 2017 Stock Incentive Plan (the “Plan”) under which 30 million shares of common stock are available for issuances.

As of ~~January 31,~~April 30, 2019, the Company ~~had~~did not ~~granted~~grant any awards under the Plan.

During the ~~six~~nine months ended ~~January 31,~~April 30, 2019, Mr. Jian Zhou, the Company’s Chairman and ~~major~~principal stockholder as well as a shareholder of Xianning Xiangtian, and Zhou Deng Rong, the Company’s former Chief Executive Officer and director, contributed ~~$15,465,036~~$30,820,127 of additional paid in capital in Xianning Xiangtian.

As discussed in Note 16, the Company cancelled 60 million shares in April 2019.

Note 18 – Concentrations

Customer concentration risk

For the three months ended ~~January 31,~~April 30, 2019, ~~two customers~~one customer accounted for ~~47.4% and 17.1%~~67.3% of the Company’s total revenues. For the three months ended ~~January 31,~~April 30, 2018, no customer accounted over 10% of the Company’s total revenues.

For the ~~six~~nine months ended ~~January 31,~~April 30, 2019, two customers accounted for ~~45.4%~~38.1% and ~~17.6%~~25.9% of the Company’s total revenues. For the ~~six~~nine months ended ~~January 31,~~April 30, 2018, one customer accounted for ~~52.0%~~38.0% of the Company’s total revenues.

As of ~~January 31,~~April 30, 2019, ~~five~~four customers accounted for ~~17.3%~~26.4%, ~~14.8%~~15.8%, ~~13.0%~~13.9%, ~~11.7%~~ and ~~10.7%~~11.5% of the total balance of accounts receivable, respectively. As of July 31, 2018, three customers accounted for 32.0%, 15.0% and 12.3% of the total balance of accounts receivable, respectively.

Vendor concentration risk

For the three months ended ~~January 31,~~April 30, 2019, two vendors accounted for ~~35.4%~~39.3% and ~~11.9%~~14.5% of the Company’s total purchases. For the three months ended ~~January 31,~~April 30, 2018, no vendor accounted over 10% of the Company’s total purchases.

For the ~~six~~nine months ended ~~January 31,~~April 30, 2019, two vendors accounted for ~~38.4%~~35.8% and ~~17.8%~~20.2% of the Company’s total purchases. For the ~~six~~nine months ended ~~January 31,~~April 30, 2018, no vendors accounted over 10% of the Company’s total purchases.

As of ~~January 31,~~April 30, 2019, three vendors accounted for 41.7%, ~~11.0%~~10.9%, and 11.5% of the total balance of accounts payable, respectively. As of July 31, 2018, four vendors accounted for 29.8%, 15.7%, 14.0% and 11.7% of the total balance of accounts payable, respectively.

Note 19 – Segment reporting

Starting in April 2018, the Company ~~beg~~anbegan to evaluate performance and to determine resource allocations based on a number of factors, the primary measurement being income from operations of the Company’s nine reportable divisions in the PRC: Sanhe Xiangtian, Xianning Xiangtian, Xiangtian Zhongdian, Jingshan Sanhe, Hubei Jinli, Tianjin Jiabaili, Xiangtian Trade, Wine Co., and Herbal Wine Co. Tianjin Jiabaili did not have any operations as of ~~January 31,~~April 30, 2019. Prior period numbers are broken down for purposes of comparison.

These reportable divisions are consistent with the way the Company manages its businessand each division operates under separate management groups and produces discrete financial information. The accounting principles applied at the operating division level in determining income (loss) from operations is generally the same as those applied at the unaudited condensed consolidated financial statement level.

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The following represents results of division operations for the three and ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018:

	Three Months Ended January 31,						Six Months Ended January 31,						Three Months Ended April 30,				Nine Months Ended April 30,
	2019			2018			2019			2018			2019		2018		2019		2018
Revenues:
Sanhe Xiangtian	$	976,074		$	214,745		$	2,896,951		$	569,634		$	80,497	$	423,396	$	2,977,448	$	993,030
Xianning Xiangtian		3,333,568			17,498			7,567,198			17,803			350,924		248		7,918,122		18,051
Jingshan Sanhe		3,753,465			-			7,329,793			-			4,577,063		-		11,906,856		-
Xiangtian Zhongdian		11,155,044			-			20,256,912			-			837,354		-		21,094,266		-
Hubei Jinli		2,188,559			-			3,344,294			-			1,137,823		-		4,482,117		-
Xiangtian Trade		5,338			-			5,338			-			6,493		-		11,831		-
Wine Co.		399,861			-			399,861			-			1,395,848		-		1,795,709		-
Herbal Wine Co.		101,582			-			101,582			-			41,065		-		142,647		-
Consolidated revenues	$	21,913,491		$	232,243		$	41,901,929		$	587,437		$	8,427,067	$	423,644	$	50,328,996	$	1,011,081

	Three Months Ended January 31,						Six Months Ended January 31,
	2019			2018			2019			2018
Gross profit:
Sanhe Xiangtian	$	451,887		$	56,054		$	1,159,296		$	93,418
Xianning Xiangtian		509,427			748			1,363,212			934
Jingshan Sanhe		1,785,033			-			2,972,524			-
Xiangtian Zhongdian		1,126,826			-			2,035,160			-
Hubei Jinli		1,497,608			-			2,036,104			-
Xiangtian Trade		5,338			-			5,338			-
Wine Co.		360,061			-			360,061			-
Herbal Wine Co.		85,965			-			85,965			-
Consolidated gross profit	$	5,822,145		$	56,802		$	10,017,660		$	94,352

	Three Months Ended January 31,						Six Months Ended January 31,
	2019			2018			2019			2018
Income (loss) from operations:
Sanhe Xiangtian	$	170,074		$	(603,151	)	$	839,836		$	(1,028,448	)
Xianning Xiangtian		120,796			(226,461	)		742,864			(488,840	)
Jingshan Sanhe		1,567,940			-			2,580,897			-
Xiangtian Zhongdian		474,060			-			1,275,812			-
Hubei Jinli		1,076,580			-			1,184,016			-
Tianjin Jiabaili		(120,779	)		-			(297,691	)		-
Xiangtian Trade		4,393			-			4,393			-
Wine Co.		300,804			-			300,804			-
Herbal Wine Co.		66,103			-			66,103			-
All four holding entities	$	(607,532	)	$	160,925			(1,102,964	)		-
Consolidated income (loss) from operations		3,052,439			(668,687	)	$	5,594,070		$	(1,517,288	)

	Three Months Ended April 30,				Nine Months Ended April 30,
	2019		2018		2019		2018
Gross profit:
Sanhe Xiangtian	$	8,523	$	97,461	$	1,167,819	$	190,879
Xianning Xiangtian		36,164		17,428		1,399,376		18,362
Jingshan Sanhe		1,641,188		-		4,613,712		-
Xiangtian Zhongdian		66,204		-		2,101,364		-
Hubei Jinli		604,710		-		2,640,814		-
Xiangtian Trade		6,493		-		11,831		-
Wine Co.		1,248,592		-		1,608,653		-
Herbal Wine Co.		36,667		-		122,632		-
Consolidated gross profit	$	3,648,541	$	114,889	$	13,666,201	$	209,241

	Three Months Ended April 30,						Nine Months Ended April 30,
	2019			2018			2019			2018
Income (loss) from operations:
Sanhe Xiangtian	$	(195,549	)	$	(445,705	)	$	644,287		$	(1,474,153	)
Xianning Xiangtian		(239,339	)		(236,548	)		347,781			(725,388	)
Jingshan Sanhe		1,016,267			-			3,597,164			-
Xiangtian Zhongdian		(58,945	)		-			1,216,867			-
Hubei Jinli		252,333			-			1,436,349			-
Tianjin Jiabaili		(93,343	)		-			(391,034	)		-
Xiangtian Trade		(36,190	)		-			(31,797	)		-
Wine Co.		1,135,425			-			1,436,229			-
Herbal Wine Co.		9,070			-			75,173			-
All four holding entities		(472,144	)		-			(1,575,108	)		-
Consolidated income (loss) from operations	$	1,317,585		$	(682,253	)	$	6,755,911		$	(2,199,541	)

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

	Three Months Ended April 30,						Nine Months Ended April 30,
	2019			2018			2019			2018
Net income (loss) attributable to controlling interest:
Sanhe Xiangtian	$	(106,989	)	$	(302,204	)	$	636,226		$	(825,031	)
Xianning Xiangtian		(747,036	)		(219,317	)		(725,477	)		(708,081	)
Jingshan Sanhe		728,696			(16,598	)		2,568,585			(16,598	)
Xiangtian Zhongdian		(42,897	)		(7,564	)		628,884			(7,564	)
Hubei Jinli		172,852			-			1,042,435			-
Tianjin Jiabaili		(93,193	)		-			(392,384	)		-
Xiangtian Trade		(34,932	)		-			(31,668	)		-
Wine Co.		759,374			-			953,669			-
Herbal Wine Co.		(74,284	)		-			(24,853	)		-
All four holding entities		(469,803	)		(136,074	)		(1,570,363	)		(649,008	)
Consolidated net income (loss) attributable to controlling interest	$	91,788		$	(681,757	)	$	3,085,054		$	(2,206,282	)

	Three Months Ended January 31,						Six Months Ended January 31,						Three Months Ended April 30,				Nine Months Ended April 30,
	2019			2018			2019			2018			2019		2018		2019		2018
Net income (loss) attributable to controlling interest:
Depreciation and amortization expenses:
Sanhe Xiangtian	$	195,701		$	(606,307	)	$	743,215		$	(1,035,761	)	$	47,244	$	69,713	$	134,666	$	196,705
Xianning Xiangtian		(187,857	)		(226,417	)		21,559			(488,764	)		172		51,699		366		120,588
Jingshan Sanhe		1,082,533			-			1,839,889			-			26,786		-		50,010		-
Xiangtian Zhongdian		199,417			-			671,781			-			23,960		-		169,117		-
Hubei Jinli		806,315			-			869,583			-			230,928		-		744,665		-
Tianjin Jiabaili		(119,059	)		-			(299,191	)		-			48,322		-		153,843		-
Xiangtian Trade		3,264			-			3,264			-			302				302
Wine Co.		194,295			-			194,295			-			81,248		-		132,904		-
Herbal Wine Co.		49,431			-			49,431			-			15,358		-		25,476		-
All four holding entities		(606,541	)		163,738			(1,100,560	)		-
Consolidated net income (loss) attributable to controlling interest	$	1,617,499		$	(668,986	)	$	2,993,266		$	(1,524,525	)

	Three Months Ended January 31,						Six Months Ended January 31,
	2019			2018			2019			2018
Depreciation and amortization expenses:
Sanhe Xiangtian	$	44,359		$	62,132		$	87,422		$	126,992
Xianning Xiangtian		137			51,616			194			68,889
Jingshan Sanhe		14,519			-			23,224			-
Xiangtian Zhongdian		70,267			-			145,157			-
Hubei Jinli		291,952			-			513,737			-
Tianjin Jiabaili		51,013			-			105,521			-
Wine Co.		51,656			-			51,656			-
Herbal Wine Co.		10,118			-			10,118			-
Consolidated depreciation and amortization expenses	$	534,021		$	113,748		$	937,029		$	195,881		$	474,320	$	121,412	$	1,411,349	$	317,293

	Three Months Ended January 31,						Six Months Ended January 31,
	2019			2018			2019			2018
Interest expense:
Sanhe Xiangtian	$	(207	)	$	-		$	5,834		$	-
Xianning Xiangtian		170,389			-			583,494			-
Hubei Jinli		56,171			-			114,253			-
Consolidated interest expense	$	226,353		$	-		$	703,581		$	-

	Three Months Ended April 30,				Nine Months Ended April 30,
	2019		2018		2019		2018
Interest expense:
Sanhe Xiangtian	$	41	$	-	$	5,875	$	-
Xianning Xiangtian		131,847		-		715,341		-
Hubei Jinli		38,957		-		153,210		-
Consolidated interest expense	$	170,845	$	-	$	874,426	$	-

~~XT Energy Group, Inc. and Subsidiaries~~

~~(Formerly Known as Xiangtian (USA) Air Power Co. Ltd.)~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

	Three Months Ended January 31,				Six Months Ended January 31,				Three Months Ended April 30,				Nine Months Ended April 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Capital expenditures:
Sanhe Xiangtian	$	18	$	-	$	47,049	$	-	$	59,892	$	-	$	106,941	$	-
Xianning Xiangtian		570		-		1,835		-		3,268		-		5,103		-
Jingshan Sanhe		625,253		-		890,576		-		1,086,843		37,055		1,977,419		37,055
Xiangtian Zhongdian		55		-		8,095		-		58		61,587		8,153		61,587
Hubei Jinli		239,638		-		384,281		-		72,699		-		456,980		-
Tianjin Jiabaili		6,295		-		18,655		-		16,496		-		35,151		-
Wine Co.		73,646		-		73,646		-		159,302		-		232,948		-
All four holding entities										18,500		-		18,500		-
Consolidated capital expenditures	$	945,475	$	-	$	1,424,137	$	-	$	1,417,058	$	98,642	$	2,841,195	$	98,642

Total assets of each division as of ~~January 31,~~April 30, 2019 and July 31, 2018 consisted of the following:

January 31,
2019 July 31,
2018
Total assets:
Sanhe Xiangtian $ 7,500,880 $ 11,355,619
Xianning Xiangtian 5,981,470 4,689,100
Jingshan Sanhe 4,829,032 3,513,449
Xiangtian Zhongdian 9,015,110 12,620,210
Hubei Jinli 22,525,849 22,489,702
Tianjin Jiabaili 1,491,926 4,111,706
Xiangtian Trade 460,474 -
Wine Co. 10,108,182 -
Herbal Wine Co. 2,494,640 -
All four holding entities 1,138,737 248,164
Consolidated assets $ 65,546,300 $ 59,027,950

	April 30, 2019		July 31, 2018
Total assets:
Sanhe Xiangtian	$	7,261,061	$	11,355,619
Xianning Xiangtian		16,382,707		4,689,100
Jingshan Sanhe		5,474,546		3,513,449
Xiangtian Zhongdian		7,079,587		12,620,210
Hubei Jinli		21,910,876		22,489,702
Tianjin Jiabaili		1,388,602		4,111,706
Xiangtian Trade		482,479		-
Wine Co.		9,530,931		-
Herbal Wine Co.		2,534,400		-
All four holding entities		724,083		248,164
Consolidated assets	$	72,769,272	$	59,027,950

Note 20 – Subsequent event

On May 24, 2019, the Company’s board of directors discussed the plan to sell the Wine Co. and Herbal Wine Co. However, no action has been taken in connection with such plan as of the date of this report.

