| 代码 | 名称 | 最新价 | 涨跌幅 ^ | 涨跌额 | 成交额 | | --- | --- | --- | --- | --- | --- | | LZMH | 联掌科技控股 | 3.600 | -19.64% | -0.880 | 170.51万 | | LICN | Lichen International | 4.530 | -19.25% | -1.080 | 140.6万 | | NAAS | 能链智电 | 2.680 | -15.72% | -0.500 | 170.44万 | | RAYA | 雷亚电子 | 0.0664 | -13.77% | -0.0106 | 439.17万 | | NCT | Intercont | 3.100 | -12.92% | -0.460 | 116.61万 | 中概股收盘跌幅前五的个股为：联掌科技控股跌19.64%，Lichen International跌19.25%，能链智电跌 15.72%，雷亚电子跌13.77%，Intercont跌12.92%。(格隆汇) ...

Core Viewpoint - Erayak Power Solution Group Inc. has successfully closed a registered direct offering, raising approximately $7 million through the sale of 107,692,307 Class A ordinary shares at a price of $0.065 per share [1][2]. Group 1: Offering Details - The offering involved the sale of Class A ordinary shares and pre-funded warrants, with a purchase price of $0.065 per share [1]. - The gross proceeds from the offering are estimated to be around $7 million, before deducting fees and expenses [2]. - Craft Capital Management LLC served as the sole placement agent for the offering [2]. Group 2: Regulatory Compliance - The offering was conducted under a "shelf" registration statement on Form F-3, which was filed with the SEC and declared effective on May 16, 2024 [3]. - The terms of the public offering were described in a prospectus supplement filed with the SEC [4]. Group 3: Company Overview - Erayak specializes in manufacturing, research and development, and wholesale and retail of power solution products, including inverters, generators, and smart chargers [6]. - The company's products are primarily used in agricultural and industrial vehicles, recreational vehicles, and outdoor living products [6].

| 代码 | 名称 | 最新价 | 涨跌幅 ^ | 涨跌额 | 成交额 | | --- | --- | --- | --- | --- | --- | | RAYA | 雷亚电子 | 0.0594 | -53.59% | -0.0686 | 6759.71万 | | CHSN | 香颂国际 | 0.0750 | -33.10% | -0.0371 | 187.13万 | | FEBO | 晖宝控股 | 0.790 | -23.30% | -0.240 | 11.96万 | | UCAR | 优品车 | 1.990 | -21.65% | -0.550 | 79.22万 | | ANPA | Rich Sparkle Holdings | 27.610 | -21.56% | -7.590 | 436.99万 | 中概股收盘跌幅前五的个股为：雷亚电子跌53.59%，香颂国际跌33.1%，晖宝控股跌23.3%，优品车跌 21.65%，Rich Sparkle Holdings跌21.56%。(格隆汇) ...

Core Viewpoint - Erayak Power Solution Group Inc. has entered into a securities purchase agreement for the sale of 107,692,307 shares at a price of $0.065 per share, aiming to raise approximately $7 million in gross proceeds [1][2]. Group 1: Offering Details - The offering involves the purchase and sale of Class A ordinary shares or pre-funded warrants, with a purchase price of $0.065 per share [1]. - The transaction is expected to close on or about August 1, 2025, pending customary closing conditions [2]. - Craft Capital Management is acting as the sole placement agent for this offering [2]. Group 2: Regulatory Information - The offering is conducted under a shelf registration statement on Form F-3, which was declared effective by the SEC on May 16, 2024 [3]. - A prospectus supplement detailing the terms of the offering will be filed with the SEC prior to closing [4]. Group 3: Company Overview - Erayak specializes in manufacturing, research and development, and wholesale and retail of power solution products, including inverters, generators, and smart chargers [6]. - The company's products are primarily used in agricultural and industrial vehicles, recreational vehicles, and outdoor living products [6].

Core Viewpoint - Erayak Power Solution Group Inc. has successfully closed a registered direct offering, raising approximately $3 million through the sale of 30,612,246 Class A ordinary shares at a price of $0.098 per share [1][2]. Group 1: Offering Details - The offering involved the sale of 30,612,246 Class A ordinary shares at a purchase price of $0.098 per share, with the gross proceeds estimated at around $3 million before fees and expenses [1][2]. - Craft Capital Management LLC served as the sole placement agent for the offering, while Ortoli Rosenstadt LLP and Sichenzia Ross Ference Carmel LLP acted as legal counsel for the company and the placement agent, respectively [2]. Group 2: Regulatory Information - The securities were offered under a "shelf" registration statement on Form F-3, which was filed with the U.S. Securities and Exchange Commission (SEC) and declared effective on May 16, 2024 [3]. - The offering was conducted via a prospectus supplement, which has been filed with the SEC and is available for public access [4]. Group 3: Company Overview - Erayak specializes in manufacturing, research and development, and wholesale and retail of power solution products, including sine wave and off-grid inverters, generators, and smart chargers [6]. - The company's products are primarily utilized in agricultural and industrial vehicles, recreational vehicles, electrical appliances, and outdoor living products, aiming to establish itself as a premier power solutions brand [6].

