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Erayak Power Solution Group Inc.

Erayak Power Solution Group Inc.RAYA财报

Nasdaq · 能源 · 电机与发电机

Erayak Power Solution Group Inc. is a specialized provider of portable power products, including portable power stations, solar generators, car jump starters and related power accessories. It mainly serves consumer and commercial markets in North America, Europe and Asia, offering reliable eco-friendly off-grid power solutions for outdoor, emergency and mobile power demand scenarios.

What changed in Erayak Power Solution Group Inc.'s 20-F — 2022 vs 2023

Top changes in Erayak Power Solution Group Inc.'s 2023 20-F

466 paragraphs added · 242 removed · 205 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

119 edited+127 added−24 removed485 unchanged
Reasons for the Offer and Use of Proceeds Not applicable for annual reports on Form 20-F. 3 3.D.
Reasons for the Offer and Use of Proceeds Not applicable for annual reports on Form 20-F. 3.D.
These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations. 6 We may also decide to finance our PRC subsidiaries using capital contributions.
These measures may cause decreased economic activity in China, and since 2012, China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations. We may also decide to finance our PRC subsidiaries using capital contributions.
As a result, for so long as Erayak International Limited owns a controlling or significant voting interest in our ordinary shares, it generally will be able to control or significantly influence, directly or indirectly and subject to applicable law, all matters affecting us, including: ● the election of directors; ● determinations with respect to our business direction and policies, including the appointment and removal of officers; ● determinations with respect to corporate transactions, such as mergers, business combinations, change in control transactions or the acquisition or the disposition of assets; ● our financing and dividend policy; ● determinations with respect to our tax returns; and ● compensation and benefits programs and other human resources policy decisions. 38 Even if Erayak International Limited were to dispose of certain of its shares of our Class B ordinary shares such that it would control less than a majority of the voting power of our outstanding ordinary shares, it may be able to influence the outcome of corporate actions so long as it retains Class B ordinary shares.
As a result, for so long as Erayak International Limited owns a controlling or significant voting interest in our ordinary shares, it generally will be able to control or significantly influence, directly or indirectly and subject to applicable law, all matters affecting us, including: ● the election of directors; ● determinations with respect to our business direction and policies, including the appointment and removal of officers; ● determinations with respect to corporate transactions, such as mergers, business combinations, change in control transactions or the acquisition or the disposition of assets; ● our financing and dividend policy; ● determinations with respect to our tax returns; and ● compensation and benefits programs and other human resources policy decisions. 39 Even if Erayak International Limited were to dispose of certain of its shares of our Class B ordinary shares such that it would control less than a majority of the voting power of our outstanding ordinary shares, it may be able to influence the outcome of corporate actions so long as it retains Class B ordinary shares.
As a result, a downturn in the worldwide economy resulting from the Russian invasion of Ukraine and other conflicts with a global impact that may arise from time to time could have a material adverse effect on our business, results of operations, and/or financial condition. 37 Risks Related to our Ordinary Shares The dual class structure of our ordinary shares has the effect of concentrating voting control with Erayak International Limited, which holds in aggregate 83.87% of the voting power of our capital g, preventing you and other stockholders from influencing significant decisions, including the election of directors, amendments to our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.
As a result, a downturn in the worldwide economy resulting from the Russian invasion of Ukraine and other conflicts with a global impact that may arise from time to time could have a material adverse effect on our business, results of operations, and/or financial condition. 38 Risks Related to our Ordinary Shares The dual class structure of our ordinary shares has the effect of concentrating voting control with Erayak International Limited, which holds in aggregate 83.87% of the voting power of our capital g, preventing you and other stockholders from influencing significant decisions, including the election of directors, amendments to our organizational documents and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.
In that case, our customers may experience a substantial delay in receiving our products, which could have a material adverse effect on our business relationship with them and our financial conditions. We will require substantial additional funding in the future. There is no assurance that additional financing will be available to us.
In that case, our customers may experience a substantial delay in receiving our products, which could have a material adverse effect on our business relationship with them and our financial conditions. 27 We will require substantial additional funding in the future. There is no assurance that additional financing will be available to us.
In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis. As a result, our operational continuity may be adversely and materially affected, which in turn may harm our reputation. Our business could be materially harmed by the ongoing coronavirus (COVID-19) pandemic.
In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis. As a result, our operational continuity may be adversely and materially affected, which in turn may harm our reputation. 30 Our business could be materially harmed by the ongoing coronavirus (COVID-19) pandemic.
Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions on our ability to transfer or distribute cash within our organization or to foreign investors, which could result in an inability or prohibition on making transfers or distributions outside of China or Hong Kong and adversely affect our business as well as your investment. 7 As of the date of this Annual Report, we are not aware of other material restrictions and limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the parent company and U.S. investors or our ability to settle amounts owed, or on foreign exchange or our ability to transfer cash between entities within our group, across borders, or to U.S. investors.
Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions on our ability to transfer or distribute cash within our organization or to foreign investors, which could result in an inability or prohibition on making transfers or distributions outside of China or Hong Kong and adversely affect our business as well as your investment. 8 As of the date of this Annual Report, we are not aware of other material restrictions and limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the parent company and U.S. investors or our ability to settle amounts owed, or on foreign exchange or our ability to transfer cash between entities within our group, across borders, or to U.S. investors.
In that event, current stockholders would likely experience a loss of most of or all of their investment. 26 Further, if we increase to our level of indebtedness, in the future, it could: ● require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which could reduce the availability of cash flow to fund acquisitions, start-ups, working capital, capital expenditures and other general corporate purposes; ● limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements and other purposes; ● limit our flexibility in planning for, and reacting to, changes in our industry or business; ● make us more vulnerable to unfavorable economic or business conditions; and ● limit our ability to make acquisitions or take advantage of other business opportunities.
In that event, current stockholders would likely experience a loss of most of or all of their investment. 28 Further, if we increase to our level of indebtedness, in the future, it could: ● require us to dedicate a portion of our cash flow from operations to payments on our indebtedness, which could reduce the availability of cash flow to fund acquisitions, start-ups, working capital, capital expenditures and other general corporate purposes; ● limit our ability to borrow money or sell stock for working capital, capital expenditures, debt service requirements and other purposes; ● limit our flexibility in planning for, and reacting to, changes in our industry or business; ● make us more vulnerable to unfavorable economic or business conditions; and ● limit our ability to make acquisitions or take advantage of other business opportunities.
On December 14, 2022, our Class A ordinary shares began trading on the Nasdaq Capital Market. Prior to that, there was no public market for our ordinary shares. Our trading history might never improve in terms of price or volume. We cannot guarantee that our ordinary shares will remain quoted on the Nasdaq Capital Market. 43
On December 14, 2022, our Class A ordinary shares began trading on the Nasdaq Capital Market. Prior to that, there was no public market for our ordinary shares. Our trading history might never improve in terms of price or volume. We cannot guarantee that our ordinary shares will remain quoted on the Nasdaq Capital Market.
Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacked a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. 15 According to the “Enterprise Income Tax Law of the People’s Republic of China” (adopted on March 16, 2007, first amended on February 24, 2017, and second amended on December 29, 2018), if the business dealings between an enterprise and its affiliated parties do not conform to the principle of independent transactions and thus reduce the taxable income or income of the enterprise or its affiliated parties, the tax authorities have the right to adjust in accordance with reasonable methods.
Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacked a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. 17 According to the “Enterprise Income Tax Law of the People’s Republic of China” (adopted on March 16, 2007, first amended on February 24, 2017, and second amended on December 29, 2018), if the business dealings between an enterprise and its affiliated parties do not conform to the principle of independent transactions and thus reduce the taxable income or income of the enterprise or its affiliated parties, the tax authorities have the right to adjust in accordance with reasonable methods.
As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies.
As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations. 21 The evolving PRC regulatory system for the internet industry may lead to the establishment of new regulatory agencies.
Any of these actions by the PRC government may have a material adverse effect on our business and results of operations. 19 Risks Related to Our Business and Industry We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs.
Any of these actions by the PRC government may have a material adverse effect on our business and results of operations. Risks Related to Our Business and Industry We are a holding company, and may rely on dividends paid by our subsidiaries for our cash needs.
This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for overseas investment or financing. 13 In the event that our shareholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us.
This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for overseas investment or financing. 14 In the event that our shareholders who are PRC residents or entities do not complete their registration as required, our PRC subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us.
Any such development could have an adverse effect on our margins and financial position and would negatively affect our revenues and results of operations and/or trading price of our ordinary shares. The loss of any of our key customers could reduce our revenues and our profitability.
Any such development could have an adverse effect on our margins and financial position and would negatively affect our revenues and results of operations and/or trading price of our ordinary shares. 26 The loss of any of our key customers could reduce our revenues and our profitability.
Furthermore, under the current PRC laws, an on-site inspection of our facilities by any of these regulators may be limited or prohibited. 22 Our business is also affected by global economic conditions.
Furthermore, under the current PRC laws, an on-site inspection of our facilities by any of these regulators may be limited or prohibited. Our business is also affected by global economic conditions.
Those banks may not meet their funding commitments to us if they experience shortages of capital and liquidity or experience excessive volumes of borrowing requests from other borrowers and us within a short period of time. 35 Long-term disruptions in the credit and capital markets could result from uncertainty, changing or increased regulations, reduced alternatives, or failures of financial institutions that could adversely affect our access to the liquidity needed for our business.
Those banks may not meet their funding commitments to us if they experience shortages of capital and liquidity or experience excessive volumes of borrowing requests from other borrowers and us within a short period of time. 36 Long-term disruptions in the credit and capital markets could result from uncertainty, changing or increased regulations, reduced alternatives, or failures of financial institutions that could adversely affect our access to the liquidity needed for our business.
If the Nasdaq Capital Market subsequently delists our securities from trading, we could face significant consequences, including: ● limited availability for market quotations for our securities; ● reduced liquidity with respect to our securities; ● a determination that our Ordinary Share is a “penny stock,” which will require brokers trading in our Ordinary Share to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Ordinary Share; ● limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities or obtain additional financing in the future. 41 The market price of our ordinary shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public offering price.
If the Nasdaq Capital Market subsequently delists our securities from trading, we could face significant consequences, including: ● limited availability for market quotations for our securities; ● reduced liquidity with respect to our securities; ● a determination that our Ordinary Share is a “penny stock,” which will require brokers trading in our Ordinary Share to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our Ordinary Share; ● limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities or obtain additional financing in the future. 42 The market price of our Class A ordinary shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the public offering price.
Excess inventory levels may lead to increases in inventory holding costs, risks of inventory obsolescence, and provisions for write-downs, which will materially and adversely affect our business, financial condition, and results of operations. 34 To maintain an appropriate inventory level of finished goods and raw materials to meet market demand, we adjust our procurement amount and production schedule from time to time based on customers’ orders and anticipated demand.
Excess inventory levels may lead to increases in inventory holding costs, risks of inventory obsolescence, and provisions for write-downs, which will materially and adversely affect our business, financial condition, and results of operations. 35 To maintain an appropriate inventory level of finished goods and raw materials to meet market demand, we adjust our procurement amount and production schedule from time to time based on customers’ orders and anticipated demand.
In the event that any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all. 27 Our business is substantially dependent upon our key research and development personnel who possess valuable skills in our industry, and we may have to compete for their services actively.
In the event that any dispute arises between our current or former officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in China or we may be unable to enforce them at all. 29 Our business is substantially dependent upon our key research and development personnel who possess valuable skills in our industry, and we may have to compete for their services actively.
These reserve funds and staff welfare and bonus funds are not distributable as cash dividends 10 Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements.
These reserve funds and staff welfare and bonus funds are not distributable as cash dividends 11 Under existing PRC foreign exchange regulations, payment of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or the SAFE, by complying with certain procedural requirements.
Our management may conclude that our internal control over financial reporting is not effective. 33 Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States. 40 Certain judgments obtained against us by our shareholders may not be enforceable.
Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States. 41 Certain judgments obtained against us by our shareholders may not be enforceable.
As a result, fluctuations in exchange rates may have a material adverse effect on the price of our ordinary shares. 11 PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries and thereby prevent us from funding our business.
As a result, fluctuations in exchange rates may have a material adverse effect on the price of our ordinary shares. 12 PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries and thereby prevent us from funding our business.
In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced products or that any new or enhanced products, if developed, will achieve market acceptance or prove to be profitable. 31 A lack of insurance coverage could expose us to significant costs and business disruption.
In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will lead to the successful development of new or enhanced products or that any new or enhanced products, if developed, will achieve market acceptance or prove to be profitable. 32 A lack of insurance coverage could expose us to significant costs and business disruption.
Third, we will apply for settlement of the foreign exchange. To do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate. 12 The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially.
Third, we will apply for settlement of the foreign exchange. To do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate. 13 The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially.
We consider our major vendors in each period to be those vendors that accounted for more than 10% of overall purchases in such period. We had no such major suppliers for the fiscal years ended December 31, 2022, 2021, and 2020. We purchase raw materials on the market at prevailing market prices.
We consider our major vendors in each period to be those vendors that accounted for more than 10% of overall purchases in such period. We had no such major suppliers for the fiscal years ended December 31, 2023, 2022, and 2021. We purchase raw materials on the market at prevailing market prices.
We have elected to avail our company of this exemption from new or revised accounting standards and, therefore, will be subject to accounting standards that are available to emerging growth companies. 39 We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies.
We have elected to avail our company of this exemption from new or revised accounting standards and, therefore, will be subject to accounting standards that are available to emerging growth companies. 40 We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies.
As of December 31, 2022 and 2021, we did not record any withholding tax on the retained earnings of our subsidiaries in the PRC as we intended to re-invest all earnings generated from our PRC subsidiaries for the operation and expansion of our business in China, and we intend to continue this practice in the foreseeable future.
As of December 31, 2023 and 2022, we did not record any withholding tax on the retained earnings of our subsidiaries in the PRC as we intended to re-invest all earnings generated from our PRC subsidiaries for the operation and expansion of our business in China, and we intend to continue this practice in the foreseeable future.
We cannot assure you that the offering price of our ordinary shares, or the market price following our future offerings, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our subsequent offering.
We cannot assure you that the offering price of our Class A ordinary shares, or the market price following our future offerings, will equal or exceed prices in privately negotiated transactions of our shares that have occurred from time to time prior to our subsequent offering.