On June 3, 2019, the Company’s board of directors approved the transfer of 3% equity interest of Xianning Xiangtian held by Zhou Deng Rong, the Company’s former Chief Executive Officer and director, to Fei Wang, an employee of Xianning Xiangtain. As a result of the transfer, Xianning Xiangtian and its shareholders, 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 terms remained substantially the same as the New VIE Agreements discussed in Note 2 - Variable interest entities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Cautionary Note Regarding Forward-Looking Statements~~

The following discussion and analysis of our results of operations and financial condition should be read together with our unaudited consolidated financial statements and the notes thereto, which are included elsewhere in this report and our Annual Report on Form 10-K for the fiscal year ended July 31, 2018 (the “Annual Report”) filed with SEC. Our financial statements have been prepared in accordance with U.S. GAAP. In addition, our financial statements and the financial information included in this report reflect our organizational transactions and have been prepared as if our current corporate structure had been in place throughout the relevant periods.

Overview

XT Energy Group, Inc., formerly known as Xiangtian (USA) Air Power Co. Ltd. (the “Company” or “XT Energy” or “we”, “us”, “our” and similar terminology) was incorporated in the State of Delaware on September 2, 2008 as Goa Sweet Tours Ltd. On April 17, 2012, the Company entered into certain share purchase agreements, by and among Luck Sky International Investment Holdings Limited (“Luck Sky”), an entity owned and controlled by Zhou Deng Rong, former Chief Executive Officer and director of the Company, and certain of the Company’s former stockholders who owned, in the aggregate, 7,200,000 shares of the Company’s common stock (90% of the then outstanding shares). On May 15, 2012, Luck Sky purchased all 7,200,000 shares for an aggregate of $235,000. Effective May 29, 2012, the Company’s name was changed to “Xiangtian (USA) Air Power Co., Ltd.”

Effective October 31, 2016, we were reincorporated in Nevada as a result of our merger with and into our wholly owned Nevada subsidiary.

We are engaged in a variety of energy-related businesses through its subsidiaries and controlled entities in China. One of the businesses is in the field of Compressed Air Energy Storage in China and produces electricity generation systems that combine its compressed air storage technology with photovoltaic (“PV”) panels to achieve a continuous supply of power under weather conditions that are unfavorable to the generation of electricity from PV panels alone. The sales and installation of power generation systems and PV systems and the sales of PV panels, air compression equipment and heat pump products have been carried out through the Company’s variable interest entities (“VIEs”), formerly Sanhe Luck Sky Electrical Engineering Co., Ltd. (“Sanhe Xiangtian”) and currently Xianning Xiangtian Energy Holding Group Co. Ltd. (“Xianning Xiangtian”), formerly known as Xianning Sanhe Power Equipment Manufacturing Co. Ltd.

In September and October 2018, January 2019 and ~~January~~March 2019, Mr. Jian Zhou, the Company’s ~~chairman~~Chairman and principal shareholder as well as a shareholder of Xianning Xiangtian, ~~provided Chinese~~and Zhou Deng Rong, the Company’s former Chief Executive Officer and director, injected an aggregate of Renminbi (“RMB”) ~~106,260,000~~209,260,000 (approximately ~~$15.5~~$30.8 million) as capital contribution to Xianning Xiangtian.

On November 5, 2018, the Company changed its name to XT Energy Group, Inc. through a merger with and into its newly formed wholly-owned subsidiary formed for the purpose of affecting the name change.

In December 2018, Xianning Xiangtian acquired Hubei Rongentang Wine Co., Ltd. (“Wine Co.”), which is engaged in the business of manufacturing and sales of wine, and acquired Hubei Rongentang Herbal Wine Co., Ltd. (“Herbal Wine Co.”), which is engaged in the business of manufacturing and sales of herbal wine products. ~~The purpose~~

However, in order to focus on the Company’s core businesses, our board of directors is considering the spinoff of the ~~acquisition is to combining the sales distribution networks of the Company, Wine Co, and Herbal Wine Co. to boost all parties’ sales.~~

two wine companies.

Reorganization

On September 30, 2018, Xiangtian Shenzhen terminated its variable interest entity agreements (the “VIE Agreements”) as part of its restructuring to facilitate the shift of business focus between entities controlled by the Company. After the restructuring, the Company’s headquarter is located in the city of Xianning, Hubei Province, and Sanhe Xiangtian, the Company’s previous headquarter, located in the city of Sanhe, Hebei Province, is restructured as our sales office. The VIE Agreements include the following:

●

Framework Agreement on Business Cooperation, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian;

●

Exclusive Management, Consulting and Training and Technical Service Agreement, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian;

●

Exclusive Option Agreement, dated July 25, 2014, by and among Xiangtian Shenzhen, Sanhe Xiangtian and all the shareholders of Sanhe Xiangtian (“Shanhe Xiangtian Shareholders”);

●

Equity Pledge Agreement, dated July 25, 2014, by and among Xiangtian Shenzhen, Sanhe Xiangtian and the Shanhe Xiangtian Shareholders;

●

Know-How Sub-License Agreement, dated July 25, 2014, by and between Xiangtian Shenzhen and Sanhe Xiangtian; and

●

Powers of Attorney of the Sanhe Xiangtian Shareholders dated July 25, 2014.

●

exercise effective control over Xianning Xiangtian;

●

receive substantially all of the economic benefits of Xianning Xiangtian; and

●

have an exclusive option to purchase all or part of the equity interests in Xianning Xiangtian when and to the extent permitted by the laws of the PRC.

As a result of the New VIE Agreements, we have become the primary beneficiary of Xianning Xiangtian, and it treats Xianning Xiangtian as its variable interest entity under U.S. GAAP. We will continue to consolidate the financial results of Xianning Xiangtian in our unaudited condensed consolidated financial statements in accordance with U.S. GAAP. The above reorganization has no effect to the Company’s unaudited condensed consolidated financial statements for the current period and thereafter.

Key Factors that Affect Operating Results

Our ability to build our brand and expand our sales distribution channel

We market our products (including wine products) through third-party distributors in China and through employees for direct sales. The distributors sell our products and receive commissions based on the value of the contracts. We utilize three classes of distributors based on the size of their territory – province, city and town. The distributors target factories and power plants, as well as local governments which may encourage local industry to utilize alternate energy sources, for our power generation products. The distributors also target wine retailers, supermarkets for our wine products and target gas stations and automobile repair shops for our synthetic fuel products. Our revenue growth will be affected by our ability to effectively execute our marketing strategies to build our brand and to expand our sales distribution channel through other sources other than through our distributors.

PRC economy

Although the PRC economy has grown in recent years, the pace of growth has slowed, and growth rates may continue to decline. According to the PRC National Bureau of Statistics of China, the annual rate of growth in the PRC declined from 7.6% in 2014, to 7.0% in 2015, 6.8% in 2016, 6.9% in 2017 and 6.8% in 2018. A further slowdown in overall economic growth, an economic downturn, a recession or other adverse economic development in the PRC may materially reduce the purchasing power of Chinese consumers and thus lead to a decrease in the demand for our products. Such a decrease in demand may have a materially adverse effect on our business.

Seasonality

Our financial results for quarters ended January 31 and April 30 in each year might fluctuate, depending upon the date of the Chinese New Year in the period of which it will fall into as the Chinese New Year normally would fall in between January and February. Immediately before the Chinese New Year, our operating results and revenues tend to be higher as our customer might push us to deliver our products before the Chinese New Year holiday and our operating results and revenues tend to be lower during the month after the Chinese New Year.

In addition, our operating results and revenues in our heat pump product line tend to be higher during the fall and winter seasons and lower during the spring and summer seasons.

PRC governmental 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. Unfavorable changes could affect the delivery timing of our services and products that we provide and could materially and adversely affect the results of operations.

In addition, we are subject to a variety of licenses and permits, laws and regulations related to the wine and herbal wine operations.

●

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 relevant provincial branch of China Food and Drug Administration (“CFDA”).

●

Good Manufacturing Practice (“GMP”) Certificate. A pharmaceutical manufacturer must meet the GMP 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.

●

Product Quality Law and related technical guidelines. Pursuant to the Product Quality Law of China promulgated by the National People’s Congress Standing Committee in 1993 and amended in 2000 and 2009 respectively, 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 for 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.

●

Drug Administration Law and Advertising law. Herbal wine is considered as a type of drug. Drug advertisements shall be approved by the drug regulatory department before it is published and a drug advertisement approval number would be issued. The drug advertisement shall not be released if the approval number is not obtained. Besides, advertising for non-pharmaceutical products may not be publicized with therapeutic effects.

Results of Operations

The Three Months Ended ~~January 31,~~April 30, 2019 Compared to the Three Months Ended ~~January 31,~~April 30, 2018

	For the Three Months Ended January 31, 2019			For the Three Months Ended January 31, 2018			Change			Change (%)			For the Three Months Ended April 30, 2019			For the Three Months Ended April 30, 2018			Change			Change (%)

Revenue	$	21,913,491		$	232,243		$	21,681,248			9,335.6	%	$	8,427,067		$	423,644		$	8,003,423			1,889.2	%
Cost of revenue		16,091,346			175,441			15,915,905			9,071.9	%		4,778,526			308,755			4,469,771			1,447.7	%
Gross profit		5,822,145			56,802			5,765,343			10,149.9	%		3,648,541			114,889			3,533,652			3,075.7	%
Operating expenses		2,925,450			725,489			2,199,961			303.2	%		2,330,956			797,142			1,533,814			192.4	%
Income (loss) from operations		2,896,695			(668,687	)		3,565,382			533.2	%		1,317,585			(682,253	)		1,999,838			293.1	%
Other income (expenses), net		(116,877	)		709			(117,586	)		(16,584.8	)%
Other (expenses) income, net														(581,832	)		1,482			(583,314	)		(39,359.9	)%
Income (loss) before income taxes		2,779,818			(667,978	)		3,447,796			516.2	%		735,753			(680,771	)		1,416,524			208.1	%
Income tax expense		(1,049,774	)		(1,008	)		1,048,766			104,044.2	%		(586,228	)		(4,347	)		581,881			13,385.8	%
Net income (loss)		1,730,044			(668,986	)		2,399,030			358.6	%		149,525			(685,118	)		834,643			121.8	%
Less: Net income attributable to non-controlling interest		112,545			-			112,545			100.0	%
Less: Net income (loss) attributable to non-controlling interest														57,737			(3,361	)		61,098			1,817.9	%
Net income (loss) attributable to common stockholders		1,617,499			(668,986	)		2,286,485			341.8	%		91,788			(681,757	)		773,545			113.5	%
Net income (loss) per share attributable to common stockholders
Basic and diluted earning per share	$	0.00		$	0.00		$	0.0			-
Basic and diluted earnings per share													$	0.00		$	(0.00	)	$	-			-

Revenue

Our revenue ~~consist~~edconsisted of the sales of PV panels and others, air compression equipment and other components, heat pump products, high-grade synthetic fuel products, hydraulic parts and electronic components, wine and herbal wine for the three months ended ~~January 31,~~April 30, 2019.

