Sunrise New Energy(US:EPOW)2025-05-15 20:16PART I Item 3. Key Information The company outlines its holding structure, reliance on a Chinese VIE, key financial data, and significant regulatory and operational risks - The company operates as a Cayman Islands holding company with substantial business conducted in the PRC through a joint venture (Sunrise Guizhou) and a Variable Interest Entity (VIE), SDH 2526 - The VIE structure is used to operate the knowledge sharing platform, and while consolidated under U.S. GAAP, the agreements pose significant risks regarding control and enforcement2627 - The company is subject to PRC regulatory risks, including potential cybersecurity reviews by the CAC and filing requirements with the CSRC for overseas listings2930 - The Holding Foreign Companies Accountable Act (HFCA Act) risk is currently mitigated as the PCAOB was able to inspect the company's auditor in 202232 VIE Contribution to Consolidated Financials | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | % of Total Assets | 4.05% | 5.48% | 8.79% | | % of Total Liabilities | 7.14% | 6.54% | 13.04% | | % of Total Net Revenues | 1.05% | 1.46% | 1.61% | Selected Condensed Consolidating Financial Schedule Financial schedules detail the performance of the Parent, Subsidiaries, and VIE, with Subsidiaries driving revenue and losses Condensed Consolidating Statement of Operations Data (Year ended Dec 31, 2024) | (US$) | Parent | Subsidiaries | VIE and VIE's subsidiaries | Group consolidated | | :--- | :--- | :--- | :--- | :--- | | Revenues, net | - | 71,276,389 | 2,899,946 | 64,997,741 | | (Loss) Profit from operations | (1,776,146) | (15,469,759) | 649,577 | (16,596,328) | | Net (loss) income | (1,778,111) | (17,057,370) | 854,317 | (17,981,164) | Condensed Consolidating Balance Sheet Data (As of Dec 31, 2024) | (US$) | Parent | Subsidiaries | VIE and VIE's subsidiaries | Group consolidated | | :--- | :--- | :--- | :--- | :--- | | Total assets | 16,982,761 | 141,690,551 | 19,360,549 | 143,023,032 | | Total liabilities | 252,338 | 122,482,787 | 13,398,312 | 115,728,359 | Condensed Consolidating Statement of Cash Flows Data (Year ended Dec 31, 2024) | (US$) | Parent | Subsidiaries | VIE and VIE's subsidiaries | Group consolidated | | :--- | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (1,269,634) | (2,574,103) | (1,508,420) | (5,352,157) | | Net cash provided by (used in) investing activities | 1,071,942 | (2,293,647) | 423,298 | 632,461 | | Net cash (used in) provided by financing activities | (150,000) | 11,251,341 | 961,196 | 10,631,669 | Risk Factors The company faces substantial business, corporate structure, Chinese regulatory, and market risks - Business Risks: The company has a limited operating history in the graphite anode business, has incurred substantial losses ($18.0M in 2024, $32.9M in 2023), and faces substantial doubt about its ability to continue as a going concern4754 - Corporate Structure Risks: The company relies on contractual VIE arrangements that may be deemed non-compliant by PRC authorities, and the dual-class share structure concentrates 87.9% of voting power with the CEO4890106 - China-Specific Risks: The PRC government exerts substantial influence, and recent regulations on data security (CAC) and overseas listings (CSRC) add uncertainty, while the HFCA Act poses a potential delisting risk4950113 - Market Risks: The company has identified several material weaknesses in its internal controls over financial reporting, its stock price may be volatile, and it does not intend to pay dividends56173176 Item 4. Information on the Company The company details its strategic shift to graphite anode manufacturing, which now dominates revenue, and its VIE-based legacy business - The company was incorporated in the Cayman Islands in 2019, completed its IPO in 2021, and changed its name to Sunrise New Energy Co., Ltd in 2022192193200 - The company's core business shifted in 2022 to manufacturing graphite anode materials, which now represents 99.03% of total revenue for fiscal year 2024210214 - The legacy knowledge sharing business is operated through a VIE structure (SDH), which is controlled via contractual arrangements rather than equity ownership208337 History and Development of the Company The company shifted its focus from corporate consulting to graphite anode manufacturing in 2022 via a joint venture - The holding company, Sunrise New Energy Co., Ltd., was incorporated in the Cayman Islands on February 22, 2019, and completed its IPO on Nasdaq on February 11, 2021192193 - In April 2022, the company entered the graphite anode materials business by forming the Sunrise Guizhou joint venture, in which its subsidiary now holds a 39.35% equity interest197198 - The company changed its name from Global Internet of People, Inc. to Sunrise New Energy Co., Ltd. in August 2022 and adopted a dual-class share structure in February 2024200201 Business Overview The company's operations are dominated by its graphite anode business, with the legacy knowledge sharing platform now contributing less than 1% of revenue - The graphite anode business (Sunrise Guizhou) has a 30,000-ton annual capacity and is constructing a third phase for an additional 20,000 tons210217 - In