As of the date of this Annual Report, Management has not determined the types of businesses that the Company will target or the terms of any potential acquisition. 42 We do not intend to pay dividends for the foreseeable future.
As of the date of this Annual Report, Management has not determined the types of businesses that the Company will target or the terms of any potential acquisition. 43 We do not intend to pay dividends for the foreseeable future.
There may not be an active, liquid trading market for our ordinary shares. Prior to our initial public offering taken place in December 2022, there has been no public market for our ordinary shares. An active trading market for our ordinary shares may not develop or be sustained following our initial public offering.
There may not be an active, liquid trading market for our Class A ordinary shares. Prior to our initial public offering taken place in December 2022, there has been no public market for our Class A ordinary shares. An active trading market for our ordinary shares may not develop or be sustained following our initial public offering.
If you purchase our ordinary shares in our offering, you may not be able to resell those shares at or above the offering price.
If you purchase our Class A ordinary shares in our offering, you may not be able to resell those shares at or above the offering price.
For example, the average accounts receivable turnover period was approximately 79 days and 66 days for the fiscal periods ended December 31, 2022 and 2021, respectively. Due to uncertainty of the timing of collection, we established an allowance for doubtful accounts based on individual account analysis and historical collection trends.
For example, the average accounts receivable turnover period was approximately 145 days and 79 days for the fiscal periods ended December 31, 2023 and 2022, respectively. Due to uncertainty of the timing of collection, we established an allowance for doubtful accounts based on individual account analysis and historical collection trends.
To the extent that we are liable for damages in excess of the revenue and profits we received from the products involved, our results of operations and financial condition could be materially adversely affected. We may be exposed to liabilities under the Foreign Corrupt Practices Act.
To the extent that we are liable for damages in excess of the revenue and profits we received from the products involved, our results of operations and financial condition could be materially adversely affected. We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. We recorded a bad debt write-off of $0 during the fiscal years ended December 31, 2021 and 2020.
Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. We recorded a bad debt write-off of $0 during the fiscal years ended December 31, 2023 and 2022.
Erayak HK intends to apply for the tax resident certificate when Zhejiang Leiya plans to declare and pay dividends to Erayak HK.
Erayak HK intends to apply for the tax resident certificate when Zhejiang Leiya or Ruike plans to declare and pay dividends to Erayak HK.
Similarly, as a U.S.-listed public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations. We have a limited trading history.
Similarly, as a U.S.-listed public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations. 44
It may result in significant provisions and impairments on our accounts receivable which in turn would have a material adverse impact on our business operations, results of operation, financial condition, and our business pursuits and prospects. We had allowance for doubtful accounts in the amount of $2,478 and $2,682 as of December 31, 2022 and 2021, respectively.
It may result in significant provisions and impairments on our accounts receivable which in turn would have a material adverse impact on our business operations, results of operation, financial condition, and our business pursuits and prospects. We had allowance for doubtful accounts in the amount of $39,280 and $2,478 as of December 31, 2023 and 2022, respectively.
We consider our major customers in each period to be those customers that accounted for more than 10% of our revenue in such period. We had two, two and three such major customers for the fiscal years ended December 31, 2022, 2021, and 2020, respectively.
We consider our major customers in each period to be those customers that accounted for more than 10% of our revenue in such period. We had one, two and two such major customers for the fiscal years ended December 31, 2023, 2022, and 2021, respectively.
The Company also has bank acceptance notes outstanding with the banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. As of December 31, 2022 and 2021, restricted cash was $34,728 and $0, respectively. No cash is restricted to assure future credit availability.
The Company also has bank acceptance notes outstanding with the banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. As of December 31, 2023 and 2022, restricted cash was $1,062 and $34,728, respectively. No cash is restricted to assure future credit availability.
The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant. 19 On June 22, 2021, the U.S.
In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm may be required to report on the effectiveness of our internal control over financial reporting.
In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firm may be required to report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective.
Recently, a global pandemic of a novel strain of coronavirus (COVID-19) first emerged in China in December 2019 and has spread globally. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China for the first half of 2020. In March 2020, the World Health Organization declared COVID-19 as a global pandemic.
In 2020, global pandemic of a novel strain of coronavirus (COVID-19) first emerged in China in spread globally. The pandemic had resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China for the first half of 2020. In March 2020, the World Health Organization declared COVID-19 as a global pandemic.
Substantially all of our operations are located in China. Accordingly, our business, prospects, financial condition, and results of operations may be influenced significantly by political, economic, and social conditions in China generally and by continued economic growth in China as a whole.
Accordingly, our business, prospects, financial condition, and results of operations may be influenced significantly by political, economic, and social conditions in China generally and by continued economic growth in China as a whole.
As of the date of this Annual Report, Zhejiang Leiya currently does not have plan to declare and pay dividends to Erayak HK and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority.
As of the date of this Annual Report, Neither Ruike nor Zhejiang Leiya currently has plan to declare and pay dividends to Erayak HK and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority.
The balance sheet amounts, with the exception of shareholders’ equity at December 31, 2022 and 2021 were translated at RMB6.8972 and RMB6.3726 to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate.
The balance sheet amounts, with the exception of shareholders’ equity at December 31, 2023 and 2022 were translated at RMB7.0999 and RMB6.8972 to $1.00, respectively. The shareholders’ equity accounts were stated at their historical rate.
The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Translation adjustments included in accumulated other comprehensive income (loss) amounted to $(383,942) and $227,202 as of December 31, 2022 and 2021, respectively.
The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Translation adjustments included in accumulated other comprehensive income (loss) amounted to $(360,677) and $(383,942) as of December 31, 2023 and 2022, respectively.
The average translation rates applied to the statement of income accounts for the years ended December 31, 2022 and 2021 were RMB6.7290 and RMB6.4508 to $1.00, respectively.
The average translation rates applied to the statement of income accounts for the years ended December 31, 2023 and 2022 were RMB7.0809 and RMB6.7290 to $1.00, respectively.
Article 177 further provides that overseas securities regulatory authorities are not allowed to carry out investigation and evidence collection directly within the territory of the PRC, and that any Chinese entities and individuals are not allowed to provide documents or materials related to securities business activities to overseas agencies without prior consent of the securities regulatory authority of the PRC State Council and the competent departments of the PRC State Council. 9 Our PRC counsel, King & Wood Mallesons, has advised us of their understanding that (i) the Article 177 is applicable in the limited circumstances related to direct investigation or evidence collection conducted by overseas authorities within the territory of the PRC (in such case, the foregoing activities are required to be conducted through collaboration with or by obtaining prior consent of competent Chinese authorities); (ii) the Article 177 does not limit or prohibit the Company, as a company duly incorporated in Cayman Islands and to be listed on Nasdaq, from providing the required documents or information to Nasdaq or the SEC pursuant to applicable Listing Rules and U.S. securities laws; and (iii) as the Article 177 is relatively new and there is no implementing rules or regulations which have been published regarding application of the Article 177, it remains unclear how the law will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities.
Our PRC counsel, Gaopeng & Partners, has advised us of their understanding that (i) the Article 177 is applicable in the limited circumstances related to direct investigation or evidence collection conducted by overseas authorities within the territory of the PRC (in such case, the foregoing activities are required to be conducted through collaboration with or by obtaining prior consent of competent Chinese authorities); (ii) the Article 177 does not limit or prohibit the Company, as a company duly incorporated in Cayman Islands and to be listed on Nasdaq, from providing the required documents or information to Nasdaq or the SEC pursuant to applicable Listing Rules and U.S. securities laws; and (iii) as the Article 177 is relatively new and there is no implementing rules or regulations which have been published regarding application of the Article 177, it remains unclear how the law will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government authorities.
Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.
Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list regulatory investigations and civil or criminal sanctions.
If there is a decline in economic activity in China and the other markets in which we operate or a protracted slowdown in industries on which we rely for our sales, our products’ demand and revenue will likewise decrease. We operate in a competitive industry. If we are unable to compete successfully, we may lose market share to our competitors.
If there is a decline in economic activity in China and the other markets in which we operate or a protracted slowdown in industries on which we rely for our sales, our products’ demand and revenue will likewise decrease. 25 We operate in a competitive industry.
Currently, we promote our brand through print media advertising, video advertising, billboard advertising, and internet promotions. Our future marketing efforts will likely require us to incur significant additional expenses. These efforts may not result in increased revenues in the immediate future or at all, and, even if they do, any increases in revenues may not offset the expenses incurred.
Our future marketing efforts will likely require us to incur significant additional expenses. These efforts may not result in increased revenues in the immediate future or at all, and, even if they do, any increases in revenues may not offset the expenses incurred.
Any prolonged restrictive measures to control the contagious disease or other adverse public health developments in China or our targeted markets may have a material and adverse effect on our business operations. 28 Similarly, natural disasters, wars (including the potential of war), terrorist activity (including threats of terrorist activity), social unrest and heightened travel security measures instituted in response, and travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect travel volume and may, in turn, have a material adverse effect on our business and results of operations.
Similarly, natural disasters, wars (including the potential of war), terrorist activity (including threats of terrorist activity), social unrest and heightened travel security measures instituted in response, and travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect travel volume and may, in turn, have a material adverse effect on our business and results of operations.
Our top two customers accounted for approximately 27% of revenues for the fiscal year ended December 31, 2021, and the amount due from these customers included in accounts receivable was $46,633, representing 2.65% of total accounts receivable.
Our top two customers accounted for approximately 27% of revenues for the fiscal year ended December 31, 2021, and the amount due from these customers included in accounts receivable was $46,633, representing 2.65% of total accounts receivable. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers.
Some of our merchants and suppliers with whom we maintain business relationships have reduced or suspended, or may in the future reduce or suspend, their selling activities due to operational constraints or global supply chain disruptions.
Some of our merchants and suppliers with whom we maintain business relationships have reduced or suspended, or may in the future reduce or suspend, their selling activities due to operational constraints or global supply chain disruptions. The global stock markets have experienced and may continue to experience a significant decline from the COVID-19 outbreak.
When Zhejiang Leiya plans to declare and pay dividends to Erayak HK and when we intend to apply for the tax resident certificate from the relevant Hong Kong tax authority, we plan to inform the investors through SEC filings, such as a current report on Form 6-K, prior to such actions. 20 The considerable uncertainty in Chinese economic growth could hurt demand of our products.
When Zhejiang Leiya or Ruike plans to declare and pay dividends to Erayak HK and when we intend to apply for the tax resident certificate from the relevant Hong Kong tax authority, we plan to inform the investors through SEC filings, such as a current report on Form 6-K, prior to such actions.
As a result of the above, to the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets.
As a result of the above, to the extent cash or assets of our business, or of our PRC or Hong Kong subsidiaries, is in the PRC or Hong Kong, such funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong, due to interventions in or the imposition of restrictions and limitations by the PRC government to the transfer of cash or assets. 9 PRC laws and regulations governing our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may impair our ability to operate profitably.
Upon completion of our initial public offering in December 2022, we are now a publicly listed company in the United States. As a publicly listed company, we are required to file annual reports with the Securities and Exchange Commission.
The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies. Upon completion of our initial public offering in December 2022, we are now a publicly listed company in the United States. As a publicly listed company, we are required to file annual reports with the Securities and Exchange Commission.
The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. 17 On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.
On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China, because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong.
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S.
Senate passed a bill which, if passed by the U.S.
In addition, wholly foreign-owned enterprises are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital.
In addition, wholly foreign-owned enterprises are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a certain statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. 22 Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies.
Failure to appropriately evaluate the credit profile of our customers and/or delay in settlement of accounts receivable from our customers could materially and adversely impact our operating cash flow.
We may also be required to restate our financial statements from prior periods. 34 Failure to appropriately evaluate the credit profile of our customers and/or delay in settlement of accounts receivable from our customers could materially and adversely impact our operating cash flow.
Our auditor, TPS Thayer, the independent registered public accounting firm that issues the audit report included elsewhere in this Annual Report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards.
Our auditors, TPS Thayer and Fortune CPA, the independent registered public accounting firms, as auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess TPS Thayer and Fortune CPA’s compliance with applicable professional standards.
The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller. 4 The Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business activities are conducted in China, or its main place(s) of business are located in China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in China.
The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling persons of us that organize or instruct such violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from RMB500,000 to RMB5,000,000.
In addition, we may not be able to obtain additional capital when desired, on favorable terms or at all. Our liquidity relies significantly on short-term borrowings.
Our outstanding and future indebtedness may adversely affect our available cash flow and our ability to operate our business. In addition, we may not be able to obtain additional capital when desired, on favorable terms or at all. Our liquidity relies significantly on short-term borrowings.