Total revenues increased by ~~$21,681,248,~~$8,003,423 or ~~9,335.6%~~1,889.2%, to ~~$21,913,491~~$8,427,067 for the three months ended ~~January 31,~~April 30, 2019 as compared to ~~$232,243~~$423,644 for the three months ended ~~January 31,~~April 30, 2018. The overall increase was primarily attributable to the increase of revenue generated from sales of PV panels and other products, heat pumps, high-grade synthetic fuel, hydraulic parts and electronic components, and the sales generated from the recently acquired wine and herbal wine businesses.

Our revenue from our revenue categories is summarized as follows:

	For the Three Months Ended April 30, 2019		For the Three Months Ended April 30, 2018		Change			Change (%)

Revenue
Installation of power generation systems	$	-	$	78,701	$	(78,701	)		(100.0	)%
PV panels and others		849,720		344,943		504,777			146.3	%
Heat pumps		417,146		-		417,146			100.0	%
High-grade synthetic fuel		4,585,464		-		4,585,464			100.0	%
Hydraulic parts and electronic components		1,137,823		-		1,137,823			100.0	%
Wine and herbal wine		1,436,914		-		1,436,914			100.0	%
Total revenue	$	8,427,067	$	423,644	$	8,003,423			1,889.2	%

Installation of power generation systems revenue decreased by $78,701 or 100.0% from $78,701 for the three months ended April 30, 2018 to $0 for the three months ended April 30, 2019 because we did not have any new installation projects. We will keep searching for large installation projects to increase our revenue. Sales of PV panels and others increased by $504,777 or 146.3% from $344,943 for the three months ended April 30, 2018 to $849,720 for the same period in 2019. The increase in sales of PV panels and others was mainly attributable to Xiangtian Zhongdian, established in March 2018, which is in the business of manufacturing and sales of PV panels. Sales of heat pumps increased by $417,146 or 100.0% for the three months ended April 30, 2019 as compared to the same period in 2018. Heat pumps are parts of the installation of power generation systems, which were not sold separately during the three months ended April 30, 2018 while we sold them as separate components as a result of our marketing efforts during the three months ended April 30, 2019, which resulted in the increase of sales revenues.

Sales of high-grade synthetic fuel increased by $4,585,464 or 100.0% for the three months ended April 30, 2019 as compared to the same period in 2018 was mainly due to our establishment of Jingshan Sanhe in April 2018 which is engaged in the business of researching, manufacturing and sales of high-grade synthetic fuel products. We expect our sales of high-grade synthetic fuel to continue to increase significantly as we expand our product offering to include synthetic fuel for diesel vehicles, which has already passed the testing production.

Sales of hydraulic parts and electronic components increased by $1,137,823 or 100.0% for the three months ended April 30, 2019 as compared to the same period in 2018 due to our acquisition of Hubei Jinli in June 2018 which is engaged in the business of manufacturing and sales of hydraulic parts and electronic components.

Sales of wine and herbal wine increased by $1,436,914 or 100.0% for the three months ended April 30, 2019 as compared to the same period in 2018 due to our acquisition of Wine Co. and Herbal Wine Co. in December 2018.

Cost of Revenue

Total cost of revenue increased by $4,469,771, or 1,447.7%, to $4,778,526 for the three months ended April 30, 2019 as compared to $308,755 for the same period in 2018. The increase in cost of revenue was in line with the increase of revenue.

Our cost of revenue from our revenue categories is summarized as follows:

	For the Three Months Ended April 30, 2019		For the Three Months Ended April 30, 2018		Change			Change (%)

Cost of revenue
Installation of power generation systems	$	-	$	59,019	$	(59,019	)		(100.0	)%
PV panels and others		781,943		249,736		532,207			213.1	%
Heat pumps		373,066		-		373,066			100.0	%
High-grade synthetic fuel		2,938,749		-		2,938,749			100.0	%
Hydraulic parts and electronic components		533,113		-		533,113			100.0	%
Wine and herbal wine		151,655		-		151,655			100.0	%
Total cost of revenue	$	4,778,526	$	308,755	$	4,469,771			1,447.7	%

Gross Profit

Our gross profit from our major revenue categories is summarized as follows:

	For the Three Months Ended April 30, 2019			For the Three Months Ended April 30, 2018			Change			Change (%)

Installation of power generation systems
Gross profit	$	-		$	19,682		$	(19,682	)		(100	)%
Gross margin		-	%		25.0	%		(25.0	)%

PV panels and others
Gross profit	$	67,777		$	95,207		$	(27,430	)		(28.8	)%
Gross margin		8.0	%		27.6	%		(19.6	)%

Heat pumps
Gross profit	$	44,080		$	-		$	44,080			100.0	%
Gross margin		10.6	%		-	%		10.6	%

High-grade synthetic fuel
Gross profit	$	1,646,715		$	-		$	1,646,715			100.0	%
Gross margin		35.9	%		-	%		35.9	%

Hydraulic parts and electronic components
Gross profit	$	604,710		$	-		$	604,710			100.0	%
Gross margin		53.1	%		-	%		53.1	%

Wine and herbal wine
Gross profit	$	1,285,259		$	-		$	1,285,259			100.0	%
Gross margin		89.4	%		-	%		89.4	%

Total
Gross profit	$	3,648,541		$	114,889		$	3,533,652			3,075.7	%
Gross margin		43.3	%		27.1	%		16.2	%

Our gross profit increased by $3,533,652, or 3,075.7%, to $3,648,541 during the three months ended April 30, 2019 from $114,889 for the same period in 2018. The increase in gross profit was primarily due to the significant increase in revenues contributed by Jingshan Sanhe, established in April 2018, Hubei Jinli, acquired in June 2018, and Wine Co. and Herbal Wine Co., acquired in December 2018.

For the three months ended April 30, 2019 and 2018, our overall gross profit percentage was 43.3% and 27.1%, respectively. The increase in gross profit percentage was primarily due to the increase in sales of our high-grade synthetic fuel products, hydraulic parts and electronic components, and wine and herbal wine which generally have a higher gross profit percentage.

Gross profit percentage for our installation of power generation systems revenue was 0% and 25.0% for the three months ended April 30, 2019 and 2018, respectively. The decrease in gross profit percentage is consistent with the decrease in sales as we did not have any new projects for the three months ended April 30, 2019.

Gross profit percentage for PV panels and others revenue was 8.0% and 27.6% for the three months ended April 30, 2019 and 2018, respectively. The decrease of gross profit percentage was due to the increase in sales volume as we expanded our business by lowering price to attract more sales volume, which results in lower gross profit percentage in the current period.

Operating Expenses

Total operating expenses increased by $1,533,814 or 192.4% from $797,142 during the three months ended April 30, 2018 to $2,330,956 during the same period in 2019. The increase in operating expenses was mainly attributable to the increase in selling expenses of $243,325, the increase in general and administrative (“G&A”) expenses of $1,467,671 and changes in estimated contingent liabilities of $177,182.

The increase in selling expenses of $243,325 was mainly attributable to the increase in shipping costs of $238,079. The increase in shipping costs were mainly attributable to the added operations from Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, and Hubei Jinli, acquired in June 2018.

The increase in G&A expenses of $1,467,671 was mainly attributable to the increase in salaries, social insurance expenses and benefits of $414,130, the increase in depreciation and amortization expense of $122,360, the increase in vehicle repair and maintenance expenses of $71,900, the increase in research and development of $70,638, the increase in rent of $197,301 and the increase in professional fee including legal fees, audit fees and consulting fees, of $58,683. The above increases were mainly attributable to the added operations from Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, Hubei Jinli, acquired in June 2018, Tianjin Jiabaili acquired in June 2018, and Wine Co. and Herbal Wine Co., acquired in December 2018.

Other (Expenses) Income, Net

Total other expenses increased by $583,314 or 39,359.9% from other income of $1,482 during the three months ended April 30, 2018 to other expenses of $581,832 during the same period in 2019. The increase in total other expenses was mainly attributable to the increase in interest expense and financial expense. We obtained third party loans in 2018 to pay for the initial payments in relation to the acquisition of Hubei Jinli and Tianjin Jiabaili in June 2018. As a result, we incurred approximately $41,000 interest expense for the three months ended April 30, 2019 as compared to $0 for the same period in 2018. Furthermore, the acquisition of Hubei Jinli also includes three installment payments each due on June 20 of 2019, 2020 and 2021, respectively, which resulted in amortization of debt discount of our investment payable of approximately $130,000 for the three months ended April 30, 2019 as compared to $0 for the same period in 2018. Furthermore, we made the payment for acquisition of Hubei Jinli prior to the original due date. As a result, we recognized a one-time finance expenses of approximately $0.4 million at the time for which the discount portion of the payment for the original due date were prepaid for the three months ended April 30, 2019 as compared to $0 for the same period in 2018.

Income Tax Expense

Our income tax expense was $586,228 and $4,347 for the three months ended April 30, 2019 and 2018, respectively. Our income tax expense was incurred by our profitable VIEs and controlled entities in both periods and we have provided 100% allowance on net operating losses for our VIEs and controlled entities which incurred losses.

Net Income (Loss)

Our net income increased by $834,643, or 121.8%, to net income of $149,525 for the three months ended April 30, 2019, from a net loss of $685,118 for the same period in 2018. Such change was the result of the combination of the changes discussed above.

The Nine Months Ended April 30, 2019 Compared to the Nine Months Ended April 30, 2018

	For the Nine Months Ended April 30, 2019			For the Nine Months Ended April 30, 2018			Change		Change (%)

Revenue	$	50,328,996		$	1,011,081		$	49,317,915		4,877.7	%
Cost of revenue		36,662,795			801,840			35,860,955		4,472.3	%
Gross profit		13,666,201			209,241			13,456,960		6,431.3	%
Operating expenses		6,910,290			2,408,782			4,501,508		186.9	%
Income (loss) from operations		6,755,911			(2,199,541	)		8,955,452		407.2	%
Other expenses, net		(1,135,987	)		(1,912	)		1,134,075		59,313.5	%
Income (loss) before income taxes		5,619,924			(2,201,453	)		7,821,377		355.3	%
Income tax expense		(2,162,146	)		(8,190	)		2,153,956		26,299.8	%
Net income (loss)		3,457,778			(2,209,643	)		5,667,421		256.5	%
Less: Net income (loss) attributable to non-controlling interest		372,724			(3,361	)		376,085		11,189.7	%
Net income (loss) attributable to common stockholders		3,085,054			(2,206,282	)		5,291,336		239.8	%
Net income (loss) per share attributable to common stockholders
Basic and diluted earnings per share	$	0.01		$	(0.00	)	$	0.01		100.0	%

Revenue

Our revenue consisted of fees from installment of power generation systems and the sales of PV panels and others, air compression equipment and other components, heat pump products, high-grade synthetic fuel products, and hydraulic parts and electronic components, wine and herbal wine for the nine months ended April 30, 2019.

Total revenues increased by $49,317,915, or 4,877.7%, to $50,328,996 for the nine months ended April 30, 2019 as compared to $1,011,081 for the nine months ended April 30, 2018. The overall increase was primarily attributable to the increase of revenue generated from sales of PV panels and other products, air compression equipment and other components, heat pumps, high-grade synthetic fuel, hydraulic parts and electronic components,and ~~the sales generated from the newly acquired~~ wine and herbal ~~wine businesses.~~wine.

Our revenue from our revenue categories ~~are~~is summarized as follows:

	For the Three Months Ended January 31, 2019		For the Three Months Ended January 31, 2018		Change			Change (%)			For the Nine Months Ended April 30, 2019		For the Nine Months Ended April 30, 2018		Change		Change (%)

Revenue
Installation of power generation systems	$	-	$	56,422	$	(56,422	)		(100.0	)%	$	392,267	$	184,677	$	207,590		112.4	%
PV panels and others		11,311,830		175,821		11,136,009			6,333.7	%		21,259,433		826,404		20,433,029		2,472.5	%
Air compression equipment and other components		389,477		-		389,477			100.0	%		1,391,714		-		1,391,714		100.0	%
Heat pumps		3,338,872		-		3,338,872			100.0	%		7,999,582		-		7,999,582		100.0	%
High-grade synthetic fuel		4,183,310		-		4,183,310			100.0	%		12,865,526		-		12,865,526		100.0	%
Hydraulic parts and electronic components		2,188,559		-		2,188,559			100.0	%		4,482,117		-		4,482,117		100.0	%
Wine and herbal wine		501,443		-		501,443			100.0	%		1,938,357		-		1,938,357		100.0	%
Total revenue	$	21,913,491	$	232,243	$	21,681,248			9,335.6	%	$	50,328,996	$	1,011,081	$	49,317,915		4,877.7	%

~~Installation~~Revenue from installation of power generation systems ~~revenue decreased~~increased by ~~$56,422~~$207,590 or ~~100.0%~~112.4% from ~~$56,422~~$184,677 for the ~~three~~nine months ended ~~January 31,~~April 30, 2018 to $0$392,267 for the ~~three~~nine months ended ~~January 31,~~April 30, 2019 ~~because we did not have any new~~due to the increase in installation ~~projects.~~project size. We only had one major installation project during the nine months ended April 30, 2019 as compared to a few significantly smaller projects during the nine months ended April 30, 2018. We will keep searching for large installation projects to increase our ~~revenue.~~revenue but we may not continue to experience this rate of increase in the future. Sales of PV panels and others increased by ~~$11,136,009~~$20,433,029 or ~~6,333.7%~~2,472.5% from ~~$175,821~~$826,404 for the ~~three~~nine months ended ~~January 31,~~April 30, 2018 to ~~$11,311,830~~$21,259,433 for the same period in 2019. The increase in sales of PV panels and others was mainly attributable to Xiangtian Zhongdian, established in March 2018, which is in the business of manufacturing and sales of PV panels. Sales of air compression equipment and other components increased by ~~$389,477~~$1,391,714 or 100.0% and the sales of heat pumps increased by ~~$3,338,872~~$7,999,582 or 100.0% for the ~~three~~nine months ended ~~January 31,~~April 30, 2019 as compared to the same period in 2018. Air compression equipment and other components and heat pumps are parts of the installation of power generation systems, which were not sold separately during the ~~three~~nine months ended ~~January 31,~~April 30, 2018 while we sold them as separate components as a result of our marketing efforts during the ~~three~~nine months ended ~~January 31,~~April 30, 2019, which resulted in the increase of sales revenues.