Group 1 - Erayak Power Solution Group Inc. has entered into a securities purchase agreement for the sale of 30,612,246 Class A ordinary shares at a price of $0.098 per share, resulting in expected gross proceeds of approximately $3 million [1][2] - The transaction is anticipated to close on or about July 28, 2025, pending customary closing conditions [2] - The offering is conducted under a shelf registration statement previously filed and declared effective by the U.S. Securities and Exchange Commission on May 16, 2024 [3] Group 2 - The offering will be made only through a prospectus supplement and accompanying prospectus, which will be filed with the SEC prior to closing [4] - Copies of the prospectus supplement and accompanying prospectus can be obtained from Craft Capital Management [5] Group 3 - Erayak specializes in manufacturing, research and development, and wholesale and retail of power solution products, including sine wave and off-grid inverters, generators, and smart chargers [6] - The company's products are primarily used in agricultural and industrial vehicles, recreational vehicles, electrical appliances, and outdoor living products [6]

Part I [ITEM 3. KEY INFORMATION](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section outlines the company's corporate structure, regulatory environment in China, key financial data, and significant risk factors [Corporate Structure and Regulatory Environment](index=6&type=section&id=Corporate%20Structure%20and%20Regulatory%20Environment) Erayak operates as a Cayman Islands holding company through PRC subsidiaries, navigating Chinese regulatory compliance including auditor oversight and cybersecurity laws - Erayak is a Cayman Islands holding company operating in China through its subsidiaries: **Ruike Electronics, Zhejiang Leiya, and Wenzhou New Focus**[18](index=18&type=chunk)[20](index=20&type=chunk)[22](index=22&type=chunk) - The company's current and former auditors, **Fortune CPA and TPS Thayer**, are U.S.-based and subject to **PCAOB inspection**, thus **not currently identified under the HFCAA** as non-inspectable[27](index=27&type=chunk) - Management asserts that the company has obtained **all necessary PRC business licenses** and is **not subject to cybersecurity review** by the CAC as it does not process personal information of **over one million users' data** or handle data bearing on national security[30](index=30&type=chunk)[31](index=31&type=chunk)[36](index=36&type=chunk) - Under the **CSRC's Trial Measures** effective March 31, 2023, the company is considered an "**existing enterprise**" and is **not required to file immediately** for its current listing but must do so for **future refinancing** or other specified events[39](index=39&type=chunk)[40](index=40&type=chunk) [Summary of Risk Factors](index=13&type=section&id=Summary%20of%20Risk%20Factors) The company faces significant risks related to its Chinese operations, business and industry factors, and its dual-class share structure - Risks of doing business in China include potential **CSRC filing/approval requirements**, evolving **data security and cybersecurity laws**, and PRC government **restrictions on transferring cash out of China**[54](index=54&type=chunk) - Business risks include being a holding company reliant on subsidiary dividends, **significant customer concentration**, **intense industry competition**, and **reliance on short-term borrowings** for liquidity[56](index=56&type=chunk)[59](index=59&type=chunk) - Share-related risks stem from a **dual-class structure** concentrating **40.61% of voting power** with **Erayak International Limited**, reduced reporting requirements as an "**emerging growth company**," and status as a "**foreign private issuer**"[63](index=63&type=chunk) [Selected Financial Data](index=19&type=section&id=Selected%20Financial%20Data) This section provides selected consolidated financial data, highlighting key balance sheet and income statement figures for recent fiscal years Consolidated Financial Position Summary (As of Dec 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | **Total Assets** | $46,033,203 | $35,285,266 | $37,605,200 | | **Total Liabilities** | $19,447,468 | $15,083,178 | $18,261,149 | | **Total Shareholders' Equity** | $26,585,735 | $20,202,087 | $19,344,051 | Consolidated Operations & Cash Flow Summary (For the Year Ended Dec 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | **Net (Loss) Income** | $(1,115,977) | $1,218,714 | $3,475,961 | | **Net Cash from Operating Activities** | $(15,876,639) | $6,729,733 | $(4,151,135) | | **Net Cash from Investing Activities** | $(971,811) | $(1,378,110) | $(4,896,167) | | **Net Cash from Financing Activities** | $12,381,107 | $(6,437,393) | $11,319,867 | - The company's financial statements are presented in **U.S. dollars**, but its functional currency is the **Renminbi (RMB)**. Translation adjustments from RMB to USD are recorded in accumulated other comprehensive income (loss), which amounted to **$(500,376)** as of December 31, 2024[68](index=68&type=chunk)[69](index=69&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=65&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details Erayak's corporate history, business operations, product lines, strategic advantages, and the complex PRC regulatory environment [History and Business Overview](index=65&type=section&id=History%20and%20Business%20Overview) Erayak, a Cayman Islands holding company, specializes in power solution products, with inverters and generators as primary revenue drivers - The company specializes in manufacturing, R&D, and sales of power solution products, including **inverters, generators, and chargers**, with a focus on mobile and outdoor living applications[342](index=342&type=chunk) Revenue Breakdown by Product Type (FY 2022-2024) | Product Type | 2024 Revenue % | 2023 Revenue % | 2022 Revenue % | | :--- | :--- | :--- | :--- | | Inverters | 46% | 59% | 52% | | Gasoline Generators | 32.94% | 32.36% | 43.82% | | Power Bank | 16.39% | 3.96% | 0% | | Chargers | 1.82% | 2.68% | 2.16% | - The company completed its **Initial Public Offering** on **December 19, 2022**, issuing **3,000,000 Ordinary Shares** at **$4.00 per share**, raising gross proceeds of **$12 million**[349](index=349&type=chunk) - On November 15, 2023, the company received a **non-compliance notice** from Nasdaq for failing to meet the **$1.00 minimum bid price** requirement, but **regained compliance on November 4, 2024**[352](index=352&type=chunk)[354](index=354&type=chunk) [Intellectual Property](index=73&type=section&id=Intellectual%20Property) The company protects its brand and technology through 61 Chinese patents, 12 registered trademarks, and 4 software copyrights - The company holds **61 Chinese patents** for its products, with expiration dates ranging from June 2026 to April 2033[396](index=396&type=chunk) - Erayak has **12 registered trademarks** in China, the United States, and the United Kingdom to protect its brand identity[401](index=401&type=chunk)[402](index=402&type=chunk) - The company also possesses **4 software copyrights** in China, further securing its technological assets[405](index=405&type=chunk)[406](index=406&type=chunk) [Regulation](index=76&type=section&id=Regulation) The company's operations are subject to extensive PRC regulations covering product liability, intellectual property, foreign exchange, and dividend distribution - The company is subject to **PRC laws on product liability**, which hold manufacturers and retailers **civilly liable** for damages caused by defective products[409](index=409&type=chunk)[410](index=410&type=chunk) - PRC regulations require the company to contribute to **employee benefit plans**, including **social insurance and housing funds**. The company currently contributes based on minimum standards, which may pose a **risk of penalties**[438](index=438&type=chunk)[439](index=439&type=chunk) - Dividend distributions from PRC subsidiaries are subject to a **10% withholding tax** (potentially reducible to **5% for its Hong Kong subsidiary**) and can only be paid from **after-tax profits** after setting aside at least **10% for a statutory reserve fund** until it reaches **50% of registered capital**[414](index=414&type=chunk)[428](index=428&type=chunk) - Foreign