In the event that we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our ordinary shares could decline. The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
In the event that we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our ordinary shares could decline. We have a limited trading history.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we receive from our offerings to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
(“Parent Company” in the tables below), and its subsidiaries, together with eliminating adjustments: Consolidated Statements of Operations Information As of December 31, 2022 As of December 31, 2021 As of December 31, 2020 Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Assets Current assets Cash 6,417,339 649,908 7,067,247 - 7,067,247 - 5,174,693 5,174,693 - 5,174,693 - 4,062,055 4,062,055 - 4,062,055 A/R, net - 9,961,343 9,961,343 - 9,961,343 - 1,753,880 1,753,880 - 1,753,880 - 5,057,645 5,057,645 - 5,057,645 Inventories - 6,227,456 6,227,456 - 6,227,456 - 3,902,067 3,902,067 - 3,902,067 - 1,682,588 1,682,588 - 1,682,588 Prepaids and other current assets 4,201,354 779,328 4,980,682 (1,000 ) 4,979,682 - 2,663,417 2,663,417 - 2,663,417 - 1,146,575 1,146,575 - 1,146,575 Due from related parties - - - - - - - - - - - - - - - Due from subsidiaries - - - - - Due from parent - - - - - - - - - - - - - - - Total current assets 10,618,693 17,618,035 28,236,728 (1,000 ) 28,235,728 - 13,494,057 13,494,057 - 13,494,057 - 11,948,863 11,948,863 - 11,948,863 PPE, net - 1,662,155 1,662,155 - 1,662,155 - 1,079,983 1,079,983 - 1,079,983 - 978,714 978,714 - 978,714 Intangibles, net - 8,814 8,814 - 8,814 - 11,093 11,093 - 11,093 - 12,063 12,063 - 12,063 ROU, net - 7,665,013 7,665,013 - 7,665,013 - 8,849,073 8,849,073 - 8,849,073 - 9,182,540 9,182,540 - 9,182,540 Deferred tax assets - 33,490 33,490 - 33,490 - 36,247 36,247 - 36,247 - 5,116 5,116 - 5,116 Deffered expenses - - - - - - - - - - - - - - - Investment in subsidiaries 29,472 - 29,472 (29,472 ) - 1,061,410 - 1,061,410 (1,061,410 ) - 1,060,511 - 1,060,511 (1,060,511.00 ) - Total assets 10,648,165 26,987,507 37,635,672 (30,472 ) 37,605,200 1,061,410 23,470,453 24,531,863 (1,061,410 ) 23,470,453 1,060,511 22,127,296 23,187,807 (1,060,511.00 ) 22,127,296 Liabilities Current liabilities A/P - 4,729,174 4,729,174 - 4,729,174 - 4,151,749 4,151,749 - 4,151,749 - 3,214,212 3,214,212 - 3,214,212 Accrued exp and other current liabilities 1,000 1,501,620 1,502,620 (1,000 ) 1,501,620 - 1,168,464 1,168,464 - 1,168,464 - 1,099,044 1,099,044 - 1,099,044 Notes payable - - - - - - - - - - - 7,203,065 7,203,065 - 7,203,065 S/T borrowings - 6,227,165 6,227,165 - 6,227,165 - 5,756,146 5,756,146 - 5,756,146 - 3,882,994 3,882,994 - 3,882,994 Tax payables - 844,925 844,925 - 844,925 - 633,919 633,919 - 633,919 - 811,928 811,928 - 811,928 Due to related parties 391,151 391,151 391,151 158,198 158,198 - 158,198 - 1,007,109 1,007,109 - 1,007,109 Due to subsidiaries - - - - - - - - - - - - - - - Due to parent - - - L/T payable - current 4,349,591 4,349,591 4,349,591 Total current liabilities 1,000 18,043,626 18,044,626 (1,000 ) 18,043,626 - 11,868,476 11,868,476 - 11,868,476 - 17,218,352 17,218,352 - 17,218,352 Lease liability - - - - - - - - - - - - - - - L/T payable - 217,523 217,523 - 217,523 - 4,707,655 4,707,655 - 4,707,655 - 1,532,567 1,532,567 - 1,532,567 Total liabilities 1,000 18,261,149 18,262,149 (1,000 ) 18,261,149 - 16,576,131 16,576,131 - 16,576,131 - 18,750,919 18,750,919 - 18,750,919 Shareholders’ equity Ordinary shares, $0.0001 par, 500,000,000 shares authorized, 11,000,000 Class A and 1,000,000 Class B ordinary shares issued and o/s 1,200 29,472 30,672 (29,472 ) 1,200 900 1,061,410 1,062,310 (1,061,410 ) 900 1 1,060,511 1,060,512 (1,060,511.00 ) 1 Additional paid in capital 10,645,122 - 10,645,122 - 10,645,122 1,060,510 0 1,060,510 - 1,060,510 1,060,510 - 1,060,510 - 1,060,510 Statutory surplus reserve - 916,912 916,912 916,912 - 568,418 568,418 - 568,418 - 222,081 222,081 - 222,081 R/E 850 8,163,909 8,164,759 8,164,759 - 5,037,292 5,037,292 - 5,037,292 - 1,988,980 1,988,980 - 1,988,980 ) AOCI(loss) (7 ) (383,935 ) (383,942 ) (383,942 ) - 227,202 227,202 - 227,202 - 104,805 104,805 - 104,805 ) Total shareholders’ equity 10,647,165 8,726,358 19,373,523 (29,472 ) 19,344,051 1,061,410 6,894,322 7,955,732 (1,061,410 ) 6,894,322 1,060,511 3,376,377 4,436,888 (1,060,511.00 ) 3,376,377 Total liabilities and shareholders’ equity 10,648,165 26,987,507 37,635,672 (30,472 ) 37,605,200 1,061,410 23,470,453 24,531,863 (1,061,410 ) 23,470,453 1,060,511 22,127,296 23,187,807 (1,060,511.00 ) 22,127,296 1 For the year ended December 31, 2022 For the year ended December 31, 2021 For the year ended December 31, 2020 Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Cash flows from operating activities Net income 850 3,475,111 3,475,961 - 3,475,961 - 3,394,649 3,394,649 - 3,394,649 - 2,213,372 2,213,372 - 2,213,372 Adj for items not affecting cash Depreciation and amortization - 269,817 269,817 - 269,817 - 215,121 215,121 - 215,121 - 148,194 148,194 - 148,194 Deferred tax assets - - - - - - - - - - - (648 ) (648 ) - (648 ) Bad debt expense - - - - - - 2,649 2,649 - 2,649 - 15,112 15,112 - 15,112 Inventory impairment provision - (31,668 ) (31,668 ) - (31,668 ) Deferred expenses - - - - - - - - - - - 30,744 30,744 - 30,744 ) Imputed interest expenses - 27,121 27,121 - 27,121 - 70,195 70,195 - 70,195 - 56,987 56,987 - 56,987 Right of use lease asset - 523,774 523,774 - 523,774 - 546,362 546,362 - 546,362 - 188,879 188,879 - 188,879 Changes in operating assets and liabilities: Accounts receivable - (8,549,354 ) (8,549,354 ) - (8,549,354 ) - 3,380,552 3,380,552 - 3,380,552 - (4,078,270 ) (4,078,270 ) - (4,078,270 ) Inventories - (2,656,056 ) (2,656,056 ) - (2,656,056 ) - (2,200,180 ) (2,200,180 ) - (2,200,180 ) - (329,435 ) (329,435 ) - (329,435 ) Advances to suppliers - 1,227,244 1,227,244 - 1,227,244 - (1,109,383 ) (1,109,383 ) - (1,109,383 ) - (730,042 ) (730,042 ) - (730,042 ) Prepaid expenses and Other receivables - 428,846 428,846 (1,000 ) 427,846 - (361,983 ) (361,983 ) - (361,983 ) - (96,160 ) (96,160 ) - (96,160 ) Loan receivable (172,388 ) (172,388 ) - (172,388 ) Accounts payable - 661,080 661,080 - 661,080 - 803,612 803,612 - 803,612 - 274,724 274,724 - 274,724 ) Accrued expenses and other current liabilities (1,000 ) 164,303 163,303 1,000 164,303 - 356,061 356,061 - 356,061 - (90,921 ) (90,921 ) - (90,921 ) Advances from customers - 215,483 215,483 - 215,483 - (276,454 ) (276,454 ) - (276,454 ) - 338,968 338,968 - 338,968 ) Lease liability - - - - - - - - - - - (6,437,325 ) (6,437,325 ) - (6,437,325 ) Tax payable - 265,702 265,702 - 265,702 - (195,033 ) (195,033 ) - (195,033 ) - 569,330 569,330 - 569,330 Net cash provided by (used in) operating (150 ) (4,150,985 ) (4,151,135 ) - (4,151,135 ) - 4,642,893 4,642,893 - 4,642,893 - (7,926,491 ) (7,926,491 ) - (7,926,491 ) Cash flows from investing activities Purchases of property, plant and equipment - (694,813 ) (694,813 ) - (694,813 ) - (244,018 ) (244,018 ) - (244,018 ) - (176,649 ) (176,649 ) - (176,649 ) Purchases of intangible assets - - - - - - (155 ) (155 ) - (155 ) - (9,357 ) (9,357 ) - (9,357 ) Advance payment of potential oversea land purchase (4,201,354 ) - (4,201,354 ) - (4,201,354 ) Net cash provided by (used in) investing (4,201,354 ) (694,813 ) (4,896,167 ) - (4,896,167 ) - (244,173 ) (244,173 ) - (244,173 ) - (186,006 ) (186,006 ) - (186,006 ) Cash flows from financing activities Proceeds from short-term borrowings - 8,381,681 8,381,681 - 8,381,681 - 4,284,208 4,284,208 - 4,284,208 - 3,692,217 3,692,217 - 3,692,217 Repayments on short-term borrowings - (7,450,134 ) (7,450,134 ) - (7,450,134 ) - (4,182,881 ) (4,182,881 ) - (4,182,881 ) - (799,373 ) (799,373 ) - (799,373 ) Proceeds from related parties - 24,015,431 24,015,431 - 24,015,431 - 15,311,425 15,311,425 - 15,311,425 - 6,882,563 6,882,563 - 6,882,563 Repayments to related parties - (23,930,302 ) (23,930,302 ) (23,930,302 ) - (16,172,950 ) (16,172,950 ) - (16,172,950 ) - (5,651,853 ) (5,651,853 ) - (5,651,853 ) Proceeds(repayment) of notes payable - - (7,285,918 ) (7,285,918 ) - (7,285,918 ) - 6,807,451 6,807,451 - 6,807,451 ) Proceeds from long-term loans - 1,235,004 1,235,004 - 1,235,004 Repayments on long-term loans - (1,012,044 ) (1,012,044 ) - (1,012,044 ) Proceeds from share issuance 10,080,231 - 10,080,231 - 10,080,231 Proceeds from government loan - - - - - - 4,650,586 4,650,586 - 4,650,586 - - - - - Net cash provided by (used in) financing 10,080,231 1,239,636 11,319,867 - 11,319,867 - (3,395,530 ) (3,395,530 ) - (3,395,530 ) - 10,931,005 10,931,005 - 10,931,005 Effect of foreign exchange 538,612 (918,623 ) (380,011 ) - (380,011 ) - 109,448 109,448 - 109,448 - 231,547 231,547 - 231,547 ) Net increase (decrease) in cash 6,417,339 (4,524,785 ) 1,892,554 - 1,892,554 - 1,003,190 1,003,190 - 1,003,190 - 2,818,508 2,818,508 - 2,818,508 Cash, beginning - 5,174,693 5,174,693 - 5,174,693 - 4,062,055 4,062,055 - 4,062,055 - 1,012,000 1,012,000 - 1,012,000 Cash, end 6,417,339 649,908 7,067,247 - 7,067,247 - 5,174,693 5,174,693 - 5,174,693 - 4,062,055 4,062,055 - 4,062,055 Cash paid during the period for: Interest - 831,755 831,755 - 831,755 - 99,690 99,690 - 99,690 - 26,669 26,669 - 26,669 Income taxes - 123,608 123,608 - 123,608 - 365,752 365,752 - 365,752 - 94,631 94,631 - 94,631 The parent company, Erayak Power Solution Group Inc, does not conduct operations separately from its China-based subsidiaries.
