Erayak(RAYA) - 2024 Q2 - Quarterly Report

Interim Consolidated Financial Statements Interim Consolidated Balance Sheets 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 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] Unaudited Interim Consolidated Statements of Changes in Shareholders' Equity 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] 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 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] - Financing activities were a key source of cash, with proceeds of $8.0 million from a share issuance being the most significant item[12] Selected Notes to Interim Consolidated Financial Statements Note 1 – Organization and Nature of Operations 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][16] - The principal business activities include the development, production, and sales of inverters, chargers, and gasoline generators[21] - 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][24] Note 2 – Significant Accounting Policies 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][55] - 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][72][75] - 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] Note 3 – Accounts Receivable 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 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 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 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] 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 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] - 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] - 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][114] Note 21 – Commitments and Contingencies 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]