Announcement of Guangdong Kinglight Electric Appliance Co., Ltd. on Foreign Investment of Wholly-owned Subsidiaries [ChinaCSR.com] – Corporate Social Responsibility

Securities Code: 002723 Securities Abbreviation: Jinlight Announcement Code: 2022-069

The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete, and that there are no false records, misleading statements or major omissions.

Special Note:

1. This investment does not constitute a related party transaction; it does not constitute a major asset reorganization as stipulated in the “Administrative Measures for Major Asset Restructuring of Listed Companies”;

2. This investment is the company’s own funds and is not expected to have a significant impact on the company’s production and operation;

3. There are uncertain risks as to whether the target company can obtain the production qualification for the “nicotine production for electronic cigarette” business; the target company’s business is affected by future macro policy factors, upstream raw material supply, and market competition environment, and whether future performance commitments can be fulfilled There are still uncertain risks;

4. The final valuation of the target company still needs to be evaluated and confirmed by a third-party evaluation agency with evaluation qualifications. Investors are advised to analyze rationally and pay attention to investment risks.

1. Overview of foreign investment

1. Basic situation of foreign investment

In order to expand the layout of the electronic cigarette industry, strengthen the company’s comprehensive competitiveness in the electronic cigarette industry, and seek new profit growth points. Recently, Shenzhen Yunhai Venture Capital Co., Ltd. (hereinafter referred to as “Yunhai Venture”), a wholly-owned subsidiary of Guangdong Jinlaite Electric Co., Ltd. (hereinafter referred to as “the company”, “Jinlait”), and Fang Chaoyi, Liang Jutang, Zhongshan Yue A total of 7 shareholders, Chuang Enterprise Management Co., Ltd., Zhongshan Dunda Investment Management Co., Ltd., Zhongshan Xieheng Enterprise Management Co., Ltd., Shen Zhixiong, and Cui Yibing signed the “Equity Transfer Agreement”. Yunhai Venture will use its own funds of RMB 2,250 10,000 yuan invested in Shaanxi Ganghua Biotechnology Co., Ltd. (hereinafter referred to as “target company”, “Ganghua Bio”) and held a 30% stake in Ganghua Bio. At the same time, Yunhai Venture and Cui Yibing and Shen Zhixiong signed the “Gaming Agreement of Equity Transfer Agreement” respectively. Cui Yibing and Shen Zhixiong, as the core management personnel of Ganghua Bio, made the following performance commitments to Yunhai Venture: 2022-2024 respectively The net profit after tax attributable to the parent company after deducting non-recurring gains and losses shall be no less than RMB 4.5 million, RMB 8 million and RMB 10 million.

2. Approval of foreign investment

According to the “Shenzhen Stock Exchange Listing Rules”, “Articles of Association” and other relevant documents and regulations, this external investment is not a major investment matter. This transaction is within the scope of the approval of the chairman of the company, and this investment does not require the Reviewed by the board of directors and the general meeting of shareholders. As of the disclosure date of this announcement, the company has completed the chairman’s approval process for foreign investment.

3. The nature of foreign investment

This external investment does not constitute a connected transaction, nor does it constitute a major asset reorganization as specified in the Administrative Measures for Major Asset Restructuring of Listed Companies.

2. Introduction of the parties to the agreement

1. Fang Chaoyi, a natural person of Chinese nationality;

There is no relationship between the company and Fang Chaoyi, and Fang Chaoyi is not a dishonest person subject to execution

2. Liang Jutang, a natural person from Hong Kong, China;

There is no relationship between the company and Liang Jutang, and Liang Jutang is not a dishonest person subject to execution

3. Zhongshan Yuechuang Enterprise Management Co., Ltd.

Unified social credit code: 91442000MA53LPUA4J

Business Type: Limited Liability Company

Legal representative: Wei Peiwen

Registered capital: 10 million yuan

Date of establishment: August 14, 2019

There is no associated relationship between the company and Zhongshan Yuechuang Enterprise Management Co., Ltd.

4. Zhongshan Dunda Investment Management Co., Ltd.

Unified Credit Code: 91442000MA4UL0QF48

Business Type: Limited Liability Company

Legal representative: Mai Guoliang

Registered capital: 10 million yuan

Date of establishment: December 23, 2015

There is no associated relationship between the company and Zhongshan Dunda Investment Management Co., Ltd.

5. Zhongshan Xieheng Enterprise Management Co., Ltd.

Unified Credit Code: 91442000MA53N5614F

Business Type: Limited Liability Company

Legal representative: Wei Hongwen

Registered capital: 1 million RMB

Date of establishment: August 26, 2019

There is no associated relationship between the company and Zhongshan Xieheng Enterprise Management Co., Ltd.

6. Shen Zhixiong, a natural person from Hong Kong, China;

There is no relationship between the company and Shen Zhixiong, and Shen Zhixiong is not a dishonest person subject to execution

7. Cui Yibing, a natural person of Chinese nationality;

There is no relationship between the company and Cui Yibing, and Cui Yibing is not a dishonest person subject to execution.