(“Parent Company” in the tables below), and its subsidiaries, together with eliminating adjustments: Consolidated Statements of Operations Information As of December 31, 2023 As of December 31, 2022 As of December 31, 2021 Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Assets Current assets Cash 2,364 5,876,070 5,878,434 - 5,878,434 6,417,339 649,908 7,067,247 - 7,067,247 - 5,174,693 5,174,693 - 5,174,693 A/R, net - 6,253,189 6,253,189 - 6,253,189 - 9,961,343 9,961,343 - 9,961,343 - 1,753,880 1,753,880 - 1,753,880 Inventories - 7,056,459 7,056,459 - 7,056,459 - 6,227,456 6,227,456 - 6,227,456 - 3,902,067 3,902,067 - 3,902,067 Prepaids and other current assets 5,000,000 1,910,108 6,910,108 (4,000,000 ) 2,910,108 4,201,354 779,328 4,980,682 (1,000 ) 4,979,682 - 2,663,417 2,663,417 - 2,663,417 Due from related parties - - - - - - - - - - Due from subsidiaries 1,569,000 - 1,569,000 (1,569,000 ) - - - - - - Due from parent - 21,510 21,510 (21,510 ) - - - - - - - - - - - Total current assets 6,571,364 21,117,336 27,688,700 (5,590,510 ) 22,098,190 10,618,693 17,618,035 28,236,728 (1,000 ) 28,235,728 - 13,494,057 13,494,057 - 13,494,057 PPE, net - 1,924,975 1,924,975 - 1,924,975 - 1,662,155 1,662,155 - 1,662,155 - 1,079,983 1,079,983 - 1,079,983 Intangibles, net - 31,853 31,853 - 31,853 - 8,814 8,814 - 8,814 - 11,093 11,093 - 11,093 ROU, net - 7,338,505 7,338,505 - 7,338,505 - 7,665,013 7,665,013 - 7,665,013 - 8,849,073 8,849,073 - 8,849,073 Deferred tax assets - 32,534 32,534 - 32,534 - 33,490 33,490 - 33,490 - 36,247 36,247 - 36,247 Deffered expenses - - - - - - - - - - Other non-current assets - 3,859,209 3,859,209 - 3,859,209 Investment in subsidiaries 4,090,573 - 4,090,573 (4,090,573 ) - 29,472 - 29,472 (29,472 ) - 1,061,410 - 1,061,410 (1,061,410 ) - Total assets 10,661,938 34,304,412 44,966,350 (9,681,083 ) 35,285,266 10,648,165 26,987,507 37,635,672 (30,472 ) 37,605,200 1,061,410 23,470,453 24,531,863 (1,061,410 ) 23,470,453 Liabilities Current liabilities A/P - 5,689,101 5,689,101 - 5,689,101 - 4,729,174 4,729,174 - 4,729,174 - 4,151,749 4,151,749 - 4,151,749 Accrued exp and other current liabilities - 7,876,981 7,876,981 (4,000,000 ) 3,876,981 1,000 1,501,620 1,502,620 (1,000 ) 1,501,620 - 1,168,464 1,168,464 - 1,168,464 Notes payable - - - - - - - - - - S/T borrowings - 70,424 70,424 - 70,424 - 6,227,165 6,227,165 - 6,227,165 - 5,756,146 5,756,146 - 5,756,146 Tax payables - 1,066,569 1,066,569 - 1,066,569 - 844,925 844,925 - 844,925 - 633,919 633,919 - 633,919 Due to related parties 161,101 2,122,028 2,283,129 - 2,283,129 391,151 391,151 391,151 158,198 158,198 - 158,198 Due to subsidiaries 21,510 - 21,510 (21,510 ) - - - - - - - - - - - Due to parent - 1,569,000 1,569,000 (1,569,000 ) - - - - L/T payable - current - 225,383 225,383 - 225,383 4,349,591 4,349,591 4,349,591 Total current liabilities 182,611 18,619,486 18,802,097 (5,590,510 ) 13,211,587 1,000 18,043,626 18,044,626 (1,000 ) 18,043,626 - 11,868,476 11,868,476 - 11,868,476 Lease liability - - - - - - - - - - - - - - - L/T payable - 1,871,591 1,871,591 - 1,871,591 - 217,523 217,523 - 217,523 - 4,707,655 4,707,655 - 4,707,655 Total liabilities 182,611 20,491,077 20,673,688 (5,590,510 ) 15,083,178 1,000 18,261,149 18,262,149 (1,000 ) 18,261,149 - 16,576,131 16,576,131 - 16,576,131 Shareholders’ equity Ordinary shares, $0.0001 par, 500,000,000 shares authorized, 11,000,000 Class A and 1,000,000 Class B ordinary shares issued and o/s 1,200 4,090,573 4,091,773 (4,090,573 ) 1,200 1,200 29,472 30,672 (29,472 ) 1,200 900 1,061,410 1,062,310 (1,061,410 ) 900 Additional paid in capital 10,645,122 - 10,645,122 - 10,645,122 10,645,122 - 10,645,122 - 10,645,122 1,060,510 0 1,060,510 - 1,060,510 Statutory surplus reserve - 1,113,170 1,113,170 - 1,113,170 - 916,912 916,912 916,912 - 568,418 568,418 - 568,418 R/E (166,989 ) 9,354,204 9,187,215 - 9,187,215 850 8,163,909 8,164,759 8,164,759 - 5,037,292 5,037,292 - 5,037,292 ) AOCI(loss) (7 ) (744,612 ) (744,619 ) - (744,619 ) (7 ) (383,935 ) (383,942 ) (383,942 ) - 227,202 227,202 - 227,202 ) Total shareholders’ equity 10,479,327 13,813,334 24,292,661 (4,090,573 ) 20,202,087 10,647,165 8,726,358 19,373,523 (29,472 ) 19,344,051 1,061,410 6,894,322 7,955,732 (1,061,410 ) 6,894,322 Total liabilities and shareholders’ equity 10,661,938 34,304,411 44,966,349 (9,681,083 ) 35,285,266 10,648,165 26,987,507 37,635,672 (30,472 ) 37,605,200 1,061,410 23,470,453 24,531,863 (1,061,410 ) 23,470,453 1 For the year ended December 31, 2023 For the year ended December 31, 2022 For the year ended December 31, 2021 Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Parent Subsidiaries Subtotal Elimination Consolidated Cash flows from operating activities Net income (167,839 ) 1,386,552 1,218,714 - 1,218,714 850 3,475,111 3,475,961 - 3,475,961 - 3,394,649 3,394,649 - 3,394,649 Adj for items not affecting cash Depreciation and amortization - 388,002 388,002 - 388,002 - 269,817 269,817 - 269,817 - 215,121 215,121 - 215,121 Deferred tax assets - - - - - - - - - - ) Bad debt expense - 36,972 36,972 - 36,972 - - - - - - 2,649 2,649 - 2,649 Inventory impairment provision - 81,621 81,621 - 81,621 ) - (31,668 ) (31,668 ) - (31,668 ) Deferred expenses - - - - - - - - - - ) Imputed interest expenses - 17,755 17,755 - 17,755 - 27,121 27,121 - 27,121 - 70,195 70,195 - 70,195 Right of use lease asset - 514,691 514,691 - 514,691 - 523,774 523,774 - 523,774 - 546,362 546,362 - 546,362 Changes in peration assets and liabilities: Accounts receivable - 3,395,976 3,395,976 - 3,395,976 ) - (8,549,354 ) (8,549,354 ) - (8,549,354 - 3,380,552 3,380,552 - 3,380,552 ) Inventories - (1,091,117 ) (1,091,117 ) - (1,091,117 ) - (2,656,056 ) (2,656,056 ) - (2,656,056 ) - (2,200,180 ) (2,200,180 ) - (2,200,180 ) Advances to suppliers - (1,250,467 ) (1,250,467 ) - (1,250,467 ) - 1,227,244 1,227,244 - 1,227,244 ) - (1,109,383 ) (1,109,383 ) - (1,109,383 ) Prepaid expenses and Other receivables - (126,386 ) (126,386 ) - (126,386 ) - 428,846 428,846 (1,000 ) 427,846 - (361,983 ) (361,983 ) - (361,983 ) Loan receivable - 163,821 163,821 - 163,821 ) (172,388 ) (172,388 ) - (172,388 ) Accounts payable - 1,085,320 1,085,320 - 1,085,320 - 661,080 661,080 - 661,080 - 803,612 803,612 - 803,612 ) Accrued expenses and other current liabilities - 6,382,631 6,382,631 (4,021,510 ) 2,361,121 (1,000 ) 164,303 163,303 1,000 164,303 - 356,061 356,061 - 356,061 Advances from customers - (334,225 ) (334,225 ) - (334,225 ) - 215,483 215,483 - 215,483 - (276,454 ) (276,454 ) - (276,454 ) Tax payable - 246,425 246,425 - 246,425 - 265,702 265,702 - 265,702 - (195,033 ) (195,033 ) - (195,033 ) Net cash provided by (used in) operating (167,839 ) 10,897,572 10,729,733 (4,000,000 ) 6,729,733 ) (150 ) (4,150,985 ) (4,151,135 ) - (4,151,135 ) - 4,642,893 4,642,893 - 4,642,893 Cash flows from investing activities Purchases of property, plant and equipment - (684,210 ) (684,210 ) - (684,210 ) - (694,813 ) (694,813 ) - (694,813 ) - (244,018 ) (244,018 ) - (244,018 ) Purchases of intangible assets - (25,689 ) (25,689 ) - (25,689 ) - - - - - - (155 ) (155 ) - (155 ) Fixed deposit - (3,869,565 ) (3,869,565 ) - (3,869,565 ) Long-term investment (3,900,000 ) (8,010,035 ) (11,910,035 ) 11,910,035 - Advance payment of potential LT warehouse lease (1,000,000 ) - (1,000,000 ) - (1,000,000 ) Advance payment of potential oversea land purchase 201,354 - 201,354 4,000,000 4,201,354 ) (4,201,354 ) - (4,201,354 ) - (4,201,354 ) Net cash provided by (used in) investing (4,698,646 ) (12,589,499 ) (17,288,145 ) 15,910,035 (1,378,110 ) (4,201,354 ) (694,813 ) (4,896,167 ) - (4,896,167 ) - (244,173 ) (244,173 ) - (244,173 ) Cash flows from financing activities Proceeds from short-term borrowings - 4,653,363 4,653,363 - 4,653,363 - 8,381,681 8,381,681 - 8,381,681 - 4,284,208 4,284,208 - 4,284,208 Repayments on short-term borrowings - (10,231,750 ) (10,231,750 ) - (10,231,750 ) - (7,450,134 ) (7,450,134 ) - (7,450,134 ) - (4,182,881 ) (4,182,881 ) - (4,182,881 ) Proceeds from related parties - 16,968,314 16,968,314 - 16,968,314 - 24,015,431 24,015,431 - 24,015,431 - 15,311,425 15,311,425 - 15,311,425 Repayments to related parties - (15,064,679 ) (15,064,679 ) - (15,064,679 ) - (23,930,302 ) (23,930,302 ) (23,930,302 ) - (16,172,950 ) (16,172,950 ) - (16,172,950 ) Proceeds from parent - 1,570,000 1,570,000 (1,547,490 ) 22,510 Payments to parent - (21,510 ) (21,510 ) 21,510 - Proceeds from subsidiaries 21,510 - 21,510 (21,510 ) - Payments to subsidiaries (1,570,000 ) - (1,570,000 ) 1,547,490 (22,510 ) Proceeds(repayment) of notes payable - - - - - - - (7,285,918 ) (7,285,918 ) - (7,285,918 ) Proceeds from long-term loans - 6,312,856 6,312,856 - 6,312,856 - 1,235,004 1,235,004 - 1,235,004 Repayments on long-term loans - (9,075,497 ) (9,075,497 ) - (9,075,497 ) - (1,012,044 ) (1,012,044 ) - (1,012,044 ) Proceeds from share issuance - - - - - 10,080,231 - 10,080,231 - 10,080,231 APIC received - 11,910,035 11,910,035 (11,910,035 ) - - - - - - - - - - - Net cash provided by (used in) financing (1,548,490 ) 7,021,132 5,472,642 (11,910,035 ) (6,437,393 ) 10,080,231 1,239,636 11,319,867 - 11,319,867 - (3,395,530 ) (3,395,530 ) - (3,395,530 ) Effect of foreign exchange - (103,044 ) (103,044 ) - (103,044 ) 538,612 (918,623 ) (380,011 ) - (380,011 ) - 109,448 109,448 - 109,448 Net increase (decrease) in cash (6,414,975 ) 5,329,205 (1,085,770 ) - (1,085,770 ) 6,417,339 (4,524,785 ) 1,892,554 - 1,892,554 - 1,003,190 1,003,190 - 1,003,190 Cash, beginning 6,417,339 649,908 7,067,247 - 7,067,247 - 5,174,693 5,174,693 - 5,174,693 - 4,062,055 4,062,055 - 4,062,055 Cash, end 2,364 5,876,070 5,878,434 - 5,878,434 6,417,339 649,908 7,067,247 - 7,067,247 - 5,174,693 5,174,693 - 5,174,693 Cash paid during the period for: - 410,922 410,922 - 410,922 Interest - 831,755 831,755 - 831,755 - 99,690 99,690 - 99,690 Income taxes - - - - - - 123,608 123,608 - 123,608 - 365,752 365,752 - 365,752 The parent company, Erayak Power Solution Group Inc, does not conduct operations separately from its China-based subsidiaries.
However, there can be no assurances that the US or China will not increase tariffs or impose additional tariffs in the future. 21 In addition to the proposed retaliatory tariffs, the President has also directed the US Secretary of the Treasury to develop new restrictions on Chinese investments in the US to prevent Chinese-controlled companies and funds from acquiring US firms with sensitive technologies.
In addition to the proposed retaliatory tariffs, the President has also directed the US Secretary of the Treasury to develop new restrictions on Chinese investments in the US to prevent Chinese-controlled companies and funds from acquiring US firms with sensitive technologies.
The total rent for the property is RMB 70,489,500, or approximately $10,900,720, which as of December 31, 2020 has been paid upfront, through the lease term ending December 31, 2037.
The total rent for the property is RMB 70,489,500, or approximately $10,900,720, which as of December 31, 2020 has been paid upfront, through the lease term ending December 31, 2037. If Wenzhou Ailefu defaults on the leasing agreement, we may lose a portion, or even a substantial portion, of the rent that has been paid upfront.
In the event we incur additional indebtedness, the risks described above could increase. We have a high debt to asset ratio, which may put us at high risk of default on our loans.
In the event we incur additional indebtedness, the risks described above could increase. We have a high debt to asset ratio, which may put us at high risk of default on our loans. As of December 31, 2023, we had $15,083,178 in total liabilities and $35,285,266 in total assets.
Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022, network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange.
We cannot assure that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all. 3 Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022, network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange.
Any increase in raw materials or energy resources could materially increase our costs and therefore lower our earnings. 23 Additionally, the increase in price in commodities will also pose a negative effect on our products. After the pandemic, inflation has affected the pricing scale in many commodities, such as products made of copper, aluminum, ferroalloy, and other rare metals.
Additionally, the increase in price in commodities will also pose a negative effect on our products. After the pandemic, inflation has affected the pricing scale in many commodities, such as products made of copper, aluminum, ferroalloy, and other rare metals. Since our manufacture relies heavily on these materials, this could materially impact our procurement process.
In the event that such allegations are not proven to be groundless, we and our business operations will be severely affected and you could sustain a significant decline in the value of our share. 16 The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
The recent joint statement by the SEC and PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
In the event that adequate additional financing is not available on reasonable terms, we may not be able to undertake our expansion plan or purchase additional equipment for our operations, and we would have to modify our business plans accordingly. 25 A rapid expansion could significantly strain our resources, management, and operational infrastructure, impairing our ability to meet increased demand for our products and hurt our business results.
In the event that adequate additional financing is not available on reasonable terms, we may not be able to undertake our expansion plan or purchase additional equipment for our operations, and we would have to modify our business plans accordingly.
Our top two customers accounted for 25.49% of revenues for the fiscal year ended December 31, 2022, and the amount due from these customers included in accounts receivable was $2,814,639, representing 28.25% of total accounts receivable.
Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 25.19%, 20.59%, 11.73% and 10.28%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2023.Our top two customers accounted for 25.49% of revenues for the fiscal year ended December 31, 2022, and the amount due from these customers included in accounts receivable was $2,814,639, representing 28.25% of total accounts receivable.
Additionally, in the event that our products fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could materially adversely affect our business, results of operations and financial condition. 32 Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and claims for consequential damages against our customers from their customers), we may face claims for damages that are disproportionate to the revenue and profits we receive from the products involved.
Additionally, in the event that our products fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could materially adversely affect our business, results of operations and financial condition.
Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative departments for determination.
Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the materials shall be reported to the relevant secrecy administrative departments for determination. However, there remain uncertainties regarding the further interpretation and implementation of the Provisions on Confidentiality and Archives Administration.
Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of any one of our PRC subsidiaries to use its Renminbi revenues to pay dividends to us.
As a result, any restriction on currency exchange may limit the ability of any one of our PRC subsidiaries to use its Renminbi revenues to pay dividends to us.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. 56 According to the Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by the SAT, effective as of April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of its income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases.
There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. 57 According to the Circular on Several Issues regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by the SAT, effective as of April 1, 2018, when determining the applicant’s status of the “beneficial owner” regarding tax treatments in connection with dividends, interests or royalties in the tax treaties, several factors, including without limitation, whether the applicant is obligated to pay more than 50% of its income in twelve months to residents in third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to the actual circumstances of the specific cases.
