Zhenjiang Co., Ltd.'s overseas subsidiary’s deconsolidation timing approved by the accountant, in accordance with accounting standards.

Beijing Dehao International Accounting Firm recently issued a reply to its inquiry letter regarding Jiangsu Zhenjiang New Energy Equipment Co., Ltd. (hereinafter referred to as “Zhenjiang Shares”)’s sale of its overseas subsidiary, confirming that the de-recognition (off-balance-sheet) date of the target company is March 31, 2026 (the closing date), which satisfies the requirements under the Enterprise Accounting Standards regarding the transfer of control.

According to the announcement, on March 4, 2026, Zhenjiang Shares convened the 14th meeting of the fourth session of the board of directors, which approved the proposal on the sale of the overseas subsidiary. This transaction does not require submission to the shareholders’ meeting, because none of the financial indicators involved meet the 50% proportion and absolute amount thresholds for submission to the shareholders’ meeting as stipulated in the Rules of Procedure for the Shareholders’ Meeting. After the transaction is completed, the company will no longer hold any equity in the target company, and the target company will no longer be included in the scope of the consolidated financial statements.

Based on relevant provisions such as Enterprise Accounting Standard No. 33—Consolidated Financial Statements, the accounting firm provided a detailed analysis of the three elements of control (power, variable returns, and the link between power and variable returns). The review indicates that after the closing, the buyer will have current power over all relevant activities of the target company, including its operations, finance, and personnel; its returns (including equity value, future profits, and tax credits) are closely linked to the target company’s operating performance; and it directly assumes operating risks through performance guarantee and earn-out arrangements, and is able to use its power to influence the amount of returns.

Regarding the payment progress concerns from the market, the announcement shows that the total consideration for this transaction is USD 22.15 million. At closing, USD 4.50 million is paid (20%); the remaining USD 12.15 million will be paid on a deferred basis; and USD 5.50 million will be paid as a final payment three years later. The accounting firm noted that although the payment proportion at the closing date does not exceed 50%, the arrangement for paying the remaining amount is clear. The buyer has planned to use USD 750 million raised through an IPO to ensure its payment capability, and the relevant credit risks have been significantly reduced. At the same time, the call option provisions regarding overdue payments in the agreement are protective provisions and do not affect the assessment of whether control is transferred.

In addition, the reply to the inquiry letter also discloses details such as the procedures for transferring the target company’s property rights, the buyer’s actual control over financial and operating policies, and the subsequent arrangements for key employees, further confirming that control had been transferred on the closing date.

This transaction does not constitute a related-party transaction or a major asset restructuring. It does not require approval from the relevant national authorities. After the closing, the company must complete the deregistration/change registration procedures with the three departments for commerce, development and reform, and foreign exchange.

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