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)