The Notice on Comprehensively Promoting the Pilot Plan of the Conversion of Business Tax to Value-Added Tax, which was promulgated on March 23, 2016, became effective on May 1, 2016 and amended on July 11, 2017, sets out that VAT in lieu of business tax be collected in all regions and industries. 68 On March 20, 2019, MOF, SAT and GAC jointly promulgated the Announcement on Relevant Policies for Deepening Value-Added Tax Reform, which became effective on April 1, 2019 and provides that (i) with respect to VAT taxable sales acts or import of goods originally subject to VAT rates of 16% and 10% respectively, such tax rates shall be adjusted to 13% and 9%, respectively; (ii) with respect to purchase of agricultural products originally subject to tax rate of 10%, such tax rate shall be adjusted to 9%; (iii) with respect to purchase of agricultural products for the purpose of production or consigned processing of goods subject to tax rate of 13%, such tax shall be calculated at the tax rate of 10%; (iv) with respect to export of goods and services originally subject to tax rate of 16% and export tax refund rate of 16%, the export tax refund rate shall be adjusted to 13%; and (v) with respect to export of goods and cross-border taxable acts originally subject to tax rate of 10% and export tax refund rate of 10%, the export tax refund rate shall be adjusted to 9%.
The Notice on Comprehensively Promoting the Pilot Plan of the Conversion of Business Tax to Value-Added Tax, which was promulgated on March 23, 2016, became effective on May 1, 2016 and amended on July 11, 2017, sets out that VAT in lieu of business tax be collected in all regions and industries. 69 On March 20, 2019, MOF, SAT and GAC jointly promulgated the Announcement on Relevant Policies for Deepening Value-Added Tax Reform, which became effective on April 1, 2019 and provides that (i) with respect to VAT taxable sales acts or import of goods originally subject to VAT rates of 16% and 10% respectively, such tax rates shall be adjusted to 13% and 9%, respectively; (ii) with respect to purchase of agricultural products originally subject to tax rate of 10%, such tax rate shall be adjusted to 9%; (iii) with respect to purchase of agricultural products for the purpose of production or consigned processing of goods subject to tax rate of 13%, such tax shall be calculated at the tax rate of 10%; (iv) with respect to export of goods and services originally subject to tax rate of 16% and export tax refund rate of 16%, the export tax refund rate shall be adjusted to 13%; and (v) with respect to export of goods and cross-border taxable acts originally subject to tax rate of 10% and export tax refund rate of 10%, the export tax refund rate shall be adjusted to 9%.
Business overview Erayak Power Solution Group Inc. was formed in 2019 under the laws of the Cayman Islands. We conduct business primarily through our wholly-owned subsidiaries, Zhejiang Leiya and Wenzhou New Focus, in the People’s Republic of China, or the PRC. Our company specializes in the manufacturing, research and development (“R&D”), and wholesale and retail of power solution products.
Business overview Erayak Power Solution Group Inc. was formed in 2019 under the laws of the Cayman Islands. We conduct business primarily through our wholly-owned subsidiaries, Ruike, Zhejiang Leiya and Wenzhou New Focus, in the People’s Republic of China, or the PRC. Our company specializes in the manufacturing, research and development (“R&D”), and wholesale and retail of power solution products.
The Company sold a substantial portion of products to two customers (14.67% and 10.82% of total revenues) during fiscal year 2022. As of December 31, 2022, amount due from these customers included in accounts receivable were $2,178,000 and $636,639, representing 21.86% and 6.39%, respectively, of total accounts receivable.
The Company sold a substantial portion of products to two customers (14.67% and 10.82% of total revenues) during fiscal year ended December 31, 2022. As of December 31, 2022, amount due from these customers included in accounts receivable were $2,178,000 and $636,639, representing 21.86% and 6.39%, respectively, of total accounts receivable.
Accordingly, Erayak HK, our Hong Kong subsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from Zhejiang Leiya and Wenzhou New Focus, our PRC subsidiaries, respectively, if they satisfy the conditions prescribed under Circular 81 and other relevant tax rules and regulations.
Accordingly, Erayak HK, our Hong Kong subsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from Ruike, Zhejiang Leiya and Wenzhou New Focus, our PRC subsidiaries, respectively, if they satisfy the conditions prescribed under Circular 81 and other relevant tax rules and regulations.
In addition, the Foreign Investment Law and the Implementing Rules also specify other protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited, etc. 62 Regulations Relating to Land Use Right and Construction Pursuant to the PRC Land Administration Law promulgated in June 1986 with the latest amendment in August 2019 and the PRC Civil Code, any entity that needs land for the purposes of construction must obtain land use right and must register with local counterparts of Land and Resources Ministry.
In addition, the Foreign Investment Law and the Implementing Rules also specify other protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited, etc. 63 Regulations Relating to Land Use Right and Construction Pursuant to the PRC Land Administration Law promulgated in June 1986 with the latest amendment in August 2019 and the PRC Civil Code, any entity that needs land for the purposes of construction must obtain land use right and must register with local counterparts of Land and Resources Ministry.
Regulations Relating to Offshore Special Purpose Companies Held by PRC Residents SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents on May 10, 2013, which became effective on May 13, 2013 and which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. 65 SAFE promulgated Notice on Issues Relating to Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014, that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
Regulations Relating to Offshore Special Purpose Companies Held by PRC Residents SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents on May 10, 2013, which became effective on May 13, 2013 and which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. 66 SAFE promulgated Notice on Issues Relating to Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014, that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued by the General Office of the State Council on February 3, 2011, and which became effective 30 days thereafter, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the MOFCOM on August 25, 2011, and which became effective on September 1, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the regulations prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. 69 4.C.
In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued by the General Office of the State Council on February 3, 2011, and which became effective 30 days thereafter, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the MOFCOM on August 25, 2011, and which became effective on September 1, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the regulations prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. 70 4.C.
We are aware that our PRC resident beneficial owners subject to these registration requirements have registered with the Beijing SAFE branch and/or qualified banks to reflect the recent changes to our corporate structure. 58 Regulations Relating to Dividend Distributions According to the PRC Company Law and Foreign Investment Law, each of our PRC subsidiaries, as a foreign invested enterprise, or FIE, are required to draw 10% of its after-tax profits each year, if any, to fund a common reserve, which may stop drawing its after-tax profits if the aggregate balance of the common reserve has already accounted for over 50% of its registered capital.
We are aware that our PRC resident beneficial owners subject to these registration requirements have registered with the Beijing SAFE branch and/or qualified banks to reflect the recent changes to our corporate structure. 59 Regulations Relating to Dividend Distributions According to the PRC Company Law and Foreign Investment Law, each of our PRC subsidiaries, as a foreign invested enterprise, or FIE, are required to draw 10% of its after-tax profits each year, if any, to fund a common reserve, which may stop drawing its after-tax profits if the aggregate balance of the common reserve has already accounted for over 50% of its registered capital.
Under our current corporate structure, Erayak may rely on dividend payments from Zhejiang Leiya and Wenzhou New Focus, which is a wholly foreign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have.
Under our current corporate structure, Erayak may rely on dividend payments from Ruike, Zhejiang Leiya and Wenzhou New Focus, which is a wholly foreign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have.
However, according to CSRC Answers, only new initial public offerings and refinancing by existing overseas listed Chinese companies will be required to go through the filing process; other existing overseas listed companies will be allowed a sufficient transition period to complete their filing procedure, which means the Company will certainly go through the filing process in the future, perhaps because of refinancing, or after being given a sufficient transition period to complete the filing procedure as an existing overseas listed Chinese company. 59 In August 2006, six PRC regulatory authorities, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, amended in June 2009.
However, according to CSRC Answers, only new initial public offerings and refinancing by existing overseas listed Chinese companies will be required to go through the filing process; other existing overseas listed companies will be allowed a sufficient transition period to complete their filing procedure, which means the Company will certainly go through the filing process in the future, perhaps because of refinancing, or after being given a sufficient transition period to complete the filing procedure as an existing overseas listed Chinese company. 60 In August 2006, six PRC regulatory authorities, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, amended in June 2009.
In order to further implement the Regulations on Computer Software Protection, promulgated by the State Council on December 20, 2001 and amended on January 8, 2011 and January 30, 2013, respectively, the National Copyright Administration issued the Measures for the Registration of Computer Software Copyright on February 20, 2002, which specify detailed procedures and requirements with respect to the registration of software copyrights. 64 Trademark According to the Trademark Law of the People’s Republic of China promulgated by the SCNPC on August 23, 1982, and amended on February 22, 1993, October 27, 2001, August 30, 2013 and April 23, 2019, respectively, the Trademark Office of the SAIC is responsible for the registration and administration of trademarks in China.
In order to further implement the Regulations on Computer Software Protection, promulgated by the State Council on December 20, 2001 and amended on January 8, 2011 and January 30, 2013, respectively, the National Copyright Administration issued the Measures for the Registration of Computer Software Copyright on February 20, 2002, which specify detailed procedures and requirements with respect to the registration of software copyrights. 65 Trademark According to the Trademark Law of the People’s Republic of China promulgated by the SCNPC on August 23, 1982, and amended on February 22, 1993, October 27, 2001, August 30, 2013 and April 23, 2019, respectively, the Trademark Office of the SAIC is responsible for the registration and administration of trademarks in China.
Moreover, according to Negative List 2021, PRC entities which engage in any field forbidden by the Negative List 2021 for access of foreign investment shall be approved by competent PRC authorities when they seek listing offshore, and foreign investors shall not participate in operation and management and their shareholding ration shall be in compliance with PRC laws. 61 According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the State Administration for Market Regulation (“SAMR”) or its authorized local counterparts.
Moreover, according to Negative List 2021, PRC entities which engage in any field forbidden by the Negative List 2021 for access of foreign investment shall be approved by competent PRC authorities when they seek listing offshore, and foreign investors shall not participate in operation and management and their shareholding ration shall be in compliance with PRC laws. 62 According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the State Administration for Market Regulation (“SAMR”) or its authorized local counterparts.
The penalty imposed on the withholding agents may be reduced or waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with the SAT Circular 7. 67 Withholding Tax on Dividend Distribution The EIT Law prescribes a standard withholding tax rate of 20% on dividends and other China-sourced income of non-PRC resident enterprises which have no establishment or place of business in the PRC, or if established, the relevant dividends or other China-sourced income are in fact not associated with such establishment or place of business in the PRC.
The penalty imposed on the withholding agents may be reduced or waived if the withholding agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with the SAT Circular 7. 68 Withholding Tax on Dividend Distribution The EIT Law prescribes a standard withholding tax rate of 20% on dividends and other China-sourced income of non-PRC resident enterprises which have no establishment or place of business in the PRC, or if established, the relevant dividends or other China-sourced income are in fact not associated with such establishment or place of business in the PRC.
We seek to leverage our flexibility and passion for quality to provide a personalized mobile living solution for each customer. 44 Since the founding of Zhejiang Leiya in 2009, it has grown to be a manufacturer that not only designs, develops and mass produces our own brand of premium power solution products, but has also established e-commerce channels in the retail chain.
We seek to leverage our flexibility and passion for quality to provide a personalized mobile living solution for each customer. 45 Since the founding of Zhejiang Leiya in 2009, it has grown to be a manufacturer that not only designs, develops and mass produces our own brand of premium power solution products, but has also established e-commerce channels in the retail chain.
See “ Risk Factors — Risks Related to Doing Business in China — Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. ” 60 Regulations Related to Foreign Investment The establishment, operation, and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both PRC domestic companies and foreign-invested companies.
See “ Risk Factors — Risks Related to Doing Business in China — Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties. ” 61 Regulations Related to Foreign Investment The establishment, operation, and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both PRC domestic companies and foreign-invested companies.
Our Suppliers For the fiscal years ended December 31, 2022, 2021 and 2020, there was no significant concentration in suppliers for the Company’s raw material purchase. The Company has numerous suppliers that could be substituted should any of the current suppliers become unavailable or non-competitive. Our Competitive Advantages We are committed to offering our customers product diversity, quality and reliability.
Our Suppliers For the fiscal years ended December 31, 2023, 2022 and 2021, there was no significant concentration in suppliers for the Company’s raw material purchase. The Company has numerous suppliers that could be substituted should any of the current suppliers become unavailable or non-competitive. Our Competitive Advantages We are committed to offering our customers product diversity, quality and reliability.
No assurance can be given that third parties infringing our patents will not dispute the expiration dates of our patents or that we will be successful in defending against such disputes. 54 Trademark The following table sets forth a brief description of the Company’s trademarks, including their respective publication numbers, application filing date, issue date, expiration date and title.
No assurance can be given that third parties infringing our patents will not dispute the expiration dates of our patents or that we will be successful in defending against such disputes. 55 Trademark The following table sets forth a brief description of the Company’s trademarks, including their respective publication numbers, application filing date, issue date, expiration date and title.
Our efforts strive to achieve a powerful and long-lasting product. As for our inverters, to our knowledge, there are not many competitors on Amazon capable of producing inverters that power over 1000 Watts because of production- and technology-related difficulties. 51 ● Experienced Management Team. Our management team has the experience in manufacturing and e-commerce industries.
Our efforts strive to achieve a powerful and long-lasting product. As for our inverters, to our knowledge, there are not many competitors on Amazon capable of producing inverters that power over 1000 Watts because of production- and technology-related difficulties. 52 ● Experienced Management Team. Our management team has the experience in manufacturing and e-commerce industries.
Through cooperation with Amazon, the Company’s new products are expected to receive greater exposure and effectively improve its European presence. 53 Intellectual Property Patent We currently have 21 Chinese patents issued and are to expire at various times from May 2025 through April 2033. We have exclusive rights to utilize the processes issued patent rights within the valid term.
Through cooperation with Amazon, the Company’s new products are expected to receive greater exposure and effectively improve its European presence. 54 Intellectual Property Patent We currently have 21 Chinese patents issued and are to expire at various times from May 2025 through April 2033. We have exclusive rights to utilize the processes issued patent rights within the valid term.
Erayak is permitted under the Cayman Islands laws to provide funding to our subsidiaries in the PRC and Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Below is a chart illustrating our current corporate structure: 70 4.D.
Erayak is permitted under the Cayman Islands laws to provide funding to our subsidiaries in the PRC and Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Below is a chart illustrating our current corporate structure: 71 4.D.
The maximum power of Erayak high-pressure cleaner can reach more than 4000W, and the water column with a pressure of up to 220bar can easily wash any carrier, glass, house, and farm. 49 Research and Development We have 18 employees working in the R&D department as of the date of this Annual Report.
The maximum power of Erayak high-pressure cleaner can reach more than 4000W, and the water column with a pressure of up to 220bar can easily wash any carrier, glass, house, and farm. 50 Research and Development We have 18 employees working in the R&D department as of the date of this Annual Report.
Failure to comply with the above-mentioned regulations may subject an enterprise to fines, suspension of the construction and other administrative liabilities, and even criminal liabilities under severe circumstances. 63 Regulations Relating to Fire Prevention The Fire Prevention Law of the PRC, or the Fire Prevention Law, was adopted on April 29, 1998, and amended on October 28, 2008, April 23, 2019, and April 29, 2021.