Sales of high-grade synthetic fuel increased by ~~$4,183,310~~$12,865,526 or 100.0% for the ~~three~~nine months ended ~~January 31,~~April 30, 2019 as compared to the same period in 2018 was mainly due to our establishment of Jingshan Sanhe in April 2018 which is engaged in the business of researching, manufacturing and sales of high-grade synthetic fuel products. We expect our sales of high-grade synthetic fuel will continue to increase significantly as we expand our product offering to include synthetic fuel for diesel vehicles, whichhas already passed the testing production.

Sales of hydraulic parts and electronic components increased by ~~$2,188,559~~$4,482,117 or 100.0% for the ~~three~~nine months ended ~~January 31,~~April 30, 2019 as compared to the same period in 2018 due to our acquisition of Hubei Jinli in June 2018 which is engaged in the business of manufacturing and sales of hydraulic parts and electronic components.

Sales of wine and herbal wine increased by ~~$501,443~~$1,938,357 or 100.0% for the ~~three~~nine months ended ~~January 31,~~April 30, 2019 as compared to the same period in 2018 due to our acquisition of Wine Co. and Herbal Wine Co. in December 2018. ~~Wine Co. is engaged in the business of manufacturing and sales of wine and Herbal Wine Co. is engaged in the business of manufacturing and sales of herbal wine products.~~

Cost of Revenue

Total cost of revenue increased by ~~$15,915,905,~~$35,860,955, or ~~9,071.9%~~4,472.3%, to ~~$16,091,346~~$36,662,795 for the ~~three~~nine months ended ~~January 31,~~April 30, 2019 as compared to ~~$175,441~~$801,840 for the same period in 2018. The increase in cost of revenue was in line with the increase of revenue.

Our cost of revenue from our revenue categories ~~are~~is summarized as follows:

	For the Three Months Ended January 31, 2019		For the Three Months Ended January 31, 2018		Change			Change (%)			For the Nine Months Ended April 30, 2019		For the Nine Months Ended April 30, 2018		Change		Change (%)

Cost of revenue
Installation of power generation systems	$	-	$	53,106	$	(53,106	)		(100.0	)%	$	360,264	$	150,124	$	210,140		140.0	%
PV panels and others		10,157,514		122,335		10,035,179			8,203.0	%		19,123,888		651,716		18,472,172		2,834.4	%
Air compression equipment and other components		186,182		-		186,182			100.0	%		911,679		-		911,679		100.0	%
Heat pumps		2,815,295		-		2,815,295			100.0	%		6,575,806		-		6,575,806		100.0	%
High-grade synthetic fuel		2,185,989		-		2,185,989			100.0	%		7,642,784		-		7,642,784		100.0	%
Hydraulic parts and electronic components		690,950		-		690,950			100.0	%		1,841,303		-		1,841,303		100.0	%
Wine and herbal wine		55,416		-		55,416			100.0	%		207,071		-		207,071		100.0	%
Total cost of revenue	$	16,091,346	$	175,441	$	15,915,905			9,071.9	%	$	36,662,795	$	801,840	$	35,860,955		4,472.3	%

~~Gross Profit~~

~~Our gross profit from our major revenue categories are summarized as follows:~~

For the Three Months Ended
January 31,
2019 For the Three Months Ended
January 31,
2018 Change Change (%)

Installation of power generation systems
Gross profit $ - $ 3,316 $ (3,316 ) (100 )%
Gross margin - % 5.9 % (5.9 )%

PV panels and others
Gross profit $ 1,154,316 $ 53,486 $ 1,100,830 2058.2 %
Gross margin 10.2 % 30.4 % (20.2 )%

Air compression equipment and other components
Gross profit $ 203,295 $ - $ 203,295 100.0 %
Gross margin 52.2 % - % 52.2 %

Heat pumps
Gross profit $ 523,577 $ - $ 523,577 100.0 %
Gross margin 15.7 % - % 15.7 %

High-grade synthetic fuel
Gross profit $ 1,997,321 $ - $ 1,997,321 100.0 %
Gross margin 47.7 % - % 47.7 %

Hydraulic parts and electronic components
Gross profit $ 1,497,609 $ - $ 1,497,609 100.0 %
Gross margin 68.4 % - % 68.4 %

Wine and herbal wine
Gross profit $ 446,027 $ - $ 446,027 100.0 %
Gross margin 88.9 % - % 88.9 %

Total
Gross profit $ 5,822,145 $ 56,802 $ 5,765,343 10,149.9 %
Gross margin 26.6 % 24.5 % 2.1 %

Our gross profit increased by $5,765,343, or 10,149.9%, to $5,822,145 during the three months ended January 31, 2019 from $56,802 for the same period in 2018. The increase in gross profit was primarily due to the significant increase in revenues contributed by Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, Hubei Jinli, acquired in June 2018, and Wine Co. and Herbal Wine Co., acquired in December 2018.

For the three months ended January 31, 2019 and 2018, our overall gross profit percentage was 26.6% and 24.5%, respectively. The increase in gross profit percentage was primarily due to the increase in sales of ourair compression equipment and other components, high-grade synthetic fuel products, hydraulic parts and electronic components, and wine and herbal wine which generally have a higher gross profit percentage.

Gross profit percentage for our installation of power generation systems revenue was 0% and 5.9% for the three months ended January 31, 2019 and 2018, respectively. The decrease in gross profit percentage is consistent with the decrease in sales as we did not have any new projects for the three months ended January 31, 2019.

Gross profit percentage for PV panels and others revenue was 10.2% and 30.4% for the three months ended January 31, 2019 and 2018, respectively. The decrease of gross profit percentage was due to the increase in sales volume as we expanded our business by lowering price to attract more sales volume, which results in lower gross profit percentage in the current period.

4753

~~Operating Expenses~~

Total operating expenses increased by $2,199,961 or 303.2% from $725,489 during the three months ended January 31, 2018 to $2,925,450 during the same period in 2019. The increase in operating expenses was mainly attributable to the increase in selling expenses of $643,903, the increase in general and administrative (“G&A”) expenses of $1,225,159 and the increase in provision of doubtful accounts of $175,155 and the increase in change in estimated contingent liabilities of $155,744.

The increase in selling expenses of $643,903 was mainly attributable to the increase in commissions of approximately $471,000 due to the increased number of sales representatives, the increase in salaries of approximately $73,000, the increase in shipping costs of approximately $53,000, the increase in travel expense of approximately $32,000 and increase in meal and entertainment expense of approximately $22,000. The above increases were mainly attributable to the added operations from Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, and Hubei Jinli, acquired in June 2018.

The increase in G&A expenses of $1,225,159 was mainly attributable to the increase in salaries of approximately $184,000, the increase in depreciation and amortization expense of approximately $116,000, the increase in rent of approximately $159,000 and the increase in professional fee including legal fees, audit fees and consulting fees, of approximately $503,000. The above increases were mainly attributable to the added operations from Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, Hubei Jinli, acquired in June 2018, Tianjin Jiabaili acquired in June 2018, and Wine Co. and Herbal Wine Co., acquired in December 2018.

The increase in provision of allowance for doubtful accounts of approximately $175,000 was mainly attributable to the fact that we recovered doubtful accounts of approximately $114,000 in 2018 while we provided provision of allowance of doubtful accounts of approximately $61,000 for the three months ended January 31, 2019 as we incurred more aged receivables.

~~Other Income (Expenses), Net~~

Total other expenses increased by $117,586 or 16,584.8%. Other expenses during the three months ended January 31, 2019 was $116,877, while other income during the three months ended January 31, 2018 was $709. The increase in total other expenses was mainly attributable to the increase in interest expense as a result of the third party loans that we obtained in 2018 to pay for the initial payments in relation to the acquisition of Hubei Jinli and Tianjin Jiabaili in June 2018. In addition, Hubei Jinli has existing bank loans prior to our acquisition. We also obtained a new related party loan in January 2019 for the payments in relation to the acquisition of Wine Co. and Herbal Wine Co. As a result, we incurred approximately $101,000 interest expenses for the three months ended January 31, 2019 as compared to $0 for the same period in 2018. Furthermore, the acquisition of Hubei Jinli also includes three installment payments each due on June 20 of 2019, 2020 and 2021, respectively, which resulted in amortization of debt discount of our investment payable of approximately $125,000 for the three months ended January 31, 2019 as compared to $0 for the same period in 2018. The increase in interest expense was partially offset by the increase in other income of approximately $93,000 from approximately $400 for the three months ended January 31, 2018 to approximately $93,000 for the three months ended January 31, 2019.

~~Income Tax Expense~~

~~Our income tax expense was $1,049,774 and $1,008 for the three months ended January 31, 2019 and 2018, respectively. Our income tax expense was incurred by our profitableVIEs and controlled entities in both periods and we have provided 100% allowance on net operating losses for our VIEs and controlled entities which incurred losses.~~

~~Net Income (Loss)~~

Our net income increased by $2,399,030, or 358.6%, to net income of $1,730,044 for the three months ended January 31, 2019, from a net loss of $668,986 for the same period in 2018. Such change was the result of the combination of the changes discussed above.

~~The Six Months Ended January 31, 2019 Compared to the Six Months Ended January 31, 2018~~

For the Six Months
Ended
January 31,
2019

For the Six Months
Ended
January 31,
2018
Change Change (%)

Revenue $ 41,901,929 $ 587,437 $ 41,314,492 7,033.0 %
Cost of revenue 31,884,269 493,085 31,391,184 6,366.3 %
Gross profit 10,017,660 94,352 9,923,308 10,517.3 %
Operating expenses 4,579,334 1,611,640 2,967,694 184.1 %
Income (loss) from operations 5,438,326 (1,517,288 ) 6,955,614 458.4 %
Other expenses, net (554,155 ) (3,394 ) 550,761 16,277.5 %
Income (loss) before income taxes 4,884,171 (1,520,682 ) 6,404,853 421.2 %
Income tax expense (1,575,918 ) (3,843 ) 1,572,075 40,907.5 %
Net income (loss) 3,308,253 (1,524,525 ) 4,832,778 317.0 %
Less: Net income attributable to non-controlling interest 314,987 - 314,987 100.0 %
Net income (loss) attributable to common stockholders 2,993,266 (1,524,525 ) 4,517,791 296.3 %
Net income (loss) per share attributable to common stockholders
Basic and diluted earnings per share $ 0.01 $ (0.00 ) $ 0.01 100.0 %

~~Revenue~~

Total revenues increased by $41,314,492, or 7,033.0%, to $41,901,929 for the six months ended January 31, 2019 as compared to $587,437 for the six months ended January 31, 2018. The overall increase was primarily attributable to the increase of revenue generated from installation of power generation systems, sales of PV panels and other products, air compression equipment and other components, heat pumps, high-grade synthetic fuel, hydraulic parts and electronic components, and wine and herbal wine.