3. Target company

1. Basic information of the target company

Company Name: Shaanxi Ganghua Biotechnology Co., Ltd.

Unified social credit code: 916105003295585442

Business Type: Limited Liability Company

Registered capital: 2 million US dollars

Date of establishment: April 29, 2015

Business scope: R&D, processing and sales of pesticide production, biological products, microbial fermentation technology, biological and pharmaceutical intermediates; cultivation, acquisition and sales of agricultural and sideline products. (For projects subject to approval according to law, business activities can only be carried out after approval by relevant departments).

2. Shareholding structure

(1) The equity structure before this equity transfer is as follows:

3. Introduction of the target company

Since its establishment, Ganghua Bio has focused on the production of high-purity nicotine, and has strictly implemented the national safety production, environmental protection and other policy requirements, and obtained production qualifications such as nicotine safety production licenses, hazardous chemicals registration certificates, and pollution discharge licenses in accordance with the law. In recent years, Ganghua Bio has always been committed to high-purity nicotine production and technology research and development. It is the first batch of high-purity nicotine production enterprises in China, and has formed “Shaanxi Ganghua” in the industry with law-abiding, honest management, and courage to innovate. The company’s corporate brand, product quality and corporate reputation are well-known in the industry and won the trust of the market.

(2) The equity structure after the equity transfer is as follows:

4. Main Contents of the Equity Transfer Agreement

(1) Cooperative parties

1. Liang Jutang (hereinafter referred to as “Party A 1”)

2. Fang Chaoyi (hereinafter referred to as “Party A 2”)

3. Zhongshan Yuechuang Enterprise Management Co., Ltd. (hereinafter referred to as “Party A 3”)

4. Zhongshan Dunda Investment Management Co., Ltd. (hereinafter referred to as “Party A 4”)

5. Zhongshan Xieheng Enterprise Management Co., Ltd. (hereinafter referred to as “Party A 5”)

6. Shen Zhixiong (hereinafter referred to as “Party A 6”)

7. Cui Yibing (hereinafter referred to as “Party A 7”)

Note: The above 7 transferors are collectively referred to as “Party A”

8. Shenzhen Yunhai Venture Capital Co., Ltd. (hereinafter referred to as “Party B”)

(2) The main content of the agreement

1. Basic situation

As a shareholder of the target company, Party A now owns 100% of the equity of the target company. Party A intends to transfer a total of 30% of the equity of the target company it owns to Party B, and Party B agrees to transfer such equity. The shareholding ratio and transfer price of the target company to be transferred by Party A are as follows:

2. Asset evaluation and transfer price payment

(1) Equity transfer price

All parties agree that after the signing of this agreement, Party B will hire a third-party evaluation agency with evaluation qualifications to evaluate the target company. If the valuation of the target company is equal to or higher than 75 million yuan, the equity transfer price will not be adjusted; If the valuation of the target company is less than 75 million yuan, the two parties shall negotiate the amount of the equity transfer price separately in writing.

The above equity transfer payment shall be paid to Party A in two batches:

1) Party B shall pay Party A 10% of the equity transfer payment no later than 5 working days after the target company has been evaluated by a third-party evaluation agency and issued an evaluation report;

2) Party B shall pay Party A the 100% equity transfer payment no later than 3 months after the target company is evaluated by a third-party evaluation agency and issues an evaluation report.

3. Corporate Governance

(1) After the equity delivery date, Party A shall cooperate with Party B to set up the board of directors of the target company, and the board of directors shall be responsible for various decisions of the target company. The board of directors of the target company shall consist of 3 directors, including 1 chairman, and Party B has the right to appoint 2 directors (including the chairman). The voting on the resolutions of the board of directors shall be carried out by one director, one vote. Resolutions of the board of directors must be approved by more than half of the directors.

(2) After the equity delivery date, Party A shall cooperate with Party B to adjust the management personnel of the target company, and Party B has the right to appoint or designate the financial controller of the target company.

V. Main Contents of the VAM Agreement in the Equity Transfer Agreement

(1) Cooperative parties

1. Shen Zhixiong (hereinafter referred to as “Party A 1”)

2. Cui Yibing (hereinafter referred to as “Party A 2”)

3. Shenzhen Yunhai Venture Capital Co., Ltd. (hereinafter referred to as “Party B”)

Note: “Party A 1” and “Party A 2” are collectively referred to as Party A

(2) Contents of the agreement

1. Party A and the target company jointly set the following business goals: in the first year 2022, the after-tax net profit attributable to the parent company after deducting non-recurring profits and losses shall not be less than RMB 4.5 million; in the second year, 2023, deducting non-recurring profits and losses The after-tax net profit attributable to the parent company after gains and losses shall not be less than RMB 8 million; the after-tax net profit attributable to the parent company after deducting non-recurring gains and losses in the third year, 2024, shall not be less than RMB 10 million. The after-tax net profit attributable to the parent company of the target company after deducting non-recurring gains and losses in the above-mentioned years is subject to the report issued by a third-party audit institution.