Failure to comply with the above-mentioned regulations may subject an enterprise to fines, suspension of the construction and other administrative liabilities, and even criminal liabilities under severe circumstances. 64 Regulations Relating to Fire Prevention The Fire Prevention Law of the PRC, or the Fire Prevention Law, was adopted on April 29, 1998, and amended on October 28, 2008, April 23, 2019, and April 29, 2021.
Non-PRC resident enterprises without any branches in the PRC pay an enterprise income tax in connection with their income originating from the PRC at the tax rate of 10%. 66 On February 3, 2015, the PRC State Administration of Taxation, or the SAT, issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Transfer of Assets by Non-Resident Enterprises, or the SAT Circular 7.
Non-PRC resident enterprises without any branches in the PRC pay an enterprise income tax in connection with their income originating from the PRC at the tax rate of 10%. 67 On February 3, 2015, the PRC State Administration of Taxation, or the SAT, issued the Announcement on Several Issues Concerning the Enterprise Income Tax on Indirect Transfer of Assets by Non-Resident Enterprises, or the SAT Circular 7.
The Pioneer Series will bring cultural experience and diverse values to the automobile industry. 46 (2) Erayak Car Inverter (Flat Panel Series) In addition to car inverters, Erayak high-power modified sine wave inverters have been updated and evolving for many years, entitling them with technical and cost-effective advantages.
The Pioneer Series will bring cultural experience and diverse values to the automobile industry. 47 (2) Erayak Car Inverter (Flat Panel Series) In addition to car inverters, Erayak high-power modified sine wave inverters have been updated and evolving for many years, entitling them with technical and cost-effective advantages.
We also manufacture gasoline generators, such as Alternating Current (“AC”) generators and Direct Current (“DC”) generators, and battery chargers. Finally, we produce various inverter generators, including AC inverter generators and DC inverter generators. 45 Our major products include the following types: Off-grid Inverters The off-grid inverter is an electronic device that converts DC power into AC power.
We also manufacture gasoline generators, such as Alternating Current (“AC”) generators and Direct Current (“DC”) generators, and battery chargers. Finally, we produce various inverter generators, including AC inverter generators and DC inverter generators. 46 Our major products include the following types: Off-grid Inverters The off-grid inverter is an electronic device that converts DC power into AC power.
After the power is connected, it will be automatically selected as the main power source while the RV battery will be recharged with electricity. 47 Our inverter’s frequency conversion technology it is not only highly efficient, it will also automatically adjust the output power while saving fuel, being environment friendly and noise-free.
After the power is connected, it will be automatically selected as the main power source while the RV battery will be recharged with electricity. 48 Our inverter’s frequency conversion technology it is not only highly efficient, it will also automatically adjust the output power while saving fuel, being environment friendly and noise-free.
These products have entered the market in 2021. 52 Provide Superior Quality Products and Customer Service Our products play a critical role in various construction, infrastructure, equipment, and safety applications. Our emphasis on manufacturing processes, quality control testing and product development helps us deliver a high-quality product to our customers.
These products have entered the market in 2021. 53 Provide Superior Quality Products and Customer Service Our products play a critical role in various construction, infrastructure, equipment, and safety applications. Our emphasis on manufacturing processes, quality control testing and product development helps us deliver a high-quality product to our customers.
Finally, when the products have been manufactured and introduced to the market, after-sales operations commence, which involve the implantation of daily promotion plans, solving and summarizing after-sales problems, inventory statistics and analysis, and formulation of replenishment plans. 50 Sales and Marketing Our Customer and Sales Our customers include large technology companies.
Finally, when the products have been manufactured and introduced to the market, after-sales operations commence, which involve the implantation of daily promotion plans, solving and summarizing after-sales problems, inventory statistics and analysis, and formulation of replenishment plans. 51 Sales and Marketing Our Customer and Sales Our customers include large technology companies.
Specifically, the mobile power supply equipped with Erayak pure sine wave inverter modules can maximize the battery and, at the same time, have better battery preservation functions. With the development of battery materials, we expect to continue introducing power supplies with stronger output and endurance capabilities.
We currently have both. Specifically, the mobile power supply equipped with Erayak pure sine wave inverter modules can maximize the battery and, at the same time, have better battery preservation functions. With the development of battery materials, we expect to continue introducing power supplies with stronger output and endurance capabilities.
Under the supervision of SAFE, the qualified banks may directly review the applications and conduct the registration. 57 On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide.
Under the supervision of SAFE, the qualified banks may directly review the applications and conduct the registration. 58 On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide.
They can provide emergency power at critical moments so that people can be at ease in finding the next charging station. 48 (2) Dual Fuel Series Our Dual Fuel Series accommodates multi-fuel supply situations, which result in more powerful output.
They can provide emergency power at critical moments so that people can be at ease in finding the next charging station. 49 (2) Dual Fuel Series Our Dual Fuel Series accommodates multi-fuel supply situations, which result in more powerful output.
Number Copyright Number Issue Country 1 2018SR916474 China 2 2018SR916512 China 3 2018SR916469 China 4 2018SR916478 China 55 Regulation This section sets forth a summary of the principal PRC laws and regulations relevant to our business and operations in China.
Number Copyright Number Issue Country 1 2018SR916474 China 2 2018SR916512 China 3 2018SR916469 China 4 2018SR916478 China 56 Regulation This section sets forth a summary of the principal PRC laws and regulations relevant to our business and operations in China.
Property, plants and equipment Equipment Our production relies on a wide variety of equipment, including equipment for office use and multiple factory equipment facilitating a complete production cycle. At the end of 2022, our equipment’s total current value is around $1,463,029.
Property, plants and equipment Equipment Our production relies on a wide variety of equipment, including equipment for office use and multiple factory equipment facilitating a complete production cycle. At the end of 2023, our equipment’s total current value is around $1,463,029.
Our registered office and our registered agent’s office in Cayman Islands are both at 4th Floor, Harbour Place, 103 South Church Street, PO Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our registered agent in the United States is Cogency Global Inc. We maintain a corporate website at www.erayakgenerator.com.
Our registered agent in Cayman Islands is Harneys Fiduciary (Cayman) Limited. Our registered office and our registered agent’s office in Cayman Islands are both at 4th Floor, Harbour Place, 103 South Church Street, PO Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our registered agent in the United States is Cogency Global Inc. We maintain a corporate website at www.erayakgenerator.com.
Our PRC legal counsel, King & Wood Mallesons, has advised us that, based on its understanding of the current PRC laws and regulations, our corporate structure and arrangements are not subject to the M&A Rules.
Our PRC legal counsel, Gaopeng & Partners, has advised us that, based on its understanding of the current PRC laws and regulations, our corporate structure and arrangements are not subject to the M&A Rules.
Zhejiang Leiya’s product portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers, and custom-designed products. Our products are used principally in agricultural and industrial vehicles, recreational vehicles (“RVs”), electrical appliances, and outdoor living products.
Ruike’s business focuses on manufacturing new energy storage and inverter devices. Zhejiang Leiya’s product portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers, and custom-designed products. Our products are used principally in agricultural and industrial vehicles, recreational vehicles (“RVs”), electrical appliances, and outdoor living products.
Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 18.08%, 15.85%, 11.58% and 10.24%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2022.
Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 18.08%, 15.85%, 11.58% and 10.24%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2022. The Company sold a substantial portion of products to two customers (16% and 11% of total revenues) during fiscal year 2021.
Ailefu provided the leased assets as guarantee for the Company to apply for a bank loan for the lease payment.
Ailefu provided the leased assets as guarantee for the Company to apply for a bank loan for the lease payment. ITEM 4A. UNRESOLVED STAFF COMMENTS None.
We generated revenue mostly from three types of products: (1) inverters constituted approximately 52%, 82% and 86% of our total revenue for the fiscal years ended December 31, 2022, 2021 and 2020, respectively; (2) chargers, which generated approximately 2.16%, 7.52% and 7.39% of our total revenue for the fiscal years ended December 31, 2022, 2021 and 2020, respectively; (3) gasoline generators generated approximately 43.82%, 8.28% and 4.91% of our total revenue for the fiscal years ended December 31, 2022, 2021 and 2020, respectively.
We generated revenue mostly from four types of products: (1) inverters constituted approximately 59%, 52% and 82% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively; (2) chargers, which generated approximately 2.68%, 2.16% and 7.52% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively; (3) gasoline generators generated approximately 32.36%, 43.82% and 8.28% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively; (4) power bank generated approximately 3.96%, 0% and 0% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively.
Wenzhou Wenjie was incorporated on December 11, 2019 in People’s Republic of China (“China” or “PRC”), and is a wholly owned subsidiary of Erayak HK. Zhejiang Leiya was incorporated on March 5, 2009 under the laws of the People’s Republic of China.
Ruike Electronics (Wenzhou) Co., Ltd. was incorporated on December 5, 2023 in People’s Republic of China (“China” or “PRC”), and is a wholly owned subsidiary of Erayak HK. Wenzhou Wenjie was incorporated on December 11, 2019 in the PRC, and is a wholly owned subsidiary of Erayak HK.
The registered principal activities of Zhejiang Leiya are mainly development, production and sales of inverters, chargers and gasoline generators. Wenzhou New Focus was incorporated on November 21, 2012 in China, and is a wholly owned subsidiary of Zhejiang Leiya. The principal activity of Wenzhou New Focus is mainly the sale of Zhejiang Leiya’s products, which involves exports to multiple countries.
Zhejiang Leiya was incorporated on March 5, 2009 under the laws of the People’s Republic of China. The registered principal activities of Zhejiang Leiya are mainly development, production and sales of inverters, chargers and gasoline generators. Wenzhou New Focus was incorporated on November 21, 2012 in China, and is a wholly owned subsidiary of Zhejiang Leiya.
Since the power supply part uses a battery instead of an internal combustion engine, it is quieter and lighter. In the mobile power industry, the core competitiveness of products lies in two parts: inverter technology and storage batteries. We currently have both.
Power Bank (Backup Series) Combining Erayak’s unique frequency conversion technology, Backup Series can output pure sine wave current as the mains. Since the power supply part uses a battery instead of an internal combustion engine, it is quieter and lighter. In the mobile power industry, the core competitiveness of products lies in two parts: inverter technology and storage batteries.
Corporate Information Our principal executive office is located at No. 528, 4th Avenue, Binhai Industrial Park, Wenzhou, Zhejiang Province, People’s Republic of China. The telephone number of our principal executive offices is +86-577-86829999. Our registered agent in Cayman Islands is Harneys Fiduciary (Cayman) Limited.
The principal activity of Wenzhou New Focus is mainly the sale of Zhejiang Leiya’s products, which involves exports to multiple countries. Corporate Information Our principal executive office is located at No. 528, 4th Avenue, Binhai Industrial Park, Wenzhou, Zhejiang Province, People’s Republic of China. The telephone number of our principal executive offices is +86-577-86829999.
The Company sold a substantial portion of products to two customers (27% of total revenues) during the fiscal year ended December 31, 2021. As of December 31, 2021, amount due from these customers included in accounts receivable was $46,633, representing 2.65% of total accounts receivable.
The Company sold a substantial portion of products to one customer (11.99% of total revenues) during the fiscal year ended December 31, 2023, and as of the year-end date, amount due from this customer included in accounts receivable was $28,301, representing 0.45% of total accounts receivable.
As of December 31, 2020, amount due from these customers included in accounts receivable was $3,198,122, representing 63% of total accounts receivable. There was no other significant concentration of accounts receivable for the year ended December 31, 2020.
As of December 31, 2021, amount due from these customers included in accounts receivable was $46,633, representing 2.65% of total accounts receivable. There was another significant concentration of accounts receivable from one customer for the year ended December 31, 2021, which represented 49.60% of total accounts receivable.
According to the maximum current, chargers can be divided into different phases from 1A to 12A. Original charging technology, using a high-grade eight-stage charging cycle, can repair lower-voltage batteries. Power Bank (Backup Series) Combining Erayak’s unique frequency conversion technology, Backup Series can output pure sine wave current as the mains.
According to the maximum current, chargers can be divided into different phases from 1A to 12A. Original charging technology, using a high-grade eight-stage charging cycle, can repair lower-voltage batteries. DBS Portable Power Station Erayak’s DBS portable power station series can recharge itself and charge up to six devices at the same time for outdoor needs.
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There was no other significant concentration of accounts receivable for the fiscal year ended December 31, 2021. The Company sold a substantial portion of products to three customers (16%, 15% and 10% of total revenues) during fiscal year 2020.
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They are light-weighted and has large battery capacity and long battery life. Their Pure Sine Wave AC outlets deliver stable and safe power. They recharge quickly with AC adaptor at home or through the car outlet. They are also compatible with Erayak solar panel. They are ideal portable power kits for tent camping, overland journey and etc.
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Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 25.19%, 20.59%, 11.73% and 10.28%, respectively, of the total accounts receivable for the fiscal year ended December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 71 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 85 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 93 ITEM 8. FINANCIAL INFORMATION 95 ITEM 9. THE OFFER AND LISTING 96 ITEM 10. ADDITIONAL INFORMATION 97 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 119 ITEM 12.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 119 PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 120 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 120 ITEM 15. CONTROLS AND PROCEDURES 120 ITEM 16 [Reserved] 121 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 121 ITEM 16B. CODE OF ETHICS 121 ITEM 16C.
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Our actual results could differ materially from those discussed in the forward-looking statements.
Added
Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in “Risk Factors.” All amounts included herein with respect to the fiscal years ended December 31, 2023, 2022 and 2021 are derived from our audited consolidated financial statements included elsewhere in this Annual Report.
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These Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or US GAAP. Overview Erayak Power Solution Group Inc. was formed in 2019 under the laws of the Cayman Islands. We conduct business primarily through our wholly-owned subsidiary, Zhejiang Leiya Electronics Co. Ltd., in the People’s Republic of China (“PRC”).
Added
Our company specializes in the manufacturing, research and development (“R&D”), and wholesale and retail of power solution products. Our product portfolio includes sine wave and off-grid inverters, inverter and gasoline generators, battery and smart chargers, and custom-designed products. Our products are used principally in agricultural and industrial vehicles, recreational vehicles (“RVs”), electrical appliances, and outdoor living products.