~~Our revenue from our revenue categories are summarized as follows:~~

For the Six Months Ended
January 31,
2019 For the Six Months Ended
January 31,
2018 Change Change (%)

Revenue
Installation of power generation systems $ 389,482 $ 105,976 $ 283,506 267.5 %
PV panels and others 20,413,524 481,461 19,932,063 4,139.9 %
Air compression equipment and other components 1,390,688 - 1,390,688 100.0 %
Heat pumps 7,582,436 - 7,582,436 100.0 %
High-grade synthetic fuel 8,280,062 - 8,280,062 100.0 %
Hydraulic parts and electronic components 3,344,294 - 3,344,294 100.0 %
Wine and herbal wine 501,443 - 501,443 100.0 %
Total revenue $ 41,901,929 $ 587,437 $ 41,314,492 7,033.0 %

Installation of power generation systems revenue increased by $283,506 or 267.5% from $105,976 for the six months ended January 31, 2018 to $389,482 for the six months ended January 31, 2019 due to the increase in installation project size. We only had one major installation project during the six months ended January 31, 2019 as compared to a few significantly smaller projects during the six months ended January 31, 2018. We will keep searching for large installation projects to increase our revenue but we may not continue to experience this rate of increase in the future. Sales of PV panels and others increased by $19,932,063 or 4,139.9% from $481,461 for the six months ended January 31, 2018 to $20,413,524 for the same period in 2019. The increase in sales of PV panels and others was mainly attributable to Xiangtian Zhongdian, established in March 2018, which is in the business of manufacturing and sales of PV panels. Sales of air compression equipment and other components increased by $1,390,688 or 100.0% and the sales of heat pumps increased by $7,582,436 or 100.0% for the six months ended January 31, 2019 as compared to the same period in 2018. Air compression equipment and other components and heat pumps are parts of the installation of power generation systems, which were not sold separately during the six months ended January 31, 2018 while we sold them as separate components as a result of our marketing efforts during the six months ended January 31, 2019, which resulted in the increase of sales revenues.

Sales of high-grade synthetic fuel increased by $8,280,062 or 100.0% for the six months ended January 31, 2019 as compared to the same period in 2018 due to our establishment of Jingshan Sanhe in April 2018 which is engaged in the business of researching, manufacturing and sales of high-grade synthetic fuel products. We expect our sales of high-grade synthetic fuel will continue to increase significantly as we expand our product offering to include synthetic fuel for diesel vehicles, which~~has already passed the testing production.~~

Sales of hydraulic parts and electronic components increased by $3,344,294 or 100.0% for the six months ended January 31, 2019 as compared to the same period in 2018 due to our acquisition of Hubei Jinli in June 2018 which is engaged in the business of manufacturing and sales of hydraulic parts and electronic components.

Sales of wine and herbal wine increased by $501,443 or 100.0% for the six months ended January 31, 2019 as compared to the same period in 2018 due to our acquisition of Wine Co. and Herbal Wine Co. in December 2018. Wine Co. is engaged in the business of manufacturing and sales of wine and Herbal Wine Co. is engaged in the business of manufacturing and sales of herbal wine products.

~~Cost of Revenue~~

Total cost of revenue increased by $31,391,184, or 6,366.3%, to $31,884,269 for the six months ended January 31, 2019 as compared to $493,085 for the same period in 2018. The increase in cost of revenue was in line with the increase of revenue.

~~Our cost of revenue from our revenue categories are summarized as follows:~~

For the Six Months Ended
January 31,
2019 For the Six Months Ended
January 31,
2018 Change Change (%)

Cost of revenue
Installation of power generation systems $ 357,708 $ 91,105 $ 266,603 292.6 %
PV panels and others 18,350,972 401,980 17,948,992 4,465.1 %
Air compression equipment and other components 905,208 - 905,208 100.0 %
Heat pumps 6,202,740 - 6,202,740 100.0 %
High-grade synthetic fuel 4,704,035 - 4,704,035 100.0 %
Hydraulic parts and electronic components 1,308,190 - 1,308,190 100.0 %
Wine and herbal wine 55,416 - 55,416 100.0 %
Total cost of revenue $ 31,884,269 $ 493,085 $ 31,391,184 6,366.3 %

Gross Profit

Our gross profit from our major revenue categories ~~are~~is summarized as follows:

	For the Six Months Ended January 31, 2019			For the Six Months Ended January 31, 2018			Change			Change (%)			For the Nine Months Ended April 30, 2019			For the Nine Months Ended April 30, 2018			Change			Change (%)

Installation of power generation systems
Gross profit	$	31,774		$	14,871		$	16,903			113.7	%	$	32,003		$	34,553		$	(2,550	)		(7.4	)%
Gross margin		8.2	%		14.0	%		(5.8	)%					8.2	%		18.7	%		(10.5	)%

PV panels and others
Gross profit	$	2,062,552		$	79,481		$	1,983,071			2,495.0	%	$	2,135,545		$	174,688		$	1,960,857			1,122.5	%
Gross margin		10.1	%		16.5	%		(6.4	)%					10.0	%		21.1	%		(11.1	)%

Air compression equipment and other components
Gross profit	$	485,480		$	-		$	485,480			100.0	%	$	480,035		$	-		$	480,035			100.0	%
Gross margin		34.9	%		-	%		34.9	%					34.5	%		-	%		34.5	%

Heat pumps
Gross profit	$	1,379,696		$	-		$	1,379,696			100.0	%	$	1,423,776		$	-		$	1,423,776			100.0	%
Gross margin		18.2	%		-	%		18.2	%					17.8	%		-	%		17.8	%

High-grade synthetic fuel
Gross profit	$	3,576,027		$	-		$	3,576,027			100.0	%	$	5,222,742		$	-		$	5,222,742			100.0	%
Gross margin		43.2	%		-	%		43.2	%					40.6	%		-	%		40.6	%

Hydraulic parts and electronic components
Gross profit	$	2,036,104		$	-		$	2,036,104			100.0	%	$	2,640,814		$	-		$	2,640,814			100.0	%
Gross margin		60.9	%		-	%		60.9	%					58.9	%		-	%		58.9	%

Wine and herbal wine
Gross profit	$	446,027		$	-		$	446,027			100.0	%	$	1,731,286		$	-		$	1,731,286			100.0	%
Gross margin		88.9	%		-	%		88.9	%					89.3	%		-	%		89.3	%

Total
Gross profit	$	10,017,660		$	94,352		$	9,923,308			10,517.3	%	$	13,666,201		$	209,241		$	13,456,960			6,431.3	%
Gross margin		23.9	%		16.1	%		7.8	%					27.2	%		20.7	%		6.5	%

Our gross profit increased by ~~$9,923,308,~~$13,456,960, or ~~10,517.3%~~6,431.3%, to ~~$10,017,660~~$13,666,201 during the ~~six~~nine months ended ~~January 31,~~April 30, 2019 from ~~$94,352~~$209,241 for the same period in 2018. The increase in gross profit was primarily due to the significant increase in revenues contributed by Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, and Hubei Jinli, acquired in June 2018, Wine Co. and Herbal Wine Co., acquired in December 2018.

For the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, our overall gross profit percentage was ~~23.9%~~27.2% and ~~16.1%~~20.7%, respectively. The increase in gross profit percentage was primarily due to the increase in sales of ourair compression equipment and other components, high-grade synthetic fuel products, hydraulic parts and electronic components and wine and herbal wine, which generally have a higher gross profit percentage.

Gross profit percentage for our installation of power generation systems revenue was 8.2% and ~~14%~~18.7% for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively. The decrease in gross profit percentage is due to the increase in installation of power generation systems revenue offset by a higher percentage increase in cost as we allocated more resources to complete the installation project and spent more on overhead during the ~~six~~nine months ended ~~January 31,~~April 30, 2019.

Gross profit percentage for PV panels and others revenue was ~~10.1%~~10.0% and ~~16.5%~~21.1% for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively. The decrease of gross profit percentage was due to the increase in sales volume as we expanded our business by lowing selling price to attract more sales, which result in lower gross profit percentage in the current year.

Operating Expenses

Total operating expenses increased by ~~$2,967,694~~$4,501,508 or ~~184.1%~~186.9% from ~~$1,611,640~~$2,408,782 during the ~~six~~nine months ended ~~January 31,~~April 30, 2018 to ~~$4,579,334~~$6,910,290 during the same period in 2019. The increase in operating expenses was mainly attributable to the increase in selling expenses of ~~$740,995~~$984,320 and the increase in ~~G&A~~general and administrative expenses of ~~$2,062,263 and the increase in change in estimated contingent liabilities of $155,744~~$3,538,626 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 as compared to the same period in 2018.

The increase in selling expenses of ~~approximately $740,995~~$984,320 was mainly attributable to the increase in salaries of ~~approximately $123,000,~~$175,604, and the increase in commission of ~~approximately $471,000~~$478,214 due to the increased number of sales representatives ~~the increase in travel expenses of approximately $49,000,~~ and the increase in shipping ~~expenses~~expense of ~~approximately $57,000, and the increase in meals and entertainment of approximately $28,000.~~$295,305. The above increases were mainly attributable to the added operations from Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, and Hubei Jinli, acquired in June 2018.

The increase in ~~G&A~~general and administrative expenses of ~~approximately $2,062,263~~$3,538,626 was mainly attributable to the increase in ~~salary,~~salaries, social insurance expenses, benefits, and travel expenses of ~~approximately $345,000,~~$780,195, the increase in meals and entertainment of ~~approximately $103,000,~~$124,664, the increase in depreciation and amortization expense of ~~approximately $230,000,~~$352,458, the increase in rent expense of ~~approximately $187,000,~~$384,016, the increase in vehicle repair and maintenance expenses of $127,155, the increase in research and development expense of $149,581 and the increase in professional fees including legal fees, audit fees and consulting fees of ~~approximately $819,000.~~$877,506. The above increases were mainly attributable to the added operations from Xiangtian Zhongdian, established in March 2018, Jingshan Sanhe, established in April 2018, Hubei Jinli, acquired in June 2018 and Tianjin Jiabaili acquired in June 2018, and Wine Co. and Herbal Wine Co., acquired in December 2018.

Other ~~Income (Expenses),~~Expenses, Net

Total other expenses increased by ~~$550,761~~$1,134,075 or ~~16,277.5%~~59,313.5% from ~~$3,394~~$1,912 during the ~~six~~nine months ended ~~January 31,~~April 30, 2018 to ~~$554,155~~$1,135,987 during the ~~six~~nine months ended ~~January 31,~~April 30, 2019. The increase in total other expenses was mainly attributable to the increase in interest expense as a result of the third party loans that we obtained in 2018 to pay for the initial payments in relation to the acquisition of Hubei Jinli and Tianjin Jiabaili in June 2018. In addition, Hubei Jinli has existing bank loans prior to our acquisition. We also obtained a new related party loan in January 2019 for the payments in relation to the acquisition of Wine Co. and Herbal Wine Co. As a result, we incurred approximately ~~$454,000~~$496,000 interest ~~expenses~~expense for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 as compared to $0 for the same period in 2018. Furthermore, the acquisition of Hubei Jinli also includes three installment payments each due on June 20 of 2019, 2020 and 2021, respectively, which resulted in amortization of debt discount of our investment payable of approximately ~~$249,000~~$379,000 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 as compared to $0 for the same period in 2018. ~~The increase in interest expense was partially offset by~~Furthermore, we made the ~~increase in other income~~payment for acquisition of ~~approximately $128,000 from other~~Hubei Jinli prior to the original due date, as a result, we recognized a one-time finance expenses of approximately ~~$4,000~~$0.4 million at the time for which the discount portion of the payment for the ~~six~~original due date were prepaid for the nine months ended ~~January 31, 2018~~April 30, 2019 as compared to ~~approximately $124,000~~$0 for the ~~six months ended January 31, 2019.~~same period in 2018.

Income Tax Expense

Our current income tax expense was ~~$1,575,918~~$2,162,146 and ~~$3,843~~$8,190 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018, respectively. Our income tax expense was incurred by our profitable VIEs and controlled entities in both periods and we have provided 100% allowance on net operating losses for our VIEs and controlled entities which incurred losses.

Net Income (Loss)

Our net income increased by ~~$4,832,778,~~$5,667,421, or ~~317%~~256.5%, to net income of ~~$3,308,253~~$3,457,778 for the ~~six~~nine months ended ~~January 31,~~April 30, 2019, from a net loss of ~~$1,524,525~~$2,209,643 for the same period in 2018. Such change was the result of the combination of the changes discussed above.

Liquidity and Capital Resources

Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Debt financing in the form of loans including related party loans have been utilized to finance our working capital requirements. As of ~~January 31,~~April 30, 2019, the Company’s working capital ~~deficiency~~ was approximately ~~$11.7~~$2.6 million and the Company had cash and restricted cash of approximately ~~$8.0~~$14.6 million. Although we believe that we can realize our current assets in the normal course of business, our ability to repay our current obligations will depend on the future realization of our current assets and the future operating revenues generated from our operations.

We expect to realize the balance of our current assets within the normal operating cycle of a twelve month period. If we are unable to realize our current assets within the normal operating cycle of a twelve month period, we plan to supplement our available sources of funds through the following sources:

●

we will continuously seek equity financing (including a proposed underwritten public offering pursuant to a registration statement on Form S-1 on February 1, 2019) to support ~~our~~its working ~~capital requirements;~~capital;

●

other available sources of financing from PRC banks and other financial institutions;

●

financial support and credit guarantee commitments from the Company’s related parties.

Based on the above considerations, our management is of the opinion that we have sufficient funds to meet our working capital requirements and debt obligations as they become due for at least one year from the date of this report. However, there is no assurance that management will be successful in our plans. There are a number of factors that could potentially arise that could undermine our plans, such as changes in the demand for our products or installations, PRC government policy, economic conditions, and competitive pricing in the industries that we operated in.

