Sunrise New Energy(EPOW) - 2024 Q2 - Quarterly Report

Unaudited Condensed Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets Total assets grew to $141.6M, liabilities to $102.6M, and equity to $38.9M, primarily from reclassifying non-controlling interests Condensed Consolidated Balance Sheet Summary (in USD) | Balance Sheet Item | June 30, 2024 | December 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $61,079,455 | $35,815,895 | +70.5% | | Cash and cash equivalents | $15,235,345 | $1,395,945 | +991.4% | | Inventories, net | $25,273,067 | $15,843,546 | +59.5% | | Total Assets | $141,563,806 | $120,504,530 | +17.5% | | Total Current Liabilities | $70,584,403 | $63,488,418 | +11.2% | | Accounts payable | $44,342,437 | $33,872,581 | +30.9% | | Long-term loan, non-current | $27,007,382 | $3,507,092 | +669.8% | | Total Liabilities | $102,613,979 | $75,172,766 | +36.5% | | Redeemable non-controlling interest | - | $34,543,186 | -100.0% | | Total Equity | $38,949,827 | $10,788,578 | +261.0% | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues rose 7.6% to $22.3M, gross profit plunged 97.2% to $17K, resulting in a $6.0M net loss Statement of Operations Summary (in USD) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $22,283,171 | $20,708,491 | +7.6% | | Total Cost of Revenues | $22,265,782 | $20,089,164 | +10.8% | | Gross Profit | $17,389 | $619,327 | -97.2% | | Total Operating Expenses | $5,422,092 | $6,047,385 | -10.3% | | Loss from Operations | ($5,404,703) | ($5,428,058) | -0.4% | | Net Loss | ($6,040,235) | ($5,827,309) | +3.7% | | Net Loss Attributable to Shareholders | ($4,451,462) | ($4,709,149) | -5.5% | | Loss Per Share (Basic & Diluted) | ($0.21) | ($0.21) | 0.0% | Unaudited Condensed Consolidated Statements of Changes in Equity Total equity increased to $38.9M, primarily from reclassifying $35.5M redeemable non-controlling interests to permanent equity - The primary driver for the increase in total equity was the extinguishment of redeemable non-controlling interests, which added $35.5 million to non-controlling interests[7] - The company's accumulated deficit worsened, increasing from ($30.5 million) to ($34.9 million) due to the net loss of $4.45 million attributable to ordinary shareholders during the period[7] Unaudited Condensed Consolidated Statements of Cash Flows Cash and equivalents increased by $13.0M, fueled by $18.1M from financing despite $6.9M used in operations Cash Flow Summary (in USD) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,949,921) | ($4,287,079) | | Net cash provided by (used in) investing activities | $2,045,759 | ($3,976,396) | | Net cash provided by financing activities | $18,067,381 | $10,957,860) | | Net increase in cash and cash equivalents | $12,997,173 | $2,411,448 | - The company raised $27.8 million from new long-term loans, which was the main source of financing cash flow[11] - A significant use of cash in operations was a $12.7 million increase in inventories[11] Notes to the Unaudited Condensed Consolidated Financial Statements Note 1 – Organization and Business Description EPOW, a Cayman Islands holding company, manufactures lithium battery materials in PRC and operates a VIE for knowledge sharing - The company's primary business is manufacturing lithium battery materials for clients in the PRC through its subsidiary, Sunrise Guizhou[19] - The company utilizes a VIE structure for its peer-to-peer knowledge sharing and enterprise services business, where it controls the entity (SDH) through contractual arrangements rather than equity ownership[20][21] - The company acknowledges risks related to the VIE structure, as PRC government actions could negatively affect its ability to control the VIE and consolidate its financial results[36][37][38] Note 2 – Summary of Significant Accounting Policies Financial statements follow U.S. GAAP, recognizing graphite anode revenue upon delivery, with significant customer concentration - Revenue from the primary business, sales of graphite anode materials, is recognized at a point in time when the customer accepts the goods, generally at delivery[94] - The company has two operating segments: graphite anode business and peer-to-peer knowledge sharing and enterprise business[258] - There is significant customer concentration risk, with one client accounting for 59% of total revenues for the six months ended June 30, 2024[128] Note 3 – Going Concern Recurring net losses, negative operating cash flow, and a working capital deficit raise substantial doubt, though a loan waiver was obtained - Adverse conditions including a net loss of $6.0 million, net cash used in operations of $6.9 million, and a working capital deficit of $9.5 million raise substantial doubt about the company's ability to continue as a going concern[138] - The company was in default of financial covenants on a long-term loan agreement with China Construction Bank (CCB) as of June 30, 2024, specifically for failing to maintain profitability and exceeding the asset-liability ratio limit[139][193] - A written waiver for the loan default was obtained from CCB on September 30, 2024, preventing accelerated repayment[139] Notes 16 & 17 – Debt and Financing Total loans reached $32.3M, largely from new CCB long-term loans, with a covenant default later waived - The company entered into several sale-and-leaseback contracts which are accounted for as debt financing arrangements, with a total outstanding balance of $5.0 million as of June 30, 2024[184] - In H1 2024, the company obtained two new long-term loans from China Construction Bank totaling RMB 200 million (approx. $27.3 million), significantly increasing its long-term debt[187][191] - The company was not in compliance with financial covenants for the CCB loan, including profitability and asset-liability ratio requirements, as of June 30, 2024[193] Note 19 – Related Party Transactions Extensive related party transactions exist, with CEO Mr. Haiping Hu providing personal guarantees for substantial company debt - As of June 30, 2024, the company had $5.8 million due to related parties, with the largest balance of $4.0 million owed to Zhuhai Investment, a company controlled by CEO Mr. Haiping Hu[213] - CEO Mr. Haiping Hu and his spouse provide personal guarantees for numerous financing arrangements, including credit facilities with Everbright Bank, Post Bank, CCB, and various sales-and-leaseback financing contracts[218][219][224] Note 20 – Redeemable Non-Controlling Interests An amendment reclassified $35.5M of redeemable non-controlling interests to permanent equity, boosting total equity - The redeemable non-controlling interest was related to a RMB 200 million investment by New Kinetic Partnership in the subsidiary Sunrise Guizhou, which was redeemable upon certain events like failure to IPO[226][227] - On June 18, 2024, the terms were amended to remove key redemption rights, leading to the reclassification of the equity interest from mezzanine to permanent equity[230] Movement of Redeemable Non-Controlling Interests (in USD) | Description | Six Months Ended June 30, 2024 | | :--- | :--- | | Balance at beginning of period | $34,543,186 | | Accretion to redemption value | $1,792,027 | | Reclassification to permanent equity | ($35,527,114) | | Foreign exchange effect | ($808,099) | | Balance at end of period | $0 | Note 21 – Shareholders' Equity Shares re-designated into Class A/B; a 1-for-10 reverse stock split approved; $607K share-based compensation recorded - In February 2024, the company re-designated its authorized share capital into 3.5 billion Class A ordinary shares and 1.5 billion Class B ordinary shares. Class B shares carry 20 votes each, while Class A shares carry 1 vote each[236][238] - Shareholders approved a 1-for-10 share consolidation (reverse stock split) in September 2024, but it is not yet effective as of the report date[240] - Share-based compensation expense was $607,742 for the six months ended June 30, 2024, down from $1,348,581 in the prior year period[245] Note 24 – Segment Reporting The graphite anode business generated $21.6M revenue but incurred a gross loss, while knowledge sharing was profitable Segment Performance (in USD) | Segment | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | | Graphite anode business | Revenues | $21,561,285 | $20,467,706 | | | Gross Profit (Loss) | ($423,467) | $595,768 | | Peer-to-peer knowledge sharing | Revenues | $721,886 | $240,785 | | | Gross Profit | $440,856 | $23,559 | - The company's core graphite anode business became unprofitable at the gross margin level in the first half of 2024, indicating severe pressure on pricing or costs[260] Note 26 – Condensed Financial Information of the Parent Company The parent company, a holding entity, holds investments in subsidiaries and VIE, reporting a $4.5M net loss Parent Company Condensed Balance Sheet (in USD) | Item | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $2,463,486 | $3,030,688 | | Investment in subsidiaries and VIE | $3,440,152 | $6,710,750 | | Total Assets | $5,903,638 | $9,741,438 | | Total Liabilities | $37,743 | $31,824 | | Total Equity | $5,865,895 | $9,709,614 | - The parent company's net loss of $4.45 million for H1 2024 includes $3.27 million from its equity in the losses of its subsidiaries and VIE[273]