2. If Party A and the target company fail to complete the performance and business objectives of the above-mentioned years, then Party A undertakes to make a one-time cash payment within 5 days after the third party issues the audit report in accordance with the performance compensation formula standard stipulated in this agreement in the year that has not been completed. To pay Party B the amount of performance compensation, the calculation formula of performance compensation is as follows:

Current annual performance compensation amount = overall valuation of the target company * Party A’s shareholding ratio * (current year’s committed net profit / 2250) * (1- current year’s actual net profit / current year’s committed net profit)

The overall valuation of the target company in the performance compensation formula is subject to the evaluation report issued by a qualified third-party evaluation agency. The total amount of accumulated cash compensation in three years shall not exceed the total amount of equity transfer funds obtained by Party A.

If the target company exceeds the performance and operation goals of any year, Party B promises to use 30% of the excess net profit for the year as the performance reward of the management team.

6. Pricing basis

1. Based on the industry status of the target company and its competitive advantages, after negotiation between the two parties, the overall valuation of the target company is expected to be no higher than 75 million yuan. After the signing of this agreement, the company will hire a third-party evaluation agency to evaluate the target company. If the final valuation of the target company is equal to or higher than 75 million yuan, the equity transfer price will be 22.5 million yuan; If the final appraised value is less than 75 million yuan, the two parties shall negotiate and agree in writing on the equity transfer price. The pricing of this transaction will be based on the evaluation report issued by a third-party evaluation agency.

2. Cui Yibing and Shen Zhixiong, as the core operation and management personnel of Ganghua Bio, make a performance commitment that the target company will achieve a total of no less than 22.5 million yuan after deducting non-recurring profits and losses after tax net profit attributable to the parent company.

7. The purpose of this investment, the impact on the company and the existing risks

1. Purpose of foreign investment

(1) High-purity nicotine can be used in e-cigarettes, pesticides, medicine, cosmetics and other fields, especially e-cigarettes. According to the provisions of the “Administrative Measures for Electronic Cigarettes” and related questions and answers: from October 1, 2022, electronic cigarette products without nicotine shall not be sold on the market, and nicotine extracted from tobacco should be used, that is, artificial nicotine will be used in the future. Will not be used in e-cigarettes. The high-purity nicotine produced by the target company is extracted from tobacco, which meets the requirements of the “Administrative Measures for Electronic Cigarettes”.

The target company has production qualifications such as a nicotine safe production license, a hazardous chemical registration certificate, and a pollution discharge license, and is one of the rare enterprises in the domestic nicotine production field.

(2) Expand the layout of the electronic cigarette industry and enhance the competitive advantage. The company completed the equity investment in Bode, a well-known domestic vaping brand in November 2021, and has signed the “One Belt, One Road” Strategic Cooperation Framework Agreement with Bode, which will combine Bode’s vaping products, The research and development advantages of atomizers are combined with the company’s overseas sales channel advantages, production scale and cost advantages to develop e-cigarette business. The high-purity nicotine produced by the target company is the upstream business of electronic cigarettes. This investment will deepen the company’s layout in the electronic cigarette industry, thereby enhancing the company’s competitive advantage in the field of electronic cigarettes.

(3) The target company currently has complete production qualifications, and has submitted a tobacco monopoly production enterprise (electronic Application for a license for nicotine in cigarettes. The company intends to give full play to the synergy effect through the combination of the resources and industries of both parties, enhance the comprehensive strength of the target company, and at the same time increase the profit growth point of the listed company.

2. Impact on the company

(1) This time, the source of funds for the foreign investment of the wholly-owned subsidiary Yunhai Venture Capital is its own funds, and it is expected that it will not have a significant impact on the company’s production and operation.

(2) After the completion of this investment, the target company will be included in the scope of the company’s consolidated financial statements, and its operation will have a positive impact on the company’s future financial status. (The specific merger time is subject to the opinion of the audit institution)

3. Risk warning

(1) According to the “Measures for the Administration of Electronic Cigarettes”, the production enterprises of nicotine for electronic cigarettes should report to the tobacco monopoly administrative department of the State Council for review and approval before approving the project in accordance with relevant national regulations. The target company has submitted an application for a tobacco monopoly production enterprise (nicotine for electronic cigarette) license to the provincial tobacco monopoly bureau, but there are still uncertain risks in whether it can obtain the production license qualification for this business;

(2) The target company’s business is affected by future macro policy factors, upstream raw material supply, and market competition environment, and there are still uncertain risks in whether future performance commitments can be fulfilled;

(3) The final valuation of the target company still needs to be evaluated and confirmed by a third-party evaluation agency with evaluation qualifications.

The company will pay close attention to the follow-up progress of this investment, strengthen the risk prevention operation mechanism, strictly comply with the requirements of relevant laws, regulations and normative documents, and timely perform the obligation of information disclosure. Investors are advised to pay attention to investment risks.

8. Documents available for inspection

1. “About the Equity Transfer Agreement of Shaanxi Ganghua Biotechnology Co., Ltd.”

2. “Vambling Agreement on Equity Transfer Agreement of Shaanxi Ganghua Biotechnology Co., Ltd.”

Special announcement.

Guangdong Kinglight Electric Co., Ltd.

Board of Directors

May 21, 2022