We also expect to raise additional capital through public offerings with the proceeds to be used for 1) leasing additional production facilities for synthetic fuel and related products, 2) adding a new packaging line for our synthetic fuel and related products in Jingshan Sanhe, and 3) general corporate purpose.

The following summarizes the key components of our cash flows for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 and 2018.

For the Six Months Ended
January 31,
2019 2018
Net cash provided by (used in) operating activities $ 8,184,734 $ (1,625,134 )
Net cash used in investing activities (8,399,586 ) (159,132 )
Net cash (used in) provided by financing activities (6,071,154 ) 832,696
Effect of exchange rate change on cash 64,321 365,574
Net change in cash and restricted cash $ (6,221,685 ) $ (585,996 )

	For the Nine Months Ended April 30,
	2019			2018
Net cash provided by (used in) operating activities	$	5,400,802		$	(2,527,012	)
Net cash used in investing activities		(10,856,871	)		(572,389	)
Net cash provided by financing activities		5,857,585			4,482,425
Effect of exchange rate change on cash		20,799			505,475
Net change in cash	$	422,315		$	1,769,800

As of ~~January 31,~~April 30, 2019 and July 31, 2018, we had a cash and restricted cash balance of ~~$8,024,098~~$14,668,098 and $14,245,783, respectively.

Operating Activities

Net cash provided by operating activities was approximately ~~$8.2~~$5.4 million for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 as compared to net cash used in operating activities of approximately ~~$1.6~~$2.5 million for the same period in 2018.

Net cash provided by operating activities for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 was mainly comprised of net income of approximately ~~$3.3~~$3.5 million, ~~the decrease in notes receivable as we collected bank notes~~depreciation and amortization expense of approximately ~~$1.0~~$1.4 million, changes in costs and estimated earnings in excess of billings of approximately $2.9 million, the increase of advance from customers of approximately ~~$12.6~~$8.0 million as we have received significant sales orders for our high-grade synthetic fuel products which require customer deposits. The net cash provided by operating activities was partially offset by the increase in inventories of approximately ~~$1.6~~$1.8 million, the increase in advances to suppliers of approximately $2.6 million as we prepaid for more purchase in anticipation of productions, the decrease in accounts payable ~~as we paid off~~of approximately $1.5 million ~~to our vendors as the payments became due,~~ and the decrease in other payables and accrued liabilities of approximately ~~$5.3~~$5.4 million.

Net cash used in operating activities for the ~~six~~nine months ended ~~January 31,~~April 30, 2018 was mainly comprised of net loss of approximately ~~$1.5~~$2.2 million, the decrease in accounts payable of approximately ~~$1.1~~$1.2 million, the increase in inventories of approximately ~~$0.4~~$0.8 million, the increase in advance to suppliers of approximately ~~$0.2~~$1.4 million, ~~and~~ the ~~decrease~~increase in other ~~payables~~receivables of approximately ~~$0.1~~$0.9 million ~~partially~~ offset by the ~~decrease~~collection of accounts receivable of approximately ~~$1.1~~$1.3 million and the increase of advance from customers of approximately ~~$0.6~~$2.4 million.

Investing Activities

Net cash used in investing activities was approximately ~~$8.4~~$10.9 million for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 as compared to net cash used in investing activities of approximately ~~$0.2~~$0.6 million for the same period in 2018.

Net cash used in investing activities for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 was mainly comprised of the partial investment payments of approximately ~~$8.8~~$9.4 million that we made in relation to the acquisition of Hubei Jinli and Tianjin Jiabaili, the purchase of property and equipment of approximately ~~$1.4~~$2.8 million for our business expansion, ~~partially~~and the purchase of short-term investment of approximately $0.5 million offset by the collection of loan receivable of approximately ~~$1.7~~$1.8 million.

Net cash used in investing activities for the ~~six~~nine months ended ~~January 31,~~April 30, 2018 wascomprised of the ~~issuance~~purchase of ~~notes receivable~~property and equipment of approximately ~~$0.2~~$99,000 and the deposit made to investment of approximately $0.5 million.

Financing Activities

Net cash ~~used in~~provided financing activities was approximately ~~$6.1~~$5.9 million for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 as compared to net cash provided by financing activities of approximately ~~$0.8~~$4.5 million for the same period in 2018.

Net cash ~~used in~~provided by financing activities for the ~~six~~nine months ended ~~January 31,~~April 30, 2019 was comprised of capital contribution from ~~one shareholder~~shareholders of approximately ~~$15.5~~$30.8 million and proceeds from related party loans of approximately ~~$2.0~~$15.2 million partially offset by the payments of short-term bank loan ~~third party loan,~~ and related party ~~loan~~loans of approximately ~~$0.5 million, $0.2~~$3.1 million and ~~$22.0~~$35.4 million, respectively and the repayments to related parties of approximately ~~$1.0~~$2.0 million.

Net cash provided by financing activities for the ~~six~~nine months ended ~~January 31,~~April 30, 2018 wascomprised of the borrowings from related parties of approximately $1.8 million, the proceeds from related party loans of approximately ~~$0.4~~$0.5 million and the proceeds from ~~notes~~note payable of approximately ~~$0.5~~$2.2 million.

Commitments and Contingencies

In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450-20, “Loss Contingencies”, we will record accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Contractual Obligations

As of ~~January 31,~~April 30, 2019, the future minimum payments under certain of our contractual obligations were as follows:

			Payments Due In										Payments Due In
Contractual obligations	Total		Less than 1 year		1 – 3 years		3 – 5 years		Thereafter		Total		Less than 1 year		1 – 3 years		3 – 5 years		Thereafter
Purchase obligations	$	47,488	$	47,488	$	-	$	-	$	-
Operating leases obligations		3,533,587		395,460		2,297,146		809,011		31,970	$	3,466,548	$	1,171,457	$	1,846,118	$	447,971	$	1,002
Long-term debt obligations*		2,957,996		1,428,273		1,529,723		-		-		878,981		462,502		416,479		-		-
Loans obligations		3,402,782		3,402,782		-		-		-		742,413		742,413		-		-		-
Due to related parties and third party		7,528,402		7,528,402		-		-		-		6,631,575		6,631,575		-		-		-
Total	$	17,470,255	$	12,802,405	$	3,826,869	$	809,011	$	31,970	$	11,719,517	$	9,007,947	$	2,262,597	$	447,971	$	1,002

Represent future value of acquisition payments in relation to our acquisitions of Hubei Jinli, Tianjin Jiabaili, Wine Co. and Herbal Wine Co.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. While our significant accounting policies are more fully described in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this report, we believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Use of Estimates and Assumptions

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in our unaudited condensed consolidated financial statements include the estimated cost used to calculate the percentage of completion recognized in our revenues, the useful lives of property, plant and equipment, impairment of long-lived assets, allowance for accounts receivable doubtful accounts, allowance for inventory obsolescence reserve, allowance for advance to suppliers doubtful accounts, allowance for deferred tax assets, fair value of the assets and the liabilities of the entity acquired through our business combination, valuation of warranty reserves, contingent consideration liabilities, and the accrual of potential liabilities. Actual results could differ from these estimates.

Revenue Recognition

On August 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC Topic 606) using the modified retrospective method for contracts that were not completed as of July 31, 2018. This did not result in an adjustment to the retained earnings upon adoption of this new guidance as our revenue was recognized based on the amount of consideration expected to receive in exchange for satisfying the performance obligations.

The core principle underlying the revenue recognition ASU is that we will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in such exchange. This will require us to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. Our revenue streams are recognized over time for our sale and installation of power generation systems and are recognized at a point in time for our sale of products.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires us to (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way we record our revenue. Upon adoption, we evaluated our revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

Gross versus Net Revenue Reporting

In the normal course of the Company’s trading business, the Company orders products directly from its suppliers and drop ships the products directly to its customers. In these situations, the Company generally collects the sales proceeds directly from its customers and pays for the inventory purchases to its suppliers separately. The determination of whether revenues should be reported on a gross or net basis is based on the Company’s assessment of whether it is the principal or an agent in the transaction. In determining whether the Company is the principal or an agent, the Company follows the accounting guidance for principal-agent considerations. Because the Company is not the primary obligor and is not responsible for (i) fulfilling the resale products delivery, (ii) establishing the selling prices for delivery of the resale products, (iii) performing all billing and collection activities including retaining credit risk and (iv) baring the back-end risk of inventory loss with respect to any product return from its customer, the Company has concluded that it is the agent in these arrangements, and therefore report revenues and cost of revenues on a net basis.

Sale and installation of power generation systems

Sales of power generation system in conjunction of system installation are generally recognized based on our efforts or inputs to the satisfaction of a performance obligation using an input measure method, which essentially the same as the percentage of completion method prior to August 1, 2018 for its installation project. Therefore, take into account the costs, estimated earnings and revenue to date on contracts not yet completed. Revenue recognized is that percentage of the total contract price that costs expended to date bear to anticipated final total costs, based on current estimates of costs to complete. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor and supplies. Adjustments to the original estimates of the total contract revenue, total contract costs, or the extent of progress toward completion are often required as work progresses. Such changes and refinements in estimation are reflected in reported results of operations as they occur; if material, the effects of changes in estimates are disclosed in the notes to the unaudited condensed consolidated financial statements.

The key assumptions used in the estimate of costs to complete relate to the unit material cost, the quantity of materials to be used, the installation cost and those indirect costs related to contract performance. The estimate of unit material cost is reviewed and updated on a quarterly basis, based on the updated information available in the supply markets. The estimate of material quantity to be used for completion and the installation cost is also reviewed and updated on a quarterly basis, based on the updated information on the progress of project execution. If the supply market conditions or the progress of project execution were different, it is likely that materially different amounts of contract costs would be used in the percentage of completion method of accounting. Thus the uncertainty associated with those estimates may impact our unaudited condensed consolidated financial statements. Selling, general, and administrative costs are charged to expense as incurred. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the unaudited condensed consolidated financial statements. Claims for additional contract costs are recognized upon a signed change order from the customer.

The installation revenues and sales of equipment and system component are combined and considered as one performance obligation. The promises to transfer the equipment and system component and installation are not separately identifiable, which is evidencing by the fact that we provide a significant services of integrating the goods and services into a power generation system for which the customer has contracted. We currently do not have any modification of contract and the contract currently does not have any variable consideration.

Sales of products

We continue to derive our revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or other incentive. Such revenues are recognized at a point in time after all performance obligations are satisfied and based on when control of goods transfer to a customer, which is generally similar to when its delivery has occurred prior to August 1, 2018.

Warranty

We generally provide limited warranties for work performed under our contracts. The warranty periods typically extend for up to five years following substantial completion of the Company’s work on a project. At the time a sale is recognized, we record estimated future warranty costs under ASC 460. Such estimated costs for warranties are estimated at completion and these warrants are not service warranties separately sold by us. Generally, the estimated claim rates of warranty are based on actual warranty experience or our best estimate.

Recent Accounting Pronouncements

See Note 2 of our notes to unaudited condensed consolidated financial statements for a discussion of recently issued accounting standards.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to interest rate risk while we have short-term bank loans outstanding. Although interest rates for our short-term loans are typically fixed for the terms of the loans, the terms are typically twelve months and interest rates are subject to change upon renewal.

Credit Risk

Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. We manage credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. We identify credit risk collectively based on industry, geography and customer type. In measuring the credit risk of our sales to our customers, we mainly reflect the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its likely future development.

Liquidity Risk

We are also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet our commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions and related parties to obtain short-term funding to avoid the liquidity shortage.

Foreign Exchange Risk

While our reporting currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

Inflation

Inflationary factors such as increases in the costs of our products and overhead costs may adversely affect our operating results. Inflation in China has recently increased substantially. Based on publicly available sources, the inflation rate in China was reported at 2.48% for 2018.

These factors have led to the adoption by the Chinese government, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. Price inflation can affect our ability to maintain current levels of gross margin and selling and distribution, general and administrative expenses as a percentage of net revenues if we are unable to pass along raw material price increases to customers. Accordingly, inflation in China may weaken our competitiveness domestically.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~January 31,~~April 30, 2019.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer identified material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure controls and procedures and concluded that our disclosure controls and procedures as of ~~January 31,~~April 30, 2019 were not effective.

Management’s assessment identified the following material weaknesses in ~~the Company’s~~our internal control over financial reporting:

●

Ineffective control environment. ~~The Company~~We did not maintain an effective control environment, which is the foundation necessary for effective internal control over financial reporting. Specifically, ~~the Company~~we (i) had an insufficient number of personnel appropriately qualified to perform control design, execution and monitoring activities; (ii) had an insufficient number of personnel with an appropriate level of U.S. GAAP knowledge and ~~experience and ongoing training in the application of U.S. GAAP and SEC disclosure requirements commensurate with the Company’s financial reporting requirements;~~experience; (iii) ~~had inadequate segregation of duties consistent with control objectives; and (iv)~~ did not ~~formally document policies~~establish the authorization approval matrix; and ~~controls to enable~~(iv) did not implement a budget system, which makes management and other personnel unable to ~~understand and~~ carry out their internal control responsibilities including the lack of ~~closing checklists,~~ budget-to-actual analyses, balance sheet variation analysis, pro forma financial statements, and the usage of key spreadsheets for monitoring. Additionally, the Company did not have an adequate process in place to complete its testing and assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner.