currency exchange is **regulated by SAFE**, which governs the **conversion of RMB** and the **remittance of funds** for both current account (e.g., dividends) and capital account items[419](index=419&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=91&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section reviews Erayak's financial performance, highlighting revenue growth, declining profitability, and negative operating cash flow in FY2024 [Results of Operations](index=93&type=section&id=Results%20of%20Operations) FY2024 saw revenue growth driven by gasoline generators, but gross profit and net income declined due to product mix and higher expenses Financial Performance Summary (FY 2024 vs. FY 2023) | Metric | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | **Sales** | $30,300,360 | $20,322,498 | +49.10% | | **Gross Profit** | $3,992,362 | $5,022,649 | -20.51% | | **Gross Margin** | 13.18% | 24.71% | -11.53 pts | | **Operating (Loss) Income** | $(1,565,048) | $746,766 | N/A | | **Net (Loss) Income** | $(1,115,977) | $1,218,714 | N/A | - The increase in 2024 revenue was primarily driven by **higher demand for gasoline generators** in Europe[502](index=502&type=chunk) - The **decrease in gross profit and margin** in 2024 was mainly due to an increased sales proportion of **low-margin gasoline generators**[505](index=505&type=chunk) - General and administrative expenses **increased by 14.39%** in 2024 to **$2.31 million**, mainly due to **higher employee compensation**[506](index=506&type=chunk) - Research and development expenses **rose by 41.95%** to **$1.67 million** in 2024, reflecting **increased investment** in new product development[509](index=509&type=chunk) [Liquidity and Capital Resources](index=98&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity weakened in FY2024 due to negative operating cash flow, offset by financing activities including share issuance and borrowings Cash Flow Summary (Year Ended Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | **Net cash from operating activities** | $(15,876,639) | $6,729,734 | | **Net cash used in investing activities** | $(971,811) | $(1,378,110) | | **Net cash provided by (used in) financing activities** | $12,381,107 | $(6,437,393) | | **Net (decrease) in cash** | $(4,553,625) | $(1,188,813) | | **Cash at end of period** | $1,324,809 | $5,878,434 | - The significant cash outflow from operations in 2024 was mainly due to a **$6.26 million increase in accounts receivable**, a **$2.30 million increase in inventory**, and a **$6.95 million increase in advances to suppliers**[525](index=525&type=chunk)[526](index=526&type=chunk) - Financing activities in 2024 provided **$12.38 million**, largely from an **$8 million share issuance** and net proceeds from borrowings[532](index=532&type=chunk) - As of December 31, 2024, the company had approximately **$1.06 million in short-term borrowings** and **$4.07 million in long-term loans**[540](index=540&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=105&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section outlines the company's board structure, executive compensation, employee count, and concentrated share ownership - The board of directors consists of **five members**, with **three independent directors**: **Jizhou Hou, Jing Chen, and Tsang Sheung**, who chair the **Nominating, Audit, and Compensation committees**, respectively[569](index=569&type=chunk)[583](index=583&type=chunk) Executive Compensation (2023-2024) | Name and Principal Position | Year | Salary (US$) | Total (US$) | | :--- | :--- | :--- | :--- | | Lingyi Kong, CEO | 2024 | $34,743 | $34,743 | | | 2023 | $29,303 | $29,303 | | Lanling Gu, CFO | 2024 | $21,680 | $21,680 | | | 2023 | $17,238 | $17,238 | - As of December 31, 2024, the company employed **360 people**, with the majority (**281**) in manufacturing[600](index=600&type=chunk) - CEO **Lingyi Kong**, through Erayak International Limited, holds **100% of Class B shares**, giving him control of **40.61% of the company's combined voting power** due to the **20-to-1 voting rights** of Class B shares[604](index=604&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=113&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details major shareholders, including CEO Lingyi Kong's control, and significant related party transactions, primarily with the CEO - The company leases its factory and offices from Wenzhou Ailefu Technology Co. Ltd., an entity **100% owned by the CEO, Lingyi Kong**[608](index=608&type=chunk) - Lingyi Kong provided **significant working capital** to the company, with an outstanding payable balance of **$3.51 million** due to him as of December 31, 2024. These borrowings are **unsecured, on-demand, and interest-free**[612](index=612&type=chunk) Net Due to Related Parties | Name of related parties | 2024 | 2023 | | :--- | :--- | :--- | | Lingyi Kong | $3,176,325 | $1,877,489 | | Shengling Xiang | $333,840 | - | | Wenzhou Ailefu Technology Co. Ltd. | - | $405,640 | | **Net due to related parties** | **$3,510,165** | **$2,283,129** | [ITEM 8. FINANCIAL INFORMATION](index=115&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section references detailed financial statements, confirms no significant legal proceedings, and outlines the company's dividend policy - The company **does not anticipate paying any cash dividends** in the foreseeable future, intending to **retain earnings to finance business expansion**[617](index=617&type=chunk) - As a holding company, its ability to pay dividends depends on receiving funds from its PRC subsidiaries, which is subject to **PRC regulations on profit distribution and currency controls**[619](index=619&type=chunk)[621](index=621&type=chunk) - PRC subsidiaries are required to set aside at least **10% of after-tax profits** into a **statutory reserve** until the reserve reaches **50% of registered capital**; these funds are **not distributable as cash dividends**[620](index=620&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=117&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section details corporate actions, governance structure, and tax implications across various jurisdictions, including the dual-class share structure - On **May 20, 2024**, the company entered into a **private placement agreement** to sell **16,000,000 Class A ordinary shares** and **warrants to purchase 32,000,000 Class A shares** for aggregate proceeds of **$8,000,000**[635](index=635&type=chunk) - The company has a **dual-class share structure** where each **Class A share has one vote** and each **Class B share has twenty votes**. Class B shares are convertible into Class A shares[632](index=632&type=chunk)[642](index=642&type=chunk) - As a Cayman Islands company, it is **not subject to income or capital gains taxes** in the Cayman Islands. Its PRC subsidiaries are subject to **PRC Enterprise Income Tax**, generally at a **25% rate**, with **preferential rates** for certain entities[742](index=742&type=chunk)[751](index=751&type=chunk) - For U.S. Holders, the company notes that based on its current operations, it **does not expect to be treated as a Passive Foreign Investment Company (PFIC)**, but this status is **subject to annual review and market conditions**[763](index=763&type=chunk) Part II [ITEM 15. CONTROLS AND PROCEDURES](index=139&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls were ineffective as of December 31, 2024, due to a material weakness in financial reporting - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were **ineffective**[788](index=788&type=chunk) - A **material weakness** was identified in internal control over financial reporting due to **insufficient accounting and finance personnel with U.S. GAAP experience**[789](index=789&type=chunk) - The company plans to **remediate the weakness** by **hiring additional personnel** with U.S. GAAP experience and **strengthening its financial reporting and control procedures**[789](index=789&type=chunk) [ITEM 16. CORPORATE GOVERNANCE AND OTHER MATTERS](index=140&type=section&id=ITEM%2016.