ORDINARY SHARES AND STATUTORY RESERVE

6 Months Ended

Jun. 30, 2024

Ordinary Shares And Statutory Reserve

ORDINARY SHARES AND STATUTORY RESERVE

20. ORDINARY SHARES AND STATUTORY RESERVE

On June 1, 2023, pursuant to the BCA, Chijet Motor, a wholly-owned subsidiary of Chijet Inc. merged with JWAC such that JWAC became a wholly-owned subsidiary of the Chijet Motor. With the completion of share exchange, Chijet Inc. became a wholly-owned subsidiary of Chijet Motor and the Chijet Inc. shareholders received 5,071,010 of Chijet Motor’s ordinary shares, par value US$0.003 per share. As of June 30, 2024 and December 31, 2023, Chijet Motor had issued ordinary shares of both 5,471,661, of which outstanding ordinary shares of both 5,470,076. Share data as of June 30, 2024 and December 31, 2023 have been retroactively restated to give effect to the 1-for-30 reverse stock split that is discussed in note 1(b).

(a) Warrants

GT Warrants

The following table summarizes the changes in the number of warrants outstanding during the six months ended June 30, 2024:

			Weighted average		Total
	Number		unit price		price
					US$’000
Balance of warrants - December 31, 2023		148,334	$	60	$	8,900
Balance of warrants - June 30, 2024		148,334	$	60	$	8,900
Balance of warrants exercisable - June 30, 2024		148,334	$	60	$	8,900

On February 15, 2022, pursuant to a financial advisory agreement, Shandong Baoya issued a common stock purchase warrant to Greentree to purchase 166,667 of its shares at an exercise price of US$60.00 per share. On June 1, 2023, in connection with the closing of the Business Combination, the Company assumed the obligations of Shandong Baoya under the financial advisory agreement, by executing an assumption and amendment to the common stock purchase warrant by and among the Company, Shandong Baoya, and Greentree. In accordance with ASC 815-40, the warrants are classified as equity and the relative fair value of approximately US$22,900 thousand was recognized gradually over the service term from February 15, 2022 to December 31, 2022. As of December 31, 2022, US$22,900 thousand was recognized as additional paid-in capital. The estimated fair value was determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying ordinary share at the valuation measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying ordinary share.

The Company used the following assumptions to estimate the fair value of warrants granted under the financial advisory agreement as of December 31, 2022:

	At February 15, 2022
Risk-free interest rate		1.72	%
Expected volatility		60.00	%
Expected term (in years)		5
Expected dividend yield		0.00	%

I-Bankers Warrants

The following table summarizes the changes in the number of warrants outstanding during the six months ended June 30, 2024:

			Weighted average		Total
	Number		unit price		price
					US$’000
Balance of warrants - December 31, 2023		13,800	$	360	$	4,968
Balance of warrants – June 30, 2024		13,800	$	360	$	4,968

On December 9, 2021, JWAC issued to I-Bankers warrants to purchase 13,800 shares of its Class A common stock, exercisable at $360.00 per share (the “Representative’s Warrants”), in connection with its services as the representative of the underwriters for the IPO and as a result of the full exercise of the over-allotment option. The fair value of the Representative’s Warrants was estimated to be approximately US$1,087 thousand (or US$78.78 per warrant) using the Black-Scholes option-pricing model. Upon completion of the Business Combination, all of the Representative’s Warrants were exchanged for a substantially similar warrant to purchase an equal number of Chijet Motor ordinary shares on the same terms and conditions as the original warrant, exercisable at $360.00 per share for five years.

The Company used the following assumptions to estimate the fair value of warrants as of December 31, 2021:

	At December 9, 2021
Risk-free interest rate		1.18	%
Expected volatility		35.00	%
Expected term (in years)		5
Expected dividend yield		0.00	%

(b) Treasury stock

Chijet Inc. entered into unsecured promissory notes (the “Promissory Notes”) in the principal amount of US$1,380 thousand and US$1,180 thousand with JWAC on December 5, 2022 and March 6, 2023, respectively. The Promissory Note were non-interest bearing and payable in cash upon the earlier of the closing of the Business Combination and the date of liquidation of JWAC. According to the letter signed by JWAC and Chijet Inc. on June 1, 2023, JWAC repaid US$500 thousand by delivering 1,585 shares of its Class A common stock (“JWAC Common Stock”), par value US$0.003 per share, each share valued at the Redemption Price and US$2,060 thousand in cash to Chijet Inc. As a result of the Share Exchange, Chijet Inc.’s investment in JWAC was changed to the investment in Chijet Motor, Chijet Inc.’s parent company. The effect in essence is that a subsidiary, Chijet Inc., holds an investment in its parent company’s (Chijet Motor) ordinary shares. According to presentation guidance in ASC 810-10-45-5, these 1,585 shares have been transferred to treasury shares of the Company.

(c) Statutory Reserves and Restricted Net Asset

The Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in the PRC is subject to limitations, procedures, and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in PRC.

The Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with PRC GAAP. Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion, production, or increase in registered capital but are not distributable as cash dividends.

For the six months ended June 30, 2024 and 2023, the Company’s PRC subsidiaries did not make any appropriations to their statutory reserves. As of June 30, 2024 and December 31, 2023, the accumulated balance of the statutory reserves was US$6,656 thousand.

In accordance with the safety production regulations, the Company’s subsidiaries in China have to make appropriations as a special reserve which will only be used for the enhancement of safety production environment and improvement of facilities. As of June 30, 2024 and December 31, 2023, the accumulated balance of special reserves, which is included in the accumulated deficit, was approximately US$631 thousand and US$574 thousand, respectively.

Because the Company’s entities in the PRC can only pay dividends out of distributable profits reported in accordance with PRC accounting standards, the Company’s entities in the PRC are restricted from transferring a portion of their net assets to the Company. The restricted amounts include the paid-in capital, statutory reserves, special reserve and additional paid-in capital of the Company’s entities in the PRC. The aggregate amount of paid-in capital and additional paid-in capital, which is the amount of net assets of the Company’s entities in the PRC not available for distribution, were US$148,357 thousand and US$148,301 thousand, as of June 30, 2024 and December 31, 2023, respectively.