●

Ineffective controls over our financial statement close and reporting process. ~~The Company~~We did not maintain effective controls over ~~its~~our financial statement ~~closing~~close and reporting process. Specifically, the Company: (i) had insufficient preparation and review procedures for disclosures accompanying the Company’s financial statements; (ii) did not have controls to monitor and provide appropriate oversight of a third-party consulting firm used to prepare its financial statements, and (iii)we did not have effective controls over the completeness, existence and accuracy of related party disclosures.

●

Inadequate controls over ~~recording of sales and accounts receivable~~production plan. The Company did not maintain effective controls over the completeness, accuracy, and valuation of revenue and accounts receivable. Specifically, the Company had not implemented effective controls to ensure that (i) that all revenue recognition criteria have been satisfied prior to revenue being recognized, including that collectability is reasonably assured; (ii) sales invoices are prepared and issued in a timely manner; (iii) the aging of accounts receivables is monitored to verify the completeness and accuracy of computations for the valuation of accounts receivables reserves; (iv) the analysis of the completed contract verse the percentage of completion method of accounting for contract revenues is accurate and complete; (v) the Company didn’t have written confirmation of receipt from the customers regarding some product sales; and (vi) the Company didn’t establish formal procedures to update customer information in the finance system.

●

~~Inadequate controls over inventory valuation~~. The Company did not maintain effective controls over the completeness and accuracy of our accounting estimates related to inventory. Specifically, documented processes do not exist for adjustments for excess, defective and obsolete inventory and lower of cost or net realized value considerations.

●

~~Inadequate controls over tax return filing. The Company did not file tax returns timely.~~

●

~~Inadequate controls over interest expense accrual. The Company~~Our manufacturing department did not maintain effective controls over the accuracy of ~~interest expense. Specifically, documented processes do not exist to accrue interest expense~~raw materials. The amount of raw materials mentioned in ~~a timely manner.~~the production plan is inconsistent with the actual amount of raw materials delivered (Jingshan Sanhe).

●

~~Inadequate controls over business acquisitions and investments. The Company did not have a formal policy and procedures in place on business acquisitions and investments.~~

●

Inadequate controls over information technology. We had inadequate controls over information technology. Specifically, (i) ~~Formal policy regarding user management and~~the system ~~backup hadn’t been established; (ii) Approval~~permissions on approval process of account opening ~~on finance application wasn’t documented; (iii) Periodic account review on finance~~and ERP system were ~~missing; (iv) Administrator account application access~~not one-to-one matched; and data base was shared by finance team; (v) Reviewing of the operation log of finance system was missing; (vi) Proper password policy for finance system was not in place; (vii) Appropriate security control on access to operating system was missing; and (viii) Backup status review and availability testing on backup data weren’t conducted on regular basis.(ii) a formal test environment wasn’t established.

Remediation Plans

Management is committed to remediating the material weaknesses in a timely fashion. We have begun the process of executing remediation plans to address the material weaknesses above in internal control over financial reporting. Specifically, we established Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee in July 2017. We

Our management have taken and are implementing the following measures to ~~further~~ address the material ~~weakness, subject to obtaining additional~~weaknesses in internal control over financing reporting, include:

(i)

~~We plan to establish a desired level of corporate governance with regard to identifying and measuring the risk of material misstatement.~~

We are setting up a key monitoring mechanism including independent directors, an audit compliance committee, a risk management committee and ~~audit~~a strategic planning committee to oversee and monitor ~~Company’s~~our risk management, business strategies and financial reporting procedure.

~~(ii)~~a.

We ~~appointed what we believe~~plan to ~~be a suitable~~formulate delegation of authorities and ~~qualified Chief Financial Officer in July 2018.~~job description to clarify authorities and responsibilities of each position.

We are in the process of formalizing policies and controls, such as financial management regulations, budget management system, narrative and risk control management, to enable management and other personnel to understand their internal control responsibilities including budget-to-actual analyses, balance sheet variation analysis, pro forma financial statements, and the usage of key spreadsheets for monitoring.

(ii)

We are in the process of designing employees’ key performance indicators to monitor and assess employees’ performance.

(iii)

~~In December 2018, we~~We have engaged Ernest & Young (China) Advisory Limited to assist us with our compliance under Section 404 of the Sarbanes-Oxley Act of ~~2002~~. 2002. Since January 2019, they started to work with us to help us establish and maintain an effective control environment, enhance our process and internal control related to sales, account receivables and inventory and establish comprehensive accounting policies and procedures.

(iv)

We have prepared a list of interest expenses and established a documented process to accrue interest.

(v)

We are in the process of updating the production policy, especially focusing on production plan and usages of raw materials.

(vi)

We have set up a key strategies mechanism including an investment decision committee to oversee business acquisitions and investments. We have established a formal policy and procedures on business acquisitions and investments.

(vii)

We have kept the price comparison records of purchasing battery slices.

(viii)

We have engaged tax consultants to prepare and file our US tax returns since October 2018.

(ix)

We have established formal policy regarding user management and system backup strategy in the information system safety management regulations to regulate approval process of account opening, periodic account review on financial system, access rule of administrator account, operation log review on financial system and password policy.

~~(iv)~~(x)

We ~~are holding regular seminars, briefings~~plan to establish a formal test environment and ~~training sessions on U.S. GAAP for accounting department employees.~~test before system changes come online.

Our management believes that the measures described above and others ~~that will~~to be implemented will remediate the ~~control deficiencies~~material weaknesses identified and will strengthen our internal control over financial reporting. Management is committed to continuous improvement of ~~the Company’s~~our internal control processes and will continue to diligently review our financial reporting controls and procedures. The remediation efforts set out above are largely dependent upon our generating more revenue to cover the costs of implementing the changes required.

However, readers are cautioned that we do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

~~There~~Except as discussed above, there were no changes in the Company’s internal control over financial reporting during the three months period ended ~~January 31,~~April 30, 2019 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

~~Sanhe Xiangtian is involved in~~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 ~~litigation with Shandong Taidai Photovoltaic Technology Co., Ltd. (“Shandong Taidai”) for contractual dispute. Sanhe Xiangtian filed a complaint on January 24, 2018 with~~consultant to the ~~Sanhe People’s Court~~Company and ~~claimed for damages of RMB 1,000,000 (approximately $149,245) caused by Shandong Taidai~~later served as ~~it provided~~ the ~~unqualified construction project. As~~acting Chief Financial Officer of the ~~date~~Company beginning July 29, 2014, and two other non-related parties obtained a total of ~~this report,~~7,000,000 shares of restricted common stock. The shares were issued in contemplation of a secondary offering. The Company takes the ~~litigation~~position that these shares should be cancelled since no secondary offering was consummated. The Company is ~~still~~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 ~~process~~Company at the time of ~~verifying~~issuance, therefore the ~~damages.~~

~~Shandong Taidai filed a lawsuit against Sanhe Xiangtian with Dongying City Intermediate People’s Court~~par value is thought to match the assumed market price of ~~Shandong Province on November 29,~~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. For the three and nine months ended April 30, 2019 and 2018, ~~regarding~~ the ~~same project and claimed unpaid work~~dilutive effect 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~~not canceling the ~~jurisdiction of Dongying City Intermediate People’s Court of but the application was rejected. On January 23, 2019, Sanhe Xiangtianappealed the ruling~~60,000,000 shares is incorporated in the ~~jurisdiction of Dongying City Intermediate People’s Court. Currently,~~unaudited condensed consolidated financial statements as the ~~case is under review by~~Company recorded such shares as issued and outstanding. For the ~~Dongying City Intermediate People’s Court.~~

three and nine months ended April 30, 2019 and 2018, not canceling the 60,000,000 shares has an anti-dilutive effect.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 ~~intends to file~~filed a motion for default judgment pursuant to which the Company ~~will seek~~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.

Sanhe Xiangtian is involved in a litigation with Shandong Taidai Photovoltaic Technology Co., Ltd. (“Shandong Taidai”) for contractual dispute. Sanhe Xiangtian filed a complaint 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 May 22, 2019, a hearing was held by the court and the final judgements will be issued at a later date. The Company does not believe the litigation will have significant impact on their unaudited condensed consolidated financial statements.

On March 19, 2019, Wen He Han and Gui Fen 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. Wen He Han and Gui Fen Wang claimed a damage amounted 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 ruled in favor 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 was not executed and the Company has not received the specified list on which assets were being frozen. Management currently cannot estimate the outcome of the litigation.

On April 15, 2019, Xianning Xiangtian filed a lawsuit against Wen He Han and Gui Fen Wang, former shareholders of Tianjin Jiabaili, for the same dispute over equity transfer between Tianjin Jiabaili and Xianning Xiantian on April 15, 2019 with People’s Court of Jizhou District, Tianjin City. Xianning Xiangtian claimed a damage amounted 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. Currently, the case is under review by the Dongying City Intermediate People’s Court. Management currently cannot estimate the outcome of the litigation.

Item 1A. Risk Factors.

The risk factors set forth below contain material changes to the risk factors previously disclosed and included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2018. When evaluating our business and our prospects, you should consider the risks and uncertainties described under Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended July 31, 2018, which we filed with the SEC on October 30, 2018, as updated in this Item 1A. You should also refer to the other information set forth in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended July 31, 2018, including our financial statements and the related notes. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the risks or uncertainties actually occurs, our business and financial results could be harmed. In that case, the market price of our common stock could decline.

Risks Related to Our Business

We have been relying on a limited number of customers to generate a significant portion of our revenue. The loss of our major customers could reduce our revenues and our profitability.

We have been relying on a limited number of major customers for a significant portion of our revenue and anticipate that such reliance will remain unchanged in the near future. For the three months ended ~~January 31,~~April 30, 2019, ~~two customers~~one customer accounted for ~~47.4% and 17.1%~~67.3% of the Company’s total revenues. There can be no assurance that we will maintain or improve the relationships with our major customers, or that we will be able to continue to supply our major customers at current levels or at all. Any failure to pay by these customers could have a material negative effect on our company’s business. In addition, having a relatively small number of customers may cause our semiannual results to be inconsistent, depending upon when these customers pay for outstanding invoices. If we cannot maintain long-term relationships with these major customers, the loss of our sales to them or the cancellation of any business from them could have an adverse effect on our business, financial condition and results of operations.

The loss of one or more of our suppliers could cause production delays. Any interruption in our relationship with our suppliers could materially and adversely affect our growth and financial condition.

Although we believe that the principal components and raw materials for our products are readily available from alternate sources, an interruption in the supply of these components or a substantial increase in the price of any of these components could have a material adverse effect on our business and our results of operations.

We currently rely on a few key suppliers to provide a significant percentage of components to our products. For the three months ended ~~January 31,~~April 30, 2019, two vendors accounted for ~~35.4%~~39.3% and ~~11.9%~~14.5% of our total purchases. An interruption in our business relationship or termination of our relationships with our key suppliers could materially and adversely affect our operations and financial condition and we may not be able to find a substitute in a short period of time, which would have an adverse effect on our results of operations.

Risks Related to Our Wine Business

A reduction in the supply of fundamental herbs in traditional Chinese medicine and base alcohol available to us from the independent herb growers and base alcohol suppliers could reduce our annual production of wine.

We rely on growers to purchase substantially all the fundamental herbs in traditional Chinese medicine used in our herbal wine production. These ingredients include rehmannia glutinosa, Chinese yam, lycium chinense, velvet antler, cyathula officinalis, angelica sinensis, dwarf lilyturf, etc. We believe that the fundamental herbs we use in our herbal wines are readily available in China and that the supply of these herb and the edible base alcohol are stable. However, if the supply of fundamental herbs and base alcohol available to us from the independent herb growers and base alcohol suppliers reduce, it could negatively impact our wine business.

We face inventory risk, and if we fail to predict accurately demand for products and market and sell our products diligently, we may face write-downs or other charges.

We are exposed to inventory risks that may adversely affect operating results as a result of changes in sales channels, product pricing, consumer demand, and other factors. As of March 5, 2019, we had a bottled wine inventory of more than 37,000 bottles and an un-bottled inventory of approximately 330 tons. We endeavor to predict accurately, based on information from distributors and reasonable assumptions, the expected demand for their products in order to avoid overproduction. We plan to sell the products through our sales channels, including stores, gas stations and direct sales. Demand for products, however, can change significantly between the time of production and the date of sale. It may be more difficult to make accurate predictions regarding new products. In part, we depend on the marketing initiatives and efforts of distributors in promoting products and creating consumer demand and we have limited or no control regarding their promotional initiatives or the success of their efforts. If we fail to predict accurately demand for products and market and sell our products diligently, we may face write-downs or other charges on inventories.