%20CORPORATE%20GOVERNANCE%20AND%20OTHER%20MATTERS) This section details corporate governance, auditor fees, foreign private issuer exemptions, and cybersecurity risk management - The Board of Directors has determined that **Jing Chen** qualifies as an "**audit committee financial expert**"[790](index=790&type=chunk) Principal Accountant Fees | Year | Auditor | Audit Fees | | :--- | :--- | :--- | | 2024 | Fortune CPA | $164,800 | | 2023 | Fortune CPA | $160,000 | | 2022 | TPS Thayer | $180,000 | - As a **foreign private issuer**, the company utilizes **home country practice exemptions** from certain Nasdaq corporate governance standards, and **did not hold an annual shareholder meeting in 2023**[802](index=802&type=chunk)[804](index=804&type=chunk) - The company has adopted an **insider trading policy** and has a process for **managing cybersecurity risks**, which is **overseen by the Board of Directors** and managed by an IT Committee[807](index=807&type=chunk)[814](index=814&type=chunk) Part III [ITEM 18. FINANCIAL STATEMENTS](index=143&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for Erayak Power Solution Group Inc. and its subsidiaries for recent fiscal years [Consolidated Financial Statements](index=148&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements for FY2024 show total assets of $46.0 million, a net loss of $1.12 million, and negative operating cash flow Consolidated Balance Sheet Highlights (As of Dec 31) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | **Total Current Assets** | $33,090,337 | $22,098,190 | | **Total Assets** | $46,033,203 | $35,285,266 | | **Total Current Liabilities** | $15,534,264 | $13,211,587 | | **Total Liabilities** | $19,447,468 | $15,083,178 | | **Total Shareholders' Equity** | $26,585,735 | $20,202,087 | Consolidated Statement of Income Highlights (Year Ended Dec 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | **Sales** | $30,300,360 | $20,322,498 | $26,909,025 | | **Gross Profit** | $3,992,362 | $5,022,649 | $6,618,794 | | **Operating (Loss) Income** | $(1,565,048) | $746,766 | $4,068,574 | | **Net (Loss) Income** | $(1,115,977) | $1,218,714 | $3,475,961 | | **(Loss) Earnings Per Share** | $(0.04) | $0.10 | $0.38 | [Notes to Consolidated Financial Statements](index=152&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, revenue recognition, customer concentrations, related party transactions, debt, and PRC tax rates - Revenue is recognized when **control of the product is transferred** to the customer, which for international sales is typically at the **FOB shipping point**[896](index=896&type=chunk)[900](index=900&type=chunk) - In FY2024, **one customer accounted for 21.50%** of total revenues. In FY2023, **one customer accounted for 11.99%** of revenues[957](index=957&type=chunk)[958](index=958&type=chunk) - As of December 31, 2024, the company had **$1.06 million in short-term borrowings** and **$4.07 million in long-term loans**[941](index=941&type=chunk)[942](index=942&type=chunk) - The company's PRC subsidiaries are subject to **Enterprise Income Tax (EIT) rates ranging from 5% to 25%**, with Zhejiang Leiya Electronics qualifying for a **preferential high-tech enterprise rate of 15%**[979](index=979&type=chunk)[980](index=980&type=chunk) [ITEM 19. EXHIBITS](index=143&type=section&id=ITEM%2019.%20EXHIBITS) This section lists all exhibits filed with the annual report, including corporate documents, agreements, and certifications - The report includes a list of **all exhibits filed**, such as the company's **articles of association**, **material contracts** like employment and loan agreements, and required **CEO/CFO certifications**[820](index=820&type=chunk)

[Interim Consolidated Financial Statements](index=1&type=section&id=Interim%20Consolidated%20Financial%20Statements) [Interim Consolidated Balance Sheets](index=1&type=section&id=ERAYAK%20POWER%20SOLUTION%20GROUP%20INC.%20INTERIM%20CONSOLIDATED%20BALANCE%20SHEETS) As of June 30, 2024, Erayak Power Solution Group's total assets grew to $42.4 million from $35.3 million at the end of 2023, primarily driven by significant growth in accounts receivable, inventories, and advances to suppliers Consolidated Balance Sheet Highlights (in U.S. Dollars) | Account | June 30, 2024 | December 31, 2023 | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$42,407,420** | **$35,285,266** | **+20.2%** | | Total Current Assets | $29,418,474 | $22,098,190 | +33.1% | | Cash and cash equivalents | $1,100,687 | $5,877,372 | -81.3% | | Accounts receivable, net | $10,356,685 | $6,253,189 | +65.6% | | Inventories, net | $9,604,763 | $7,056,459 | +36.1% | | **Total Liabilities** | **$15,740,313** | **$15,083,178** | **+4.4%** | | Total Current Liabilities | $14,029,975 | $13,211,587 | +6.2% | | **Total Shareholders' Equity** | **$26,667,107** | **$20,202,087** | **+32.0%** | [Unaudited Interim Consolidated Statements of Income and Comprehensive Income](index=2&type=section&id=ERAYAK%20POWER%20SOLUTION%20GROUP%20INC.%20UNAUDITED%20INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME%20AND%20COMPREHENSIVE%20INCOME) For the six months ended June 30, 2024, the company reported a net loss of $1.06 million, a stark reversal from a net income of $0.48 million in the same period of 2023, despite a 26.4% increase in sales Income Statement Summary (in U.S. Dollars) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Sales | $11,943,904 | $9,449,817 | +26.4% | | Gross Profit | $1,147,605 | $2,830,122 | -59.4% | | Operating (Loss) Income | ($1,288,315) | $660,208 | -295.1% | | Net (Loss) Income | ($1,058,540) | $475,172 | -322.8% | | (Loss) Earnings Per Share | ($0.07) | $0.04 | -275.0% | - The shift from a net income to a net loss was primarily driven by a substantial increase in the cost of sales, which grew at a much faster rate than sales revenue, severely compressing the gross margin[4](index=4&type=chunk) [Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity](index=3&type=section&id=ERAYAK%20POWER%20SOLUTION%20GROUP%20INC.%20UNAUDITED%20INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS%27%20EQUITY) Shareholders' equity increased by $6.5 million during the first six months of 2024, reaching $26.7 million, primarily fueled by an $8.0 million capital injection from a share issuance, partially offset by a net loss and foreign currency translation loss - The company issued **16,000,000** Class A shares, which resulted in an **$8.0 million** increase in cash and additional paid-in capital[8](index=8&type=chunk) Reconciliation of Shareholders' Equity for H1 2024 (in U.S. Dollars) | Description | Amount | | :--- | :--- | | Balance at December 31, 2023 | $20,202,087 | | Share issuance | +$8,000,000 | | Net loss | ($1,058,540) | | Foreign currency translation loss | ($476,440) | | **Balance at June 30, 2024** | **$26,667,107** | [Interim Consolidated Statements of Cash Flows](index=4&type=section&id=ERAYAK%20POWER%20SOLUTION%20GROUP%20INC.%20INTERIM%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The company's cash position significantly weakened in the first half of 2024, with cash and cash equivalents decreasing by $4.8 million, primarily due to a $12.9 million cash outflow from operating activities, largely mitigated by $8.8 million in financing activities Cash Flow Summary (in U.S. Dollars) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($12,859,999) | $5,454,714 | | Net cash used in investing activities | ($601,845) | ($4,344,326) | | Net cash provided by (used in) financing activities | $8,790,822 | ($619,025) | | **Net (decrease) increase in cash** | **($4,774,495)** | **$206,405** | - The primary driver of the negative operating cash flow was a significant increase in working capital, including a **$4.3M** increase in accounts receivable, a **$2.7M** increase in inventories, and a **$5.5M** increase in advances to suppliers[12](index=12&type=chunk) - Financing activities were a key source of cash, with proceeds of **$8.0 million** from a share issuance being the most significant item[12](index=12&type=chunk) [Selected Notes to Interim Consolidated Financial Statements](index=5&type=section&id=Selected%20Notes%20to%20Interim%20Consolidated%20Financial%20Statements) [Note 1 – Organization and Nature of Operations](index=5&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20NATURE%20OF%20OPERATIONS) Erayak Power Solution Group Inc. is a Cayman Islands holding company whose PRC subsidiaries develop, produce, and sell inverters, chargers, and