Added
Our primary office is located in Zhejiang province, where we serve a large customer base throughout PRC and expand our reach to international clients. Our goal is to be the premier power solutions brand and a solution for mobile life and outdoor living.
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We seek to leverage our flexibility and passion for quality to provide a personalized mobile living solution for each customer. 72 Since the founding of Zhejiang Leiya Electronics Co. Ltd. in 2009, we have grown to be one of the very few manufacturers in the world to design, develop and mass produce premium power solution products in the retail chain.
Added
We also offer our products in Japan, England, Germany, France, Spain, Switzerland, Sweden, the Netherlands, the U.S., Canada, Mexico, Australia, Dubai, and nine other countries. We manufacture all our products in factories operating under quality management systems accredited by the International Organization for Standardization (ISO 9001:2015). Furthermore, our products have been tested for regulatory compliance and safety.
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Some of our compliance marks include: TÜV certification from Technischer Überwachungsverein, an internationally recognized service company; GS Mark for safety under the German Equipment and Product Safety Act; C-tick certification by the Australian Communications Media Authority; FCC Mark from the U.S.
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Federal Communications Commission, PAH certification mark for Polycyclic Aromatic Hydrocarbon concentrations; REACH Certification for substances of very high concern under the European Chemicals Agency; CE Mark certifying compliance with European Union safety, health and environmental protection standards; RoHs Mark for compliance with the Restriction of Hazardous Substances in the European Union; c ETL Certification for compliance with Canadian safety standards; and us ETL Mark for compliance with U.S. safety standards.
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In the last three fiscal years, we generated revenue mostly from four types of products: (1) inverters constituted approximately 59%, 52% and 82% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively; (2) chargers, which generated approximately 2.68%, 2.16% and 7.52% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively; (3) gasoline generators generated approximately 32.36%, 43.82% and 8.28% of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively; and (4) power banks generated approximately 39.58%, nil and nil of our total revenue for the fiscal years ended December 31, 2023, 2022 and 2021, respectively.
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Due to our substantial investment in research and development, we were awarded High-Tech Enterprise status by the Zhejiang provincial government, which qualified us for China’s National High-Tech Enterprise Program, a national-level program.
Added
Specifically, companies in the China’s National High-Tech Enterprise Program are eligible for up to a 10% corporate income tax break and certain deductions related to intangible assets, such as obtaining patents in the R&D process.
Added
Additionally, our research and patents in the power solution space have brought us local recognition; we were awarded certificates by the provincial and city government that identifies us as a Zhejiang Science and Technology Enterprise, and a Wenzhou Science and Technology Innovation Enterprise.
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These certificates entitle us to certain preferential tax treatment and sometimes grants from the government to aid R&D efforts in furtherance of the business. Furthermore, we are a supplier for many international companies, including Einhell Germany AG, Canadian Tire Corporation Limited, ALDI Inc., Steren Electronics International, LLC, etc. Our products are customized and built to order, or BOT.
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Our BOT business model maximizes our flexibility in production scheduling, material procurement, and delivery to meet our customers’ unique demands. We adopted a multi-step, full-service system to ensure quality and client satisfaction. Customers can choose from within our product portfolio and communicate specified requirements to the sales department.
Added
Our technical department will evaluate the request’s feasibility and coordinate with the customer to make adjustments. The production department will create samples that will undergo inspection by the quality inspection department for quality and material warranty. The sales department will submit the prototype, inspection report, quality assurance, and quote to the customer for verification.
Added
After confirmation by the customers, our procurement department will purchase the raw materials, and the production department will fulfill the order. Finally, our inspection department will inspect and issue a report affirming the quality before the production department pack and deliver the final product to the customer.
Added
Key Factors Affecting Our Results Our results are primarily derived from the sale of power generators and inverters to various wholesalers and retailers in China and some other foreign countries. Our business is therefore dependent upon construction activity in these sectors of the economy.
Added
The historical performance and outlook for our business is influenced by numerous factors, including the following: ● Economic Cycles - In addition to fluctuations in steel prices, demand for the products we manufacture is dependent on general economic cycles and infrastructure and non-residential construction end markets. 73 ● General Competition - Several of our products have historically faced significant competition both in China and some foreign markets, and we have successfully competed against our competitors with excellent customer service, high quality products and rapid fulfillment of customer orders.
Added
However, our business could be adversely affected by competitors who reduce prices, improve on-time delivery and take other competitive actions, which may reduce our customers’ purchases of products from us. ● Fluctuations in Foreign Currency Exchange - We sell a significant portion of our products in countries outside of China (approximately 45.85% based on 2023 revenues).
Added
Historically, we have relied on lower wages and favorable exchange rates in China to make our products sold abroad competitive in price. If in any circumstances China’s currency appreciates against the U.S. dollar, our advantage in price competitiveness might be impacted.
Added
To the extent the Chinese RMB start to appreciate, our products could become more expensive and, as a result, less attractive to potential customers in other countries. Results of Operations The following table summarizes the results of our operations for the years ended December 31, 2023, 2022 and 2021, respectively.
Added
For the Year Ended December 31, 2023 2022 2021 Sales $ 20,322,498 $ 26,909,025 $ 18,628,886 Cost of sales (15,299,849 ) (20,290,231 ) (12,909,462 ) Gross profit 5,022,649 6,618,794 5,719,424 Operating expenses: General and administrative (2,017,868 ) (929,500 ) (690,619 ) Selling and marketing (962,479 ) (720,120 ) (506,305 ) Research and development (1,176,943 ) (932,268 ) (986,885 ) Bad debt expense (36,972 ) - ) (2,649 ) Inventory impairment (provision)/reversal (81,622 ) 31,668 (47,358 ) Total operating expenses (4,275,884 ) (2,550,220 ) (2,233,816 ) Operating income 4,068,574 3,485,608 Other income (expenses): Interest expenses, net (402,671 ) (473,088 ) (417,648 ) Rental income, net 195,347 98,716 116,193 Other income, net 872,519 219,530 512,412 Total other income (expenses), net 665,195 (154,842 210,957 Income before income taxes 1,411,960 3,913,732 3,696,565 Income tax provision (193,246 ) (437,771 ) (301,916 ) Net income $ 1,218,714 3,475,961 $ 3,394,649 Year ended December 31, 2023 compared to year ended December 31, 2022 Revenues Revenues decreased by approximately $6.59 million, or 24.48%, to approximately $20.32 million for the year ended December 31, 2023 from approximately $26.91 million for the year ended December 31, 2022.
Added
The decrease in revenues was primarily driven by the drop of demand for our inverters and gasoline generators in Europe due to the excess orders made in prior year. The decrease was mainly from our domestic customers, who sell our products to international end users.
Added
For the year ended December 31, 2023, our sales to domestic customers increased by approximately $7.03 million, which represents 38.97% reduction compared to the previous fiscal year. 74 The following table presents our top 5 international markets by net revenues for the years ended December 31, 2023 and 2022.
Added
December 31, 2023 Top Five Markets: Sales Amount (In USD) As % of Sales China $ 11,005,500 54.15 % Australia 1,558,935 7.67 % Poland 1,318,926 6.49 % U.K. 1,053,668 5.18 % Germany 1,016,250 5.00 % December 31, 2022 Top Five Markets: Sales Amount (In USD) As % of Sales China $ 18,033,220 67.02 % Poland 1,607,394 5.97 % Germany 1,217,732 4.53 % Canada 971,909 3.61 % U.K. 879,733 3.27 % Gross profit Our gross profit decreased by approximately $1.60 million, or 24.12%, to approximately $5.02 million for the year ended December 31, 2023 from approximately $6.62 million for the year ended December 31, 2022.
Added
Gross profit margin was 24.71% for the year ended December 31, 2023, as compared to 24.60% for the year ended December 31, 2022. The decrease of gross profit was consistent with the decrease of revenues for fiscal 2023 as compared to fiscal 2022.
Added
The gross profit margin for the year ended December 31, 2023 was flat with the year ended December 31, 2022. General and administrative (“G&A”) expenses General and administrative expenses increased by approximately $1.09 million, or 117.09% to approximately $2.02 million for the year ended December 31, 2023 as compared to approximately $0.93 million for the year ended December 31, 2022.
Added
The increase in G&A expenses was mainly due to increased expenses in accounting and legal related consulting services, which were previously deducted from the IPO proceeds.
Added
General and administrative expenses as of December 31, 2023 and 2022 consisted of following: 2023 2022 Employee compensation and benefits $ 526,895 $ 312,479 Travel and communication expenses 49,451 34,267 Rent and utilities 83,079 58,466 Consulting fees 1,032,197 310,039 Insurance 13,386 13,165 Depreciation and amortization expenses 116,451 60,698 Sales tax 76,654 80,595 Entertainment 23,748 17,193 Office and miscellaneous 96,007 42,598 Total $ 2,017,868 $ 929,500 75 Selling and marketing expenses Selling and marketing expenses increased by approximately $0.24 million, or 33.66% to approximately $0.96 million for the year ended December 31, 2023 as compared to approximately $0.72 million for the year ended December 31, 2022.
Added
The increase in selling and marketing expenses was mainly due to the increase in entertainment expenses. After China lifted travel restrictions, the Company paid more visits to the existing and potential customers, and also received more business visitors from both domestic and international markets.
Added
Selling and marketing expenses as of December 31, 2023 and 2022 consisted of the following: 2023 2022 Employee compensation and benefits $ 202,992 $ 141,600 Travel and promotion 125,213 36,768 Shipping and handling 191,671 181,556 Insurance 12,233 - Consulting fee 24,725 6,917 Inspection and certification fees 141,729 196,732 Entertainment 182,221 140,292 Office and miscellaneous 81,695 16,255 Total $ 962,479 $ 720,120 Research and development (“R&D”) expenses Research and development expenses increased by approximately $0.24 million, or 26.25% to approximately $1.18 million for the year ended December 31, 2023 as compared to approximately $0.93 million for the year ended December 31, 2022.
Added
The increase of R&D expenses was mainly due to increased R&D activities on new products.
Added
Research and development expenses as of December 31, 2023 and 2022 consisted of the following: 2023 2022 Salaries $ 525,782 $ 427,525 Contract services and supplies 554,892 409,149 Utility 2,680 2,025 Design cost 31,115 46,651 Depreciation 25,614 22,499 Other 36,859 24,419 Total $ 1,176,943 $ 932,268 Interest expenses, net Our interest expense (net) decreased by approximately $0.07 million, to approximately $0.40 million for the year ended December 31, 2023, from approximately $0.47 million for the year ended December 31, 2022.
Added
The decrease of interest expense was mainly due to less bank borrowings in the fiscal 2023 as compared to the fiscal 2022. Provision for income taxes Our provision for income taxes was approximately $0.19 million for the year ended December 31, 2023, a decrease of approximately $0.24 million from approximately $0.44 million for the year ended December 31, 2022.
Added
The decrease of income taxes was in line with the decrease in revenues. Year ended December 31, 2022 compared to year ended December 31, 2021 Revenues Revenues increased by approximately $8.28 million, or 44.45%, to approximately $26.91 million for the year ended December 31, 2022 from approximately $18.63 million for the year ended December 31, 2021.
Added
The increase in revenues was primarily driven by the continuous impact of the energy crisis that has significantly increased demand for our generators, especially in Europe. Our domestic customers also sell our products to international end users.
Added
For the year ended December 31, 2022, our sales to domestic customers increased by approximately $7.39 million, which represents 9.91% growth compared to the previous fiscal year. 76 The following tables present our top 5 international markets by net revenues for the years ended December 31, 2022 and 2021, respectively.
Added
December 31, 2022 Top Five International Markets: Sales Amount (In USD) As % of Sales China $ 18,033,220 67.02 % Poland 1,607,394 5.97 % Germany 1,217,732 4.53 % Canada 971,909 3.61 % U.K. 879,733 3.27 % December 31, 2021 Top Five International Markets: Sales Amount (In USD) As % of Sales China $ 10,638,503 57.11 % France 1,202,988 6.46 % Poland 1,129,165 6.06 % Mexico 1,071,869 5.75 % U.K. 790,326 4.24 % Gross profit Our gross profit increased by approximately $0.90 million, or 15.72%, to approximately $6.62 million for the year ended December 31, 2022 from approximately $5.72 million for the year ended December 31, 2021.
Added
Gross profit margin was 24.60% for the year ended December 31, 2022, as compared to 30.70% for the year ended December 31, 2021. The decrease in gross margin was primarily due to our small profit but quick turnover sales policy on generators, which accounted for about 43.82% of our total sales.
Added
General and administrative (“G&A”) expenses General and administrative expenses increased by approximately $0.24 million, or 34.59% to approximately $0.93 million for the year ended December 31, 2022 as compared to approximately $0.69 million for the year ended December 31, 2021.
Added
The increase in G&A expenses was mainly due to increased expenses in consulting services for lean manufacturing and management improvement in factory operation.
Added
General and administrative expenses as of December 31, 2022 and 2021 consisted of following: 2022 2021 Employee compensation and benefits $ 312,479 323,325 Travel and communication expenses 34,267 33,068 Rent and utilities 58,466 70,178 Consulting fees 310,039 53,169 Insurance 13,165 16,699 Depreciation and amortization expenses 60,698 55,042 Sales tax 80,595 82,052 Entertainment 17,193 5,193 Office and miscellaneous 42,598 51,893 Total $ 929,500 690,619 77 Selling and marketing expenses Selling and marketing expenses increased by approximately $0.21 million, or 42.23% to approximately $0.72 million for the year ended December 31, 2022 as compared to approximately $0.51 million for the year ended December 31, 2021.
Added
The increase in selling and marketing expenses was mainly due to the increase in cost of testing and certification on our exported products.
Added
Selling and marketing expenses as of December 31, 2022 and 2021 consisted of the following: 2022 2021 Employee compensation and benefits $ 141,600 $ 99,797 Travel and promotion 36,768 45,083 Transportation 181,556 78,281 Insurance - 2,813 Consulting fee 6,917 6,203 Inspection and certification fees 196,732 77,352 Entertainment 140,292 166,295 Office and miscellaneous 16,255 30,481 Total $ 720,120 $ 506,305 Research and development (“R&D”) expenses Research and development expenses decreased by approximately $0.06 million, or 5.53% to approximately $0.93 million for the year ended December 31, 2022 as compared to approximately $0.99 million for the year ended December 31, 2021.
Added
The decrease in R&D expenses was mainly due to decreased contract services and supplies, depreciation and other expenses related to R&D activities.