FY2024, the graphite anode business had significant customer concentration, with one customer accounting for 67% of its total sales82220221 - The legacy knowledge sharing business has declined significantly, with its revenue contribution falling to approximately 0.97% of the total in FY2024214216229 Revenue Breakdown by Business Segment (USD) | Business Segment | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Graphite anode business | 64,365,362 | 44,384,004 | 37,580,677 | | Knowledge sharing and enterprise business | 632,379 | 666,401 | 544,991 | | Total revenues, net | 64,997,741 | 45,050,405 | 38,125,668 | Organizational Structure The company uses a holding structure with PRC operations controlled via a joint venture and a VIE for its legacy business - The company does not own any equity in its VIE, SDH, but controls it through a series of contractual arrangements entered into by its wholly-owned subsidiary, GIOP BJ337 - Key VIE agreements include an Exclusive Technical and Consulting Services Agreement, Equity Pledge Agreement, Exclusive Option Agreement, and Powers of Attorney to ensure control338341344347 Property, Plants and Equipment The company's primary physical assets are its manufacturing facilities in Guizhou Province, China, owned by its joint venture - Sunrise Guizhou owns its primary manufacturing site in Guizhou Province, China, which covers approximately 294,453 square meters351352 - The VIE leases 567 square meters of office space, with operating lease expenses of $21,495 in FY2024, a significant decrease from prior years350 Operating and Financial Review and Prospects The company analyzes its revenue growth, persistent net losses, negative gross margin, and significant going concern risks - The company has incurred significant recurring losses and has a working capital deficit of $23.7 million as of Dec 31, 2024, raising substantial doubt about its ability to continue as a going concern416419 Key Financial Results (Years ended Dec 31) | (USD) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total Revenues | 64,997,741 | 45,050,405 | 38,125,668 | | Gross Loss | (5,797,580) | (12,403,251) | (1,350,378) | | Loss from Operations | (16,596,328) | (30,530,005) | (18,809,133) | | Net Loss | (17,981,164) | (32,920,724) | (23,124,402) | | Net Loss Attributable to Shareholders | (11,776,436) | (24,232,580) | (22,636,622) | | Loss Per Share (Basic & Diluted) | (0.48) | (1.08) | (0.98) | Summary of Cash Flows (Years ended Dec 31) | (USD) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (5,352,157) | (7,282,995) | (9,573,401) | | Net cash provided by (used in) investing activities | 632,461 | (7,003,035) | (45,609,072) | | Net cash provided by financing activities | 10,631,669 | 13,679,267 | 45,760,061 | Results of Operations Revenue grew due to higher graphite anode sales volume, but intense price competition led to a gross loss, though the net loss improved - FY2024 revenue increased 44.28% YoY to $65.0M, driven by a significant increase in graphite anode sales volume from 12,513 tons to 28,221 tons362364 - The average selling price of graphite anode materials decreased by 34.35% in 2024 due to industry overcapacity, contributing to a gross loss for the segment364371 - Total operating expenses decreased by 40.43% in FY2024, mainly due to lower G&A costs and the non-recurrence of a prior-year intangible asset impairment372375377 - Net loss improved to $18.0M in FY2024 from $32.9M in FY2023, reflecting higher revenue and lower operating expenses386 Liquidity and Capital Resources The company faces significant liquidity challenges and going concern doubts due to recurring losses and a working capital deficit - The company incurred a net loss of $18.0M and had a working capital deficit of $23.7M as of Dec 31, 2024, raising substantial doubt about its ability to continue as a going concern416 - As of Dec 31, 2024, the company was in default on covenants for loans totaling over $27.7M, but has since obtained waivers or has not faced demands for accelerated repayment417418 - Subsequent to year-end, the company secured new financing, including a bank loan of ~$41.1M and a capital increase agreement for ~$27.4M422424 - As of Dec 31, 2024, 94.93% of the company's cash and equivalents were held in the PRC and denominated in RMB428429 Directors, Senior Management and Employees This section details the company's leadership, compensation, board structure, and employee base, highlighting the CEO's controlling voting power - The board of directors consists of five members: Haiping Hu (CEO & Chairman), Chao Liu (CFO & Director), and three independent directors459460 - The company has a 2022 Share Incentive Plan and a 2024 Share Incentive Plan authorizing a combined 6,292,200 Class A Ordinary Shares470479 - As of April 30, 2025, the company had 317 full-time employees, with 300 at the Sunrise Guizhou graphite anode business499500 - CEO and Chairman Haiping Hu beneficially owns 31.96% of total ordinary shares, representing approximately 87.90% of the aggregate voting power505 FY2024 Executive and Director Compensation | Name | Position | Total Compensation (US$) | | :--- | :--- | :--- | | Haiping Hu | CEO, Chairman | 675,060 | | Chao Liu | CFO, Director | 94,744 | | Jian Pei | Independent Director | 16,522 | | Xiang Luo | Independent Director | 16,522 | | Xin Zhang | Independent Director | - | Major Shareholders and Related Party Transactions The company engages in extensive related party transactions, primarily with entities controlled by its CEO, who is the controlling shareholder - The company has numerous transactions with related parties controlled by CEO Haiping Hu, including Zhuhai Investment, Bally Corp., and Shanghai Huiyang510 - CEO Haiping Hu and his spouse have provided personal guarantees for numerous financing arrangements, including lines of credit and bank loans totaling tens of millions of dollars520522527 Due to Related Parties (As of Dec 31) | (USD) | 2024 | 2023 | | :--- | :--- | :--- | | Zhuhai Investment (controlled by CEO) | 3,442,663 | 2,183,911 | | Shanghai Huiyang (controlled by CEO's family) | 235,001 | 800,785 | | Total Due to Related Parties | 4,196,805 | 4,464,165 | Financial Information The company reports no material legal proceedings and does not intend to pay dividends, retaining earnings for business expansion - The company is not currently involved in any material legal or administrative proceedings533 - The company has no present plan to pay cash dividends and intends to retain future earnings to finance business expansion534 Additional Information This section covers the company's corporate structure, share capital, and tax considerations in the Cayman Islands, PRC, and U.S - The company's authorized share capital is divided into 3.5 billion Class A Ordinary Shares (1 vote) and 1.5 billion Class B Ordinary Shares (20 votes)547 - The Cayman Islands levies no corporate income tax, and the company has received a 20-year tax exemption certificate550552 - In the PRC, the company is subject to a standard 25% Enterprise Income Tax, and dividends from PRC subsidiaries are subject to a 10% withholding tax553847 - The company does not expect to be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes for the current taxable year571 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate, credit, liquidity, and foreign exchange risks - The company faces interest rate risk from its bank loans, credit risk from customer concentration, and significant liquidity risk due to its financial condition581582583 - Significant foreign exchange risk exists as almost all revenues and assets are in RMB, while financial statements are reported in USD584 PART II Material Modifications to the Rights of Security Holders and Use of Proceeds Shareholder rights were modified via a share re-designation, and proceeds from the 2021 IPO have been partially invested - In February 2024, shareholders approved the re-designation of Ordinary Shares into Class A (1 vote) and Class B (20 votes) Ordinary Shares591 - From its 2021 IPO, the company received net proceeds of $24.61 million, of which $10.76 million has been invested as capital into the Sunrise Guizhou joint venture593 Controls and Procedures Management concluded that disclosure controls were not effective due to several material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024595 - Material weaknesses in internal control were identified, including a lack of formal policies, insufficient staff with U.S. GAAP knowledge, and inadequate access restrictions597 - Remediation efforts include hiring more qualified accounting personnel, implementing U.S. GAAP training, and preparing a comprehensive accounting policies manual598 Corporate Governance and Other Matters This section covers governance topics, including a change in accountant and reliance on home country practices in lieu of certain Nasdaq rules - The company changed its independent registered public accounting firm on March 3, 2025, appointing Wei, Wei & Co., LLP610 - As a foreign private issuer, the company follows Cayman Islands home country practice in lieu of certain Nasdaq listing rules, including those for shareholder approval613615616 - The company has established a cybersecurity risk management process and reports that no incidents have materially affected the business to date621 Principal Accountant Fees (USD) | Service | 2024 | 2023 | | :--- | :--- | :--- | | Audit fees | 322,700 | 381,100 | | Total | 322,700 | 381,100 | PART III Financial Statements The audited financial statements include a 'Going Concern' uncertainty from the auditor due to the company's significant financial challenges - The independent auditor's report includes a 'Going Concern' paragraph, citing significant working capital deficiency, recurring operating losses, and negative cash flows637645 - The company adopted ASC 326 for credit losses on January 1, 2023, with an allowance for credit losses on accounts receivable of $7.9 million as of December 31, 2024716717 - The company recorded significant impairment charges on inventories, totaling $3.96 million in 2024 and $7.24 million in 2023721 Consolidated Balance Sheet Highlights (As of Dec 31) | (USD) | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | 63,010,873 | 35,815,895 | | Total Assets | 143,023,032 | 120,504,530 | | Total Current Liabilities | 86,756,609 | 63,488,418 | | Total Liabilities | 115,728,359 | 75,172,766 | | Total Equity | 27,294,673 | 10,788,578 |