gasoline generators, with a 2020 corporate reorganization retroactively applied to financial statements - The company is a holding company incorporated in the Cayman Islands, with its main operations conducted through subsidiaries in the PRC[15](index=15&type=chunk)[16](index=16&type=chunk) - The principal business activities include the development, production, and sales of inverters, chargers, and gasoline generators[21](index=21&type=chunk) - A 2020 reorganization consolidated several entities under the common control of Lingyi Kong, with financial statements presented as if this structure existed for all periods shown[23](index=23&type=chunk)[24](index=24&type=chunk) [Note 2 – Significant Accounting Policies](index=6&type=section&id=NOTE%202%20%E2%80%93%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's accounting principles, including revenue recognition under ASC 606 and inventory valuation, while also highlighting significant risks related to PRC operations and the need for additional capital for business expansion - Revenue is recognized under ASC 606 when control of the product transfers to the customer, which for international sales is typically under Free Onboard (FOB) shipping point terms[51](index=51&type=chunk)[55](index=55&type=chunk) - The company faces various risks, including exchange rate fluctuations between USD and RMB, PRC currency convertibility restrictions, and political and economic risks associated with operating in China[71](index=71&type=chunk)[72](index=72&type=chunk)[75](index=75&type=chunk) - Management believes current cash and operational cash flow will meet working capital needs for the next 12 months, but acknowledges that business expansion will require more capital through equity financing[77](index=77&type=chunk) [Note 3 – Accounts Receivable](index=13&type=section&id=NOTE%203%20%E2%80%93%20ACCOUNTS%20RECEIVABLE) Net accounts receivable significantly increased to $10.4 million as of June 30, 2024, from $6.3 million at the end of 2023, while the average turnover period improved from 145 days to 117 days Accounts Receivable (in U.S. Dollars) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Accounts receivable | $10,395,061 | $6,292,469 | | Less: allowance for doubtful accounts | ($38,376) | ($39,280) | | **Accounts receivable, net** | **$10,356,685** | **$6,253,189** | [Note 4 – Inventories](index=14&type=section&id=NOTE%204%20%E2%80%93%20INVENTORIES) Total inventories grew to $9.6 million as of June 30, 2024, up from $7.1 million at the end of 2023, with raw materials comprising the largest component at $7.4 million Inventories Breakdown (in U.S. Dollars) | Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Raw materials | $7,426,338 | $5,687,671 | | Work in process | $1,300,647 | $916,997 | | Finished goods | $970,021 | $546,208 | | Inventory valuation allowance | ($92,243) | ($94,417) | | **Total** | **$9,604,763** | **$7,056,459** | [Note 12 – Sales](index=18&type=section&id=NOTE%2012%20%E2%80%93%20SALES) Total sales for the first six months of 2024 were $11.9 million, driven by a significant increase in power bank sales, while sales agreements do not include warranty, discount, or return policies Disaggregated Sales by Product Type (in U.S. Dollars) | Product Type | H1 2024 Sales | H1 2023 Sales | YoY Change | | :--- | :--- | :--- | :--- | | Inverters | $4,804,963 | $4,125,882 | +16.5% | | Power bank | $3,179,242 | $452,318 | +602.8% | | Gasoline generators | $3,237,892 | $4,514,899 | -28.3% | | Chargers | $358,197 | $228,389 | +56.8% | | Other products | $363,609 | $128,329 | +183.3% | | **Total** | **$11,943,904** | **$9,449,817** | **+26.4%** | [Note 19 – Related Party Transactions](index=20&type=section&id=NOTE%2019%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) The company engages in transactions with related parties, resulting in a net balance of $2.2 million due to related parties as of June 30, 2024, primarily to controlling shareholder Lingyi Kong - Key related parties include entities owned or controlled by controlling shareholder Lingyi Kong, executive Shengling Xiang, and their relatives[106](index=106&type=chunk) Due to Related Parties (in U.S. Dollars) | Related Party | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Lingyi Kong | ($2,186,790) | ($1,877,489) | | Wenzhou Ailefu Technology Co. Ltd. | - | ($405,640) | | **Total** | **($2,186,790)** | **($2,283,129)** | [Note 20 – Shareholders' Equity](index=20&type=section&id=NOTE%2020%20%E2%80%93%20SHAREHOLDERS%27%20EQUITY) This note details the company's dual-class share structure and recent financing activities, including a May 2024 private placement that raised $8.0 million, and the maintenance of a restricted statutory reserve as required by PRC law - On May 20, 2024, the company completed a private placement, selling **16,000,000** Class A shares and warrants to purchase **32,000,000** more shares, for an aggregate purchase price of **$8,000,000**[112](index=112&type=chunk) - The company has a dual-class share structure, with Class B shares having **20 times** the voting power of Class A shares and being convertible into Class A shares[109](index=109&type=chunk) - PRC subsidiaries are required to maintain a statutory reserve, which totaled **$1,113,170** as of June 30, 2024, and these funds are restricted and not distributable as dividends[113](index=113&type=chunk)[114](index=114&type=chunk) [Note 21 – Commitments and Contingencies](index=21&type=section&id=NOTE%2021%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) The company's primary commitment is a single property lease, and as of June 30, 2024, there were no pending legal proceedings or other material contingencies expected to adversely affect its financial position - The company had no pending legal proceedings outstanding as of June 30, 2024, and December 31, 2023[116](index=116&type=chunk)

PART I [ITEM 3. KEY INFORMATION](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents key financial data and outlines significant risks related to operations, regulations, and share structure [Selected Financial Data](index=6&type=section&id=A.%20Selected%20Financial%20Data) The company's financial data shows total assets of $35.3 million, a net income of $1.2 million, and operating cash flow of $6.7 million for 2023 Consolidated Financial Position (USD) | Financial Metric | As of Dec 31, 2023 | As of Dec 31, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | :--- | | **Total Assets** | $35,285,266 | $37,605,200 | $23,470,453 | | **Total Liabilities** | $15,083,178 | $18,261,149 | $16,576,131 | | **Total Shareholders' Equity** | $20,202,087 | $19,344,051 | $6,894,322 | Consolidated Cash Flow Summary (USD) | Cash Flow Activity | For the Year Ended Dec 31, 2023 | For the Year Ended Dec 31, 2022 | For the Year Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | $6,729,733 | $(4,151,135) | $4,642,893 | | **Net cash from investing activities** | $(1,378,110) | $(4,896,167) | $(244,173) | | **Net cash from financing activities** | $(6,437,393) | $11,319,867 | $(3,395,530) | | **Net (decrease) increase in cash** | $(1,085,770) | $1,892,554 | $1,003,190 | Consolidated Income Statement Highlights (USD) | Income Statement Item | For the Year Ended Dec 31, 2023 | For the Year Ended Dec 31, 2022 | For the Year Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | | **Net Income** | $1,218,714 | $3,475,961 | $3,394,649 | [Risk Factors](index=8&type=section&id=D.%20Risk%20Factors) The company faces significant risks from its China operations, customer concentration, and dual-class share structure - The company is subject to PRC regulations, including the M&A Rules and recent measures from the CSRC regarding overseas listings, which could require filings or approvals for future offerings and subject the company to penalties if non-compliant[12](index=12&type=chunk)[13](index=13&type=chunk) - The company's dual-class share structure concentrates **83.87% of voting power** with the Chairman, Lingyi Kong, through Erayak International Limited, limiting the influence of Class A shareholders on corporate matters[112](index=112&type=chunk) - The company has significant customer concentration; in fiscal year 2023, **one customer accounted for 11.99% of total revenues**, and the loss of key customers could significantly impact revenues and profitability[68](index=68&type=chunk)[70](index=70&type=chunk) - As a foreign private issuer and an emerging growth company, the company is exempt from certain U.S. reporting and corporate governance requirements, which may result in **less information available to investors** and fewer protections compared to U.S. domestic companies[114](index=114&type=chunk)[116](index=116&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=50&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, corporate structure, and business operations in power solution products [History and Development of the Company](index=50&type=section&id=4.A.