We face significant competition which could adversely affect profitability.

The wine and herbal wine industries are intensely competitive and highly fragmented in China. Our wines compete in several wine market segments with many other domestic wines and herbal wines. Our wines also compete with other alcoholic and, to a lesser degree, non-alcoholic beverages, for shelf space in retail stores and for marketing focus by independent distributors, many of which carry extensive brand portfolios. As a result of this intense competition there has been and may continue to be upward pressure on selling and promotional expenses. In addition, the wine industry has experienced significant consolidation. Many competitors have greater financial, technical, marketing and public relations resources. Our sales may be harmed to the extent we are not able to compete successfully against such wine or alternative beverage producers’ costs. There can be no assurance that in the future we will be able to successfully compete with current competitors or that we will not face greater competition from other wineries and beverage manufacturers.

If we experience problems with our product quality, customer satisfaction with respect to pricing of our products or the timely delivery of our products, we could lose our customers and market acceptance which will affect our sales and have an adverse effect on our business, financial condition and results of operations.

Our growth and sales primarily depend on our maintenance of quality control, customer satisfaction with respect to pricing and the punctual availability and delivery of our products. If we fail to deliver the same quality of our products with the same punctuality and pricing which our customers have grown accustomed to, or in accordance with the terms of our sales agreements, we could damage our customer relations and market acceptance which will affect sales and our business in general. For example, we have to maintain food production license and GMP certificate for pharmaceutical products as an indication of the quality of our products. If we experience deterioration in the performance or quality of any of our products, whether due to problems internally or externally, it could result in delays in delivery, cancellations of orders or customer complaints, loss of goodwill, diversion of the attention of our senior personnel and harm to our brand and reputation. Any and all of these results would have an adverse effect on our business, financial condition and results of operations.

We are subject to a series of food and drug supervision and management regulations of our wine business. If we are unable to comply with relevant regulations, we may face penalties or our licenses may be revoked.

To conduct our wine and herbal wine business, we have obtained Food Business License, Food Production License, Pharmaceutical Manufacturing Permit and GMP Certificate. Besides, we are required to comply with a series of food and drug regulations and national standards, such as the technical standards and advertising regulations regarding the drug products. If we fail to comply with relevant regulations or national standards, we may face penalties or our licenses may be revoked.

The price of raw materials of our wine and herbal wine is controlled by government. If there is a significant increase in the market price of raw materials as a result of such governmental efforts, it might increase our cost and has a material adverse effect on our business, financial condition and results of operations.

The PRC government has the power to intervene in the price of important types of grain under certain circumstances, such as when a material change occurs to the market supply and demand and/or the grain price fluctuates significantly, in order to protect the interests of farmers. Although such pricing guidance has not had a material impact on our business in the past, we cannot guarantee you the market price of our raw materials would always be kept in the current level. If there is a significant increase in the market price of raw materials as a result of such governmental efforts would increase our cost of sales, and we may not be able to pass those increased costs on to our customers. Such increased costs could have a material adverse effect on our business, financial condition and results of operations.

The liquor industry might be heavily influenced by national and local policies. Given the current unclear situation of local and national regulations and policies, we cannot predict the impact of future policy changes on the industry.

Local policies and national policies regarding the liquor industry are inconsistent to some degree. From the national level, wine business is in a restricted industry. According to the “Industrial Structure Adjustment Guidance Catalogue” promulgated by the National Development and Reform Commission in 2011 and revised in 2013, wine business is in the restricted industry category. However, Hubei Province, where our liquor business is located, issued a notice on “Strengthening the Hubei Liquor Industry Action Plan” in 2016, encouraging further expansion into the liquor industry and comprehensively improving the strength and competitiveness of the liquor industry. As the liquor industry might be heavily influenced by national and local regulations and policies, we cannot predict the impact of the inconsistency between national and local polities and any future change in policy on the industry. If the national or the local government further adjusts the current liquor industry policy, such as restrictions on liquor production and consumption through regulations on taxation, bank loan, land supply, advertising, price and other aspects, it might have an adverse impact on the company’s production and operation.

Risks Related to Doing Business in the PRC

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 in different locations. We have not made adequate employee benefit payments. As of ~~January 31,~~April 30, 2019 and July 31, 2018, the outstanding employee benefits payments due to the local labor bureau were ~~$191,537~~$197,241 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On ~~December 21, 2018,~~June 3, 2019, our board of directors approved the transfer of 3% equity interest of Xianning Xiangtian ~~completed~~held by Zhou Deng Rong, our former Chief Executive Officer and director, to Fei Wang, an employee of Xianning Xiangtain. As a result of the transfer, Xianning Xiangtian and its ~~acquisition (the “Transaction”)~~shareholders, Zhou Jian and Fei Wang, executed a new set of ~~90%~~equity pledge agreement, exclusive option agreement and power of attorney on June 10, 2019 and all the terms remained substantially the same as the New VIE Agreements described in Note 2 - Variable interest entities to the financial statements. Copies of the equity ~~interests in each~~pledge agreement, exclusive option agreement and power of ~~Wine Co.~~attorney are filed hereto as Exhibits10.1,10.2 and ~~Herbal Wine Co.~~10.3, ~~each a limited liability company~~respectively and are incorporated ~~in the PRC, pursuant to an equity investment agreement dated December 14, 2018 (the “Agreement”),~~herein by and between Xianning Xiangtian and the Rongentang Shareholders, who are unrelated to the Company or Xianning Xiangtian. Wine Co. is engaged in the business of manufacturing and sales of compound wine products and Herbal Wine Co. is engaged in the business of manufacturing and sales of herbal wine products.

In addition, Rongentang Shareholders completed the title transfer procedures with the PRC government authorities for all the real property and land use rights possessed by Rongentang to Wine Co. (“Title Transfer”) from the ownerreference. The foregoing description of such ~~real property and land use rights, Xianning Rongentang Wine Co., Ltd. (“Xianning Rongentang”), an entity controlled by the Rongentang Shareholders,~~agreements are qualified in February 2019. Rongentang also obtained a three-year royalty-free license from Xianning Rongentang, the owner of the trademark “Rongentang,” to use such trademark, in January 2019. The remaining RMB7.5 million (approximately $1,087,388) of the Total Consideration to be contributed to Wine Co. as registered capital will be paid off by March 2019.

A detailed summary of the Agreement in connection with this Transaction is included in Item 1.01 of the Company’s current report on Form 8-K filed December 20, 2018. Such summary does not purport to describe all the terms of the Agreement and is qualifiedtheir entirety by reference to the complete text of the Agreement. We urge you to read the Agreement carefully and in its entirety because it, and not such description, is the legal document that governs the Transaction by which we acquired the equity interests in Rongentang.thereto.

~~The Company does not believe either the financial statements of Wine Co. and Herbal Wine Co or the pro forma financial statements are required pursuant to Regulation S-X.~~

Item 6. Exhibits.

Number		Description

~~2.1~~10.1*		~~Plan and Agreement~~English Translation of ~~Merger between the Company and Subsidiary, dated November 5, 2018 (incorporated herein by reference to Exhibit 2.1 of the Current Report on Form 8-K filed on November 6, 2018).~~
~~3.1~~		~~Articles of Merger of Subsidiary into the Company, dated November 5, 2018 (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed on November 6, 2018).~~
~~10.1~~		Equity ~~Investment~~Pledge Agreement, dated as of ~~December 14, 2018,~~June 10, 2019, by and among Xiangtian Shenzhen, Zhou Jian, Fei Wang and Xianning Xiangtian ~~Energy Holding Group Co. Ltd., Shuiqing Zhen and Dahuan Chen (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on December 20, 2018).~~
~~10.2~~10.2*		~~Equity Investment Fund Escrow~~English Translation of Exclusive Option Agreement, dated as of ~~December 14, 2018,~~June 10, 2019, by and among ~~Shuiqing Zhen, Dahuan Chen,~~Xiangtian Shenzhen, Xiangtian HK, Zhou Jian, Fei Wang and Xianning Xiangtian ~~Energy Holding Group Co. Ltd. and Xianning Wenquan Branch~~
10.3*		English Translation of ~~Agricultural Bank~~Power of ~~China (incorporated herein~~Attorney, dated as of June 10, 2019, by ~~reference to Exhibit 10.2 of the Current Report on Form 8-K filed on December 20, 2018).~~Fei Wang
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

Furnished herewith.

6267

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	XT Energy Group, Inc.

Dated: ~~March 18,~~June 17, 2019	By:	/s/ Zhou Deng Hua
		Name: Zhou Deng Hua
		Title: Chief Executive Officer (Principal Executive Officer)

Dated: ~~March 18,~~June 17, 2019	By:	/s/ Yanhong Xue
		Name: Yanhong Xue
		Title: Chief Financial Officer (Principal Financial and Accounting Officer)

6368

	For the Three Months Ended January 31,						For the Six Months Ended January 31,
	2019			2018			2019			2018

Revenue-products	$	21,913,491		$	175,821		$	41,512,447		$	481,461
Revenue-installation of power systems		-			56,422			389,482			105,976
Total revenue		21,913,491			232,243			41,901,929			587,437

Cost of sales-products		16,091,346			122,335			31,526,561			401,980
Cost of sales-installation of power systems		-			53,106			357,708			91,105
Total cost of sales		16,091,346			175,441			31,884,269			493,085

Gross profit		5,822,145			56,802			10,017,660			94,352

Operating expenses:
Selling expenses		692,256			48,353			805,318			64,323
General and administrative expenses		2,016,491			791,332			3,722,200			1,659,937
Provision for (recovery of) doubtful accounts		60,959			(114,196	)		(103,928	)		(112,620	)
Change in estimated contingent liabilities		155,744			-			155,744			-
Total operating expenses		2,925,450			725,489			4,579,334			1,611,640

Income (loss) from operations		2,896,695			(668,687	)		5,438,326			(1,517,288	)

Other income (expenses)
Other income (expenses), net		93,286			423			124,041			(4,008	)
Interest income		16,190			286			25,385			614
Interest expense		(226,353	)		-			(703,581	)		-
Total other (expenses) income, net		(116,877	)		709			(554,155	)		(3,394	)

Income (loss) before income taxes		2,779,818			(667,978	)		4,884,171			(1,520,682	)

Income tax expenses		(1,049,774	)		(1,008	)		(1,575,918	)		(3,843	)

Net income (loss)		1,730,044			(668,986	)		3,308,253			(1,524,525	)

Less: Net income attributable to non-controlling interest		112,545			-			314,987			-

Net income (loss) attributable to XT Energy Group, Inc.	$	1,617,499		$	(668,986	)	$	2,993,266		$	(1,524,525	)

Net income (loss)	$	1,730,044		$	(668,986	)	$	3,308,253		$	(1,524,525	)

Foreign currency translation adjustment		1,046,405			316,017			665,419			405,892

Total comprehensive income (loss)		2,776,449			(352,969	)		3,973,672			(1,118,633	)

Less: Comprehensive income attributable to non-controlling interest		195,287			-			375,444			-

Comprehensive income (loss) attributable to XT Energy Group, Inc.	$	2,581,162		$	(352,969	)	$	3,598,228		$	(1,118,633	)

Net income (loss) per common share - basic and diluted	$	0.00		$	(0.00	)	$	0.01		$	(0.00	)

Weighted average number of common shares outstanding - basic and diluted		591,042,000			591,042,000			591,042,000			591,042,000

Financial liabilities	Carrying Value as of January 31, 2019		Fair Value Measurements at January 31, 2019 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Contingent payment consideration liabilities (see Note 3)	$	497,253	$	-	$	-	$	497,253

Financial liabilities	Carrying Value as of July 31, 2018		Fair Value Measurements at July 31, 2018 Using Fair Value Hierarchy
			Level 1		Level 2		Level 3
Contingent payment consideration liabilities (see Note 3)	$	331,505	$	-	$	-	$	331,505

Construction-in-progress description	Value		Estimated Completion date	Estimated Additional Cost to Complete
Synthetic fuel raw materials production line	$	473,700	March 2019	$	5,257
Factory plantation		188,048	February 2019		2,227
Fire safety equipment installation		143,766	March 2019		14,924
Other miscellaneous items		11,579	February 2019		-
Total construction-in-progress	$	817,093		$	22,408

	Hubei Jinli		Tianjin Jiabaili		Wine Co. and Herbal Wine Co.		Total
Balance as of July 31, 2018	$	3,793,245	$	339,898	$	-	$	4,133,143
Goodwill acquired in the Wine Co. and Herbal Wine Co. acquisition		-		-		1,741,855		1,741,855
Foreign currency translation adjustment		67,935		6,087		-		74,022
Balance as of January 31, 2019	$	3,861,180	$	345,985	$	1,741,855	$	5,949,020

Twelve Months Ending January 31,	Minimum Purchase Commitment
2020	$	47,488
Thereafter		-
Total minimum payments required	$	47,488