%20History%20and%20development%20of%20the%20company) Erayak is a Cayman Islands holding company operating through its PRC subsidiaries since its 2019 incorporation - Erayak is a Cayman Islands holding company incorporated in 2019, conducting its business through subsidiaries in the PRC[132](index=132&type=chunk) - The company's main operating subsidiaries are Zhejiang Leiya (incorporated in 2009), Wenzhou New Focus (incorporated in 2012), and Ruike Electronics (incorporated in 2023)[132](index=132&type=chunk) [Business Overview](index=50&type=section&id=4.B.%20Business%20overview) The company specializes in R&D, manufacturing, and sales of power solution products for global markets Revenue Breakdown by Product Type | Product Type | FY 2023 Revenue % | FY 2022 Revenue % | FY 2021 Revenue % | | :--- | :--- | :--- | :--- | | Inverters | 59% | 52% | 82% | | Gasoline Generators | 32.36% | 43.82% | 8.28% | | Chargers | 2.68% | 2.16% | 7.52% | | Power Bank | 3.96% | 0% | 0% | - The company's products are sold internationally in countries including Japan, England, Germany, the U.S., Canada, and Australia, and hold numerous safety and compliance certifications such as TÜV, GS Mark, FCC Mark, and CE Mark[136](index=136&type=chunk) - Key business strategies include optimizing the product portfolio, focusing on efficient manufacturing and cost management, enhancing brand recognition, and expanding cooperation with e-commerce platforms like Amazon[163](index=163&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - The company holds **21 patents and 3 trademarks in China**, with one trademark also registered in the US and UK, protecting its intellectual property[87](index=87&type=chunk) [Organizational Structure](index=76&type=section&id=4.C.%20Organizational%20structure) Erayak operates through a direct holding structure, not a VIE, with PRC subsidiaries held via BVI and HK entities - The company utilizes a **direct holding structure** without any Variable Interest Entities (VIEs)[220](index=220&type=chunk) - The corporate hierarchy flows from the Cayman parent (Erayak) through BVI (Erayak BVI) and Hong Kong (Erayak HK) entities to the PRC operating subsidiaries (Ruike, Zhejiang Leiya, etc)[221](index=221&type=chunk) [Property, Plants and Equipment](index=77&type=section&id=4.D.%20Property,%20plants%20and%20equipment) The company's primary assets include production equipment and a long-term factory lease in Wenzhou, China - The total value of the company's equipment was approximately **$1.46 million** at the end of 2023, with 66.1% dedicated to manufacturing machinery[222](index=222&type=chunk) - The company has a **20-year factory lease (2018-2037)** with a related party, for which the total rent of RMB 70.49 million (approx. $10.9 million) has been paid upfront[223](index=223&type=chunk) [OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=77&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes financial performance, discussing revenue, profit, expenses, liquidity, and capital resources [Results of Operations](index=79&type=section&id=Results%20of%20Operations) Revenues and net income declined in 2023 due to reduced European demand and increased G&A expenses Financial Performance Comparison (USD) | Metric | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | **Revenues** | $20,322,498 | $26,909,025 | $18,628,886 | | **Gross Profit** | $5,022,649 | $6,618,794 | $5,719,424 | | **Operating Income** | $746,766 | $4,068,574 | $3,485,608 | | **Net Income** | $1,218,714 | $3,475,961 | $3,394,649 | - The **24.48% decrease in 2023 revenue** was mainly due to reduced demand for inverters and gasoline generators in Europe after excess orders in the prior year[230](index=230&type=chunk) - General and administrative expenses **increased by 117.09% in 2023** to $2.02 million, primarily due to higher consulting fees for accounting and legal services that were previously deducted from IPO proceeds[233](index=233&type=chunk) [Liquidity and Capital Resources](index=86&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through cash from operations and credit, with sufficient capital for near-term needs Cash and Borrowings (USD) | Metric | As of Dec 31, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | **Cash and Cash Equivalents** | $5,878,434 | $7,067,247 | | **Short-term Borrowings** | $70,424 | $6,227,165 | | **Long-term Loans (net of current portion)** | $1,871,591 | $217,523 | - Capital expenditures were approximately **$0.70 million, $0.93 million, and $0.29 million** for the years 2023, 2022, and 2021, respectively, mainly for purchasing fixed and intangible assets[260](index=260&type=chunk) [DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=90&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the board composition, executive compensation, employee base, and concentrated share ownership - The board of directors consists of five members, with **three determined to be independent**: Jizhou Hou, Jing Chen, and Tsang Sheung[288](index=288&type=chunk) Executive Compensation (FY 2023) | Name | Position | Salary (USD) | | :--- | :--- | :--- | | Lingyi Kong | CEO | $29,303 | | Lanling Gu | CFO | $17,238 | Employee Distribution (as of Dec 31, 2023) | Department | Number of Employees | | :--- | :--- | | Administration | 40 | | Research and Development | 50 | | Manufacture | 179 | | Business Operations | 21 | | **Total** | **290** | [MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=99&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section outlines the controlling shareholder structure and significant related party transactions, including leases and loans - Lingyi Kong, CEO and Chairman, beneficially owns 6,000,000 Class A shares and 1,000,000 Class B shares through Erayak International Limited, representing **83.87% of the combined voting power**[305](index=305&type=chunk) - The company has a **20-year factory lease** with Wenzhou Ailefu Technology Co Ltd, an entity 100% owned by the CEO, Lingyi Kong[306](index=306&type=chunk)[491](index=491&type=chunk) - Lingyi Kong provided working capital of **$16.56 million in 2023** and **$22.70 million in 2022**; as of December 31, 2023, the outstanding payable to him was $1.88 million[493](index=493&type=chunk) [FINANCIAL INFORMATION](index=101&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) The company intends to retain all future earnings for expansion and does not anticipate paying dividends - The company **does not expect to declare or pay any dividends** in the foreseeable future, intending to retain earnings for business operations and expansion[310](index=310&type=chunk) - Dividend payments from PRC subsidiaries are subject to PRC laws, which require setting aside **at least 10% of after-tax profits** for a statutory reserve fund until it reaches 50% of registered capital[310](index=310&type=chunk) [ADDITIONAL INFORMATION](index=102&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers corporate actions, shareholder rights, material contracts, exchange controls, and taxation policies - The company completed its Initial Public Offering on December 16, 2022, selling 3,000,000 Class A ordinary shares at $4.00 per share, raising **net proceeds of approximately $10 million**[315](index=315&type=chunk) - Shareholder voting rights are structured with **one vote per Class A share and twenty votes per Class B share**; Class B shares are convertible into Class A shares on a one-for-one basis[320](index=320&type=chunk) - The company is subject to PRC foreign exchange controls, which regulate the conversion of RMB and remittance of funds out of China for capital account items, potentially affecting dividend payments[364](index=364&type=chunk) - The company does not expect to be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, but this status is determined annually and is subject to change[379](index=379&type=chunk) PART II [CONTROLS AND PROCEDURES](index=125&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management identified a material weakness in internal controls due to insufficient U.S. GAAP expertise - Management identified a **material weakness in internal control** over financial reporting as of December 31, 2023[388](index=388&type=chunk) - The identified weakness is the **lack of sufficient accounting and finance personnel** with experience in U.S. GAAP[388](index=388&type=chunk) - The company plans to remediate this by **hiring additional personnel** with the requisite experience in US GAAP financial reporting and control procedures[388](index=388&type=chunk) [CORPORATE GOVERNANCE AND OTHER DISCLOSURES](index=125&type=section&id=ITEM%2016.%20CORPORATE%20GOVERNANCE%20AND%20OTHER%20DISCLOSURES) This section covers governance practices, including audit expertise, ethics codes, and cybersecurity risk oversight - The Board of Directors has determined that Jing Chen qualifies as an **"audit committee financial expert"**[389](index=389&type=chunk) - As a foreign private issuer, the company relies on home country exemptions from certain Nasdaq corporate governance standards; for example, it **did not hold an annual shareholder meeting in 2023**[395](index=395&type=chunk) - The company has adopted an insider trading policy that establishes guidelines for trading by insiders, including defined trading windows and pre-approval requirements[397](index=397&type=chunk) - The Board of Directors is responsible for overseeing cybersecurity risk, which is managed through an IT Committee and integrated into the company's overall risk management system[398](index=398&type=chunk) PART III [FINANCIAL STATEMENTS](index=129&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the company's audited consolidated financial statements prepared under U.S. GAAP - The financial statements were audited by **Fortune CPA, Inc.** for the year ended December 31, 2023[409](index=409&type=chunk)[411](index=411&type=chunk) - The financial statements for the years ended December 31, 2022 and 2021 were audited by **TPS Thayer, LLC**[406](index=406&type=chunk)[407](index=407&type=chunk) - The financial statements are prepared in conformity with **U.S. Generally Accepted Accounting Principles (U.S. GAAP)**[406](index=406&type=chunk)[409](index=409&type=chunk)

PART I [Key Information](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data, details on capitalization, and a comprehensive overview of risk factors Selected Financial Data Consolidated Balance Sheet Summary (2020-2022) | Balance Sheet Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $28,235,728 | $13,494,057 | $11,948,863 | | **Total Assets** | $37,605,200 | $23,470,453 | $22,127,296 | | **Total Current Liabilities** | $18,043,626 | $11,868,476 | $17,218,352 | | **Total Liabilities** | $18,261,149 | $16,576,131 | $18,750,919 | | **Total Shareholders' Equity** | $19,344,051 | $6,894,322 | $3,376,377 | Consolidated Cash Flow Summary (2020-2022) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Net cash from operating activities** | ($4,151,135) | $4,642,893 | ($7,926,491) | | **Net cash from investing activities** | ($4,896,167) | ($244,173) | ($186,006) | | **Net cash from financing activities** | $11,319,867 | ($3,395,530) | $10,931,005 | | **Net increase/(decrease) in cash** | $1,892,554 | $1,003,190 | $2,818,508 | | **Cash at end of period** | $7,067,247 | $5,174,693 | $4,062,055 | Risk Factors - The company's operations are substantially located in China, making its business subject to significant political, economic, and social conditions, as well as governmental policies and regulations within the PRC[22](index=22&type=chunk) - The dual-class share structure concentrates **83.87%** of voting power with the Chairman, Lingyi Kong, through Erayak International Limited, limiting the influence of Class A shareholders on corporate matters[124](index=124&type=chunk) - The company faces risks from potential U.S. and international trade policies, such as tariffs on Chinese goods, which could increase costs and negatively impact demand for its products[63](index=63&type=chunk)[64](index=64&type=chunk) - The Holding Foreign Companies Accountable Act (HFCAA) and related SEC/PCAOB actions create uncertainty, as the inability of the PCAOB to inspect auditors in China could lead to delisting from U.S. exchanges[54](index=54&type=chunk)[56](index=56&type=chunk) [Information on the Company](index=49&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Erayak Power Solution Group Inc. is a Cayman Islands holding company specializing in R&D, manufacturing, and global sales of power solutions History and Development of the Company - Erayak Power Solution Group Inc. is a Cayman Islands holding company incorporated in June 2019, conducting business through wholly-owned subsidiaries including Erayak BVI, Erayak HK, and primary PRC operating entities Zhejiang Leiya and Wenzhou New Focus[144](index=144&type=chunk) Business Overview - The company specializes in the manufacturing, R&D, and sale of power solution products, including sine wave and off-grid inverters, generators, and battery chargers, used in applications such as RVs, industrial vehicles, and outdoor living[146](index=146&type=chunk) Revenue by Product Type (2020-2022) | Product Type | 2022 Revenue | 2022 % of Total | 2021 Revenue | 2021 % of Total | 2020 Revenue | 2020 % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Inverters | $14,065,166 | 52% | $15,356,847 | 82% | $12,751,905 | 86% | | Chargers | $582,040 | 2.16% | $1,400,506 | 7.52% | $745,955 | 7.39% | | Gasoline Generators | $11,790,582 | 43.82% | $1,542,670 | 8.28% | $446,292 | 4.91% | | Other Products | $471,237 | 1.75% | $328,863 | 1.76% | $177,686 | 1.26% | - The company holds numerous intellectual property rights, including **21 patents** and **3 trademarks** registered in China, with additional trademark registrations in the US and UK, covering its power converter and generator designs[94](index=94&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk) Organizational Structure - The company operates as a holding company with a direct holding structure, not a Variable Interest Entity (VIE) structure, where the Cayman Islands parent wholly owns its subsidiaries in the BVI, Hong Kong, and the PRC operating companies[231](index=231&type=chunk)[232](index=232&type=chunk) Property, Plants and Equipment - The company's primary operating facility is leased under a **20-year agreement** from Wenzhou Ailefu Furniture Tech Limited Company, an entity owned by the CEO and Chairman, Lingyi Kong, with the total rent of approximately **$10.9 million** for the entire term paid upfront[234](index=234&type=chunk)[266](index=266&type=chunk) [Operating and Financial Review and Prospects](index=76&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Revenue grew **44.45%** to **$26.91 million** in 2022, with gross margin declining to **24.60%** and negative operating cash flow Results of Operations Consolidated Results of Operations (2020-2022) | Financial Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Sales** | $26,909,025 | $18,628,886 | $14,121,838 | | **Gross Profit** | $6,618,794 | $5,719,424 | $3,798,856 | | **Gross Margin** | 24.60% | 30.70% | 26.90% | | **Operating Income** | $4,068,574 | $3,485,608 | $2,308,691 | | **Net Income** | $3,475,961 | $3,394,649 | $2,213,372 | - **2022 vs. 2021:** Revenue increased by **44.45%** to **$26.91 million**, primarily due to a surge in generator demand from Europe; gross profit increased by **15.72%**, but the gross margin declined from **30.70%** to **24.60%** because of a sales mix shift towards lower-margin generators[242](index=242&type=chunk)[244](index=244&type=chunk) - **2021 vs. 2020:** Revenue increased by **31.92%** to **$18.63 million**, driven by expansion in both domestic and international markets; gross profit grew by **50.56%** to **$5.72 million**, with the gross margin improving to **30.70%** from **26.90%**[253](index=253&type=chunk)[255](index=255&type=chunk) Liquidity and Capital Resources Cash Flow Summary (2020-2022) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | ($4,151,135) | $4,689,518 | ($7,926,491) | | Net cash from investing activities | ($4,896,167) | ($290,798) | ($186,006) | | Net cash from financing activities | $11,319,867 | ($3,395,530) | $10,931,005 | - In 2022, net cash used in operating activities was approximately **$4.15 million**, mainly due to an **$8.55 million** increase in accounts receivable, while net cash from financing activities was **$11.32 million**, primarily from the net proceeds of its IPO[263](index=263&type=chunk)[268](index=268&type=chunk) - The company relies on short-term revolving bank loans for liquidity, with approximately **$4.78 million** in outstanding short-term loans from two banks as of December 31, 2022[272](index=272&type=chunk) [Directors, Senior Management and Employees](index=90&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) Details on leadership, compensation, and board structure, including the **five-member board**, **132 employees**, and **83.87%** CEO voting control Directors and Management - The key executive officers are Lingyi Kong, CEO and Chairman, and Lanling Gu, CFO, with the board also including three independent director nominees: Jizhou Hou, Jing Chen, and Peiling Cheng[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) Compensation Executive Compensation (2021-2022) | Name and Principal Position | Year | Salary (US$) | Total (US$) | | :--- | :--- | :--- | :--- | | Lingyi Kong, CEO | 2022 | $29,722 | $29,722 | | | 2021 | $29,303 | $29,303 | | Lanling Gu, CFO | 2022 | $30,317 | $30,317 | | | 2021 | $17,238 | $17,238 | Board Practices - The board of directors consists of **five members**, three of whom are independent, and the company has established an Audit Committee, a Compensation Committee, and a Nominating Committee, each with charters[305](index=305&type=chunk)[307](index=307&type=chunk) Employees Employee Headcount by Department (as of Dec 31, 2022) | Department | Number of Employees | | :--- | :--- | | Administration | 18 | | Research and Development | 23 | | Manufacture | 82 | | Business Operations | 9 | | **Total** | **132** | Share Ownership Beneficial Ownership of Major Shareholders | Name of Beneficial Owner | Class A Shares | Class B Shares | Percentage Ownership | | :--- | :--- | :--- | :--- | | Lingyi Kong (via Erayak International Ltd.) | 6,000,000 | 1,000,000 | 83.87% | | Wang-Ngai Mak (via CEC Science and Innovation Co., Ltd.) | 1,400,000 | - | 4.52% | [Major Shareholders and Related Party Transactions](index=98&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Details on major shareholders' differential voting rights and significant related party transactions, including a **20-year factory lease** and CEO loans Related Party Transactions - The company leases its factory premises from Wenzhou Ailefu Technology Co. Ltd., an entity **100% owned** by CEO Lingyi Kong[327](index=327&type=chunk) - CEO Lingyi Kong and other related parties periodically provide working capital to the company; as of December 31, 2022, the company had an outstanding payable of **$182,528** to Mr. Kong, who provided total working capital of **$22.7 million** during fiscal 2022[327](index=327&type=chunk) [Financial Information](index=100&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) Outlines the company's dividend policy, indicating no foreseeable payouts, and details PRC regulations impacting future distributions - The company does not expect to declare or pay any dividends in the foreseeable future, intending to retain future earnings to finance business operations and expansion[331](index=331&type=chunk) - As a holding company, its ability to pay dividends depends on receiving funds from its PRC subsidiaries, with distributions subject to PRC regulations, including setting aside statutory reserves and controls on currency conversion[331](index=331&type=chunk) [Additional Information](index=102&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) Details corporate history, dual-class share structure, Cayman Islands law differences, PRC exchange controls, and tax implications including PFIC status Memorandum and Articles of Association - The company has a dual-class share structure where each Class A Ordinary Share has **one vote**, while each Class B Ordinary Share has **twenty votes**, and Class B shares are convertible into Class A shares at the holder's option[343](index=343&type=chunk) - As a Cayman Islands company, its corporate law differs significantly from U.S. (Delaware) law regarding mergers, shareholder suits, director indemnification, and shareholder proposals, with shareholder rights to bring derivative actions being more limited under Cayman law[369](index=369&type=chunk)[370](index=370&type=chunk)[372](index=372&type=chunk) Exchange Controls - The company's PRC operations are subject to China's foreign exchange regulations, where payments for current account items like profit distributions can be made in foreign currencies after meeting procedural requirements, but capital account items require approval from or registration with SAFE[391](index=391&type=chunk) - PRC residents holding shares in offshore entities like Erayak are required to complete foreign exchange registration with SAFE or qualified banks under SAFE Circular 37, with non-compliance potentially restricting PRC subsidiaries' ability to distribute dividends offshore[394](index=394&type=chunk) Taxation - The company is an exempted company in the Cayman Islands and is not subject to Cayman taxes; its Hong Kong subsidiary is subject to a **16.5%** profits tax, and its PRC subsidiaries are subject to a **25%** Enterprise Income Tax (EIT), though one entity qualifies for a reduced **15%** rate as a high-tech enterprise[395](index=395&type=chunk)[400](index=400&type=chunk)[401](index=401&type=chunk) - There is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. Holders of its shares, with the determination made annually based on its income and asset composition[408](index=408&type=chunk) PART II [Controls and Procedures](index=125&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls and procedures were ineffective as of December 31, 2022, due to a material weakness in internal control - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were ineffective[419](index=419&type=chunk) - A material weakness was identified in internal control over financial reporting: the company does not have sufficient accounting and finance personnel with U.S.-GAAP experience[419](index=419&type=chunk) [Other Items (Corporate Governance, Fees, etc.)](index=126&type=section&id=ITEM%2016.%20Other%20Items) Details corporate governance, including audit committee expertise, code of ethics, principal accountant fees, and foreign private issuer status Principal Accountant Fees | Fee Type | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Audit Fees | $180,000 | $180,000 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | - As a foreign private issuer, the company is permitted to follow its home country (Cayman Islands) corporate governance practices in lieu of certain Nasdaq corporate governance standards, which may afford less protection to investors[426](index=426&type=chunk) PART III [Financial Statements](index=129&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) Presents the company's audited consolidated financial statements for 2020-2022, prepared under U.S. GAAP, with an unqualified audit opinion - The independent registered public accounting firm, TPS Thayer, LLC, issued an unqualified audit opinion on the consolidated financial statements for the three years ended December 31, 2022[435](index=435&type=chunk) - The company completed its Initial Public Offering (IPO) on December 14, 2022, selling **3,000,000 Class A ordinary shares** at **$4.00 per share**, generating gross proceeds of **$12 million**[536](index=536&type=chunk) - The company's PRC subsidiaries are required to allocate at least **10%** of after-tax profits to a statutory surplus reserve until the reserve equals **50%** of registered capital; as of December 31, 2022, this restricted reserve totaled **$916,912**[537](index=537&type=chunk)