Added
Research and development expenses as of December 31, 2022 and 2021 consisted of the following: 2022 2021 Salaries $ 427,525 $ 347,434 Contract services and supplies 409,149 541,055 Utility 2,025 1,777 Design cost 46,651 - Depreciation 22,499 39,365 Other 24,419 57,254 Total $ 932,268 $ 986,885 Interest expenses, net Our interest expense (net) increased by approximately $0.05 million, to approximately $0.47 million for the year ended December 31, 2022, from approximately $0.42 million for the year ended December 31, 2021.
Added
The increase of interest expense was mainly due to increased short-term borrowings in the fiscal 2022 as compared to the fiscal 2021. Provision for income taxes Our provision for income taxes was approximately $0.44 million for the year ended December 31, 2022, an increase of approximately $0.14 million from approximately $0.30 million for the year ended December 31, 2021.
Added
The increase is in line with the increase in revenues. 78 Cash Flow Summary Year Ended December 31, 2023 Year Ended December 31, 2022 Year Ended December 31, 2021 Net cash provided by (used in) operating activities $ 6,729,734 $ (4,151,135 ) $ 4,689,518 Net cash (used in) investing activities (1,378,110 ) (4,896,167 ) (290,798 ) Net cash (used in) provided by financing activities (6,437,393 ) 11,319,867 (3,395,530 ) Effect of exchange rate changes on cash and cash equivalents (103,044 ) (380,011 ) 109,448 Net (decrease) increase in cash and cash equivalents $ (1,188,813 ) $ 1,892,554 $ 1,112,638 Cash, cash equivalents and restricted cash, beginning of period 7,067,247 5,174,693 4,062,055 Cash, cash equivalents and restricted cash, end of period 5,878,434 7,067,247 5,174,693 Operating Activities: Net cash provided by operating activities for the fiscal year ended December 31, 2023 was approximately $6.7 million, which was primarily attributable to a net profit of approximately $1.22 million, adjusted for non-cash items for approximately $1.04 million and adjustments for changes in working capital approximately $4.47 million.
Added
The adjustments for changes in working capital mainly included: (i) decrease in accounts receivable of approximately $3.4 million – the decrease was in line with the decrease in sales; (ii) increase in inventory of approximately $1.09 million – to avoid supply issues, we stocked up certain raw materials in order to prepare the massive production of our new products; (iii) increase in advances to suppliers of approximately $1.25 million – we prepaid for raw material and equipment purchase for our new production line; (iv) increase in accounts payable of approximately $1.09 million – the increase was in line with the increase of inventory; and (v) the increase in other payables of approximately $2.36 million – the increase was mainly due to a portion of a potential foreign investment received, which was temporarily included in other payables.
Added
Net cash used in operating activities for the fiscal year ended December 31, 2022 was approximately $4.15 million, which was primarily attributable to a net profit approximately $3.48 million, adjusted for non-cash items for approximately $0.79 million and adjustments for changes in working capital approximately $8.42 million.
Added
The adjustments for changes in working capital mainly included: (i) increase in accounts receivable of approximately $8.55 million – our accounts receivable increased due to the increase in sales revenue and the corresponding increased payback cycle on domestic sales during the 2022 fiscal year; (ii) decrease in advance to suppliers of approximately $1.23 million was primarily due to increased cash payments for purchase of raw materials; (iii) decrease in prepaid expenses of approximately $0.47 million primarily due to the deferred IPO expenses were fully amortized during the year; (iv) increase in inventory of approximately $2.66 million due to our increased raw material inventory for the corresponding increased sales in generators; (v) increase in accounts payable of approximately $0.66 million due to increased purchase of raw materials because of the increased sales during the fiscal year of 2022; 79 (vi) increase in advance from customers of approximately $0.22 million primarily due to increased sales during the fiscal year of 2022; Net cash provided by operating activities for the fiscal year ended December 31, 2021 was approximately $4.69 million, which was primarily attributable to a net profit approximately $3.39 million, adjusted for non-cash items for approximately $0.85 million and adjustments for changes in working capital approximately $0.44 million.
Added
The adjustments for changes in working capital mainly included: (i) decrease in accounts receivable of approximately $3.38 million – our accounts receivable decreased due to collection of substantial amount of outstanding accounts receivable of 2020 fiscal year, and increase of cash sales; (ii) increase in advance to suppliers of approximately $1.11 million primarily due to the increased purchase of raw materials to support our growing orders generated from both domestic and international markets; (iii) increase in prepaid expenses of approximately $0.50 million primarily due to increased deferred IPO expenses; (iv) increase in inventory of approximately $2.20 million due to expanded business and increased production to reduce delivery cycle; (v) increase in accounts payable of approximately $0.85 million due to increased purchase of raw materials because of the increased sales during the fiscal year of 2021; (vi) decrease in advance from customers of approximately $0.28 million primarily due to the order delivery which offsets the advance balance; (vii) increase in other payables and accruals of approximately $0.36 million primarily due to the increased accrued payroll and welfare.
Added
Zhejiang Leiya entered into a factory workshop leasing agreement with Wenzhou Ailefu Furniture Tech Limited Company (“Ailefu”), an entity indirectly 100% owned by Lingyi Kong, our Chief Executive Officer and Chairman, effective January 1, 2018. The factory is located at Wenzhou Economic Technological Development Zone, Binghai Fourth Blvd. No. 528.
Added
The lease is for 20 years, effective from January 1, 2018 to December 31, 2037. The property is 36,134.78 square meters and total rent is RMB 70,489,500, or approximately $10,900,720, which has been paid upfront, through the lease term ending December 31, 2037. Majority of the net cash provided by operating activities are used for the lease payment.
Added
Ailefu provided the leased assets as guarantee for the Company to apply for a bank loan for the lease payment. Investing Activities: Net cash used in investing activities was approximately $1.38 million for the year ended December 31, 2023.
Added
It was primarily attributable to: (1) acquisition of manufacturing equipment for production needs during the period; (2) addition of a fixed deposit, which is presented as other non-current assets on the Consolidated Balance Sheet; (3) repayment of the prepaid oversea land and warehouse investment; and (4) prepayment of a potential long-term warehouse investment.
Added
Net cash used in investing activities was approximately $4.90 million for the year ended December 31, 2022. It was primarily attributable to addition of fixed assets for production needs during the fiscal year, and an advance payment on potential oversea land purchase for the purpose of business expansion in North America.
Added
Net cash used in investing activities was approximately $0.29 million for the year ended December 31, 2021. It was primarily attributable to the addition of fixed and intangible assets for production needs during the fiscal year. 80 Financing Activities: Net cash used in financing activities was approximately $6.44 million for the year ended December 31, 2023.
Added
It was primarily attributable to (1) net repayment on short-term borrowings with an approximate amount of $6 million; (2) net repayment on long-term borrowings with an approximate amount of $2.35 million; and (3) net proceeds received from related parties with an approximate amount of $1.9 million.
Added
Net cash provided by financing activities was approximately $11.32 million for the year ended December 31, 2022. It was primarily attributable to the net proceeds received from share issuance in the amount of approximately $10.08 million. Net cash used in financing activities was approximately $3.40 million for the year ended December 31, 2021.
Added
It was primarily attributable to the repayment of bank note payable with an approximate amount of $7.29 million and repayment of related party loans with an approximate amount of $0.86 million, offset by the proceeds from long-term bank loans with approximate amount of $4.65 million and net proceeds from short-term loans with an approximate amount of $0.10 million.
Added
Liquidity and Capital Resources Primary Sources and Uses of Liquidity Our primary sources of liquidity consist of existing cash balances, cash flows from our operating activities and availability under our Revolving Credit Facility.
Added
Our ability to generate sufficient cash flows from our operating activities is primarily dependent on our sales of converters and power generating products to our customers at margins sufficient to cover fixed and variable expenses. As of December 31, 2023, and 2022, we had cash and cash equivalents of $5,878,434 and $7,067,247, respectively.
Added
We believe that our current cash, cash to be generated from our operations and access to help from our related parties will be sufficient to meet our working capital needs for at least the next twelve months.
Added
Although we do not have any amounts committed to be provided by our related parties, due to their relatively small amounts, we do not believe our working capital needs will be negatively impacted without such funds provided by related parties.
Added
Substantially all our operations are conducted in China and a majority portion of our revenues, expense, cash and cash equivalents are denominated in Renminbi (RMB).
Added
RMB is subject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control regulations that restrict its ability to convert RMB into U.S. Dollars. Accounts Receivable Accounts receivables are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts.
Added
The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due.
Added
The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. Based on management of customers’ credit and ongoing relationship, management makes conclusions whether any balances outstanding at the end of the period will be deemed uncollectible on an individual basis and on aging analysis basis.
Added
The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of income and comprehensive income. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Added
The Company does not believe it has a material collection risk under its business model, nor does it believe that macroeconomic issues will have a negative impact on its collectability. The Company expects the business will continue to grow due to innovation and the urbanization process in China.
Added
Thus, the Company does not believe the collection issues will impact its liquidity adversely. 81 Credit Facility We mainly finance our operations through short-term revolving loans and long-term loans provided by a syndicate of banks, as listed in Note 10 under our Consolidated Financial Statements.
Added
As of December 31, 2023, we had one outstanding short-term loan totaling RMB 500,000, or approximately $0.07 million. This borrowing has a term of one year and, as per our agreement with the bank, it can be renewed.
Added
As of December 31, 2023, we had 12 outstanding long-term loans provided by three banks, totaling RMB 14,888,312 in the aggregate, or approximately $2,096,974 million. These loans either have a fixed interest rate or a variable rate.
Added
We plan to repay outstanding principal and interest of each loan either by our working capital or the funds from the renewal of a loan from the same bank or loans from other banks. Capital Expenditures Our capital expenditures consist primarily of expenditures for the purchase of fixed and intangible assets because of our business growth.
Added
Our capital expenditures amounted to approximately $0.70 million, $0.93 million and $0.29 million for the years ended December 31, 2023, 2022 and 2021, respectively. Contractual Obligations There were no significant contractual obligations and commercial commitments, other than our bank borrowings as disclosed in Credit Facility section, as of December 31, 2023, 2022 and 2021.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

31 edited+11 added−9 removed46 unchanged
One of these rules, Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides an exemption to the insider trading rules in the form of an affirmative defense.
One of these rules, Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides an exemption to the insider trading rules in the form of an affirmative defense.
Rule 10b5-1 recognizes the creation of formal programs under which executives and other insiders may sell the securities of publicly traded companies on a regular basis pursuant to written plans that are entered into at a time when the plan participants are not aware of material non-public information and that otherwise comply with the requirements of Rule 10b5-1.
Rule 10b5-1 recognizes the creation of formal programs under which executives and other insiders may sell the securities of publicly traded companies on a regular basis pursuant to written plans that are entered into at a time when the plan participants are not aware of material non-public information and that otherwise comply with the requirements of Rule 10b5-1.
Hou also worked at BYD Automation as Chief architect of AI application in electric vehicles from 2005 to 2009. He earned a Master’s degree in Artificial Intelligence from University of Science and Technology of China. Jing Chen, Independent Director Nominee and Chair of Audit Committee Ms. Jing Chen is currently serving as Vice President of Future FinTech Group Inc.
Hou also worked at BYD Automation as Chief architect of AI application in electric vehicles from 2005 to 2009. He earned a Master’s degree in Artificial Intelligence from University of Science and Technology of China. Jing Chen, Independent Director and Chair of Audit Committee Ms. Jing Chen is currently serving as Vice President of Future FinTech Group Inc.
The audit committee will be responsible for, among other things: ● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing with the independent auditors any audit problems or difficulties and management’s response; ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; ● reviewing and approving all proposed related party transactions; ● meeting separately and periodically with management and the independent auditors; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
The audit committee is responsible for, among other things: ● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing with the independent auditors any audit problems or difficulties and management’s response; ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; ● reviewing and approving all proposed related party transactions; ● meeting separately and periodically with management and the independent auditors; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. 90 Terms of Directors and Officers Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders.
Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. 91 Terms of Directors and Officers Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders.
Summary Compensation Table The following table sets forth certain information with respect to compensation for the years ended December 31, 2022 and 2021, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded US$100,000 (the “named executive officers”).
Summary Compensation Table The following table sets forth certain information with respect to compensation for the years ended December 31, 2023 and 2022, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded US$100,000 (the “named executive officers”).
The nominating committee will be responsible for, among other things: ● selecting and recommending to the board nominees for election by the shareholders or appointment by the board; ● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; ● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and ● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. 89 Duties of Directors Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties.
The nominating committee is responsible for, among other things: ● selecting and recommending to the board nominees for election by the shareholders or appointment by the board; ● reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity; ● making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and ● advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken. 90 Duties of Directors Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties.
The compensation committee will be responsible for, among other things: ● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; ● reviewing and recommending to the shareholders for determination with respect to the compensation of our directors; ● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and ● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.
The compensation committee is responsible for, among other things: ● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; ● reviewing and recommending to the shareholders for determination with respect to the compensation of our directors; ● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and ● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.
Name and Principal Position Year Salary (US$) Bonus (US$) Stock Awards (US$) Option Awards (US$) Non-Equity Incentive Plan Compensation Deferred Compensation Earnings Other Total (US$) Lingyi Kong, 2022 $ - - - - - - $ CEO 2021 $ 29,303 - - - - - - $ 29,303 Lanling Gu, 2022 $ - - - - - - $ CFO 2021 $ 17,238 - - - - - - $ 17,238 87 Employment Agreements Our employment agreements with our officers generally provide for employment for a specific term and pay annual salary, health insurance, pension insurance, and paid vacation and family leave time.
Name and Principal Position Year Salary (US$) Bonus (US$) Stock Awards (US$) Option Awards (US$) Non-Equity Incentive Plan Compensation Deferred Compensation Earnings Other Total (US$) Lingyi Kong, 2023 $ 29,303 - - - - - - $ 29,303 CEO 2022 $ 29,303 - - - - - - $ 29,303 Lanling Gu, 2023 $ 17,238 - - - - - - $ 17,238 CFO 2022 $ 17,238 - - - - - - $ 17,238 88 Employment Agreements Our employment agreements with our officers generally provide for employment for a specific term and pay annual salary, health insurance, pension insurance, and paid vacation and family leave time.
Mak graduated with Honor from The Chinese University of Hong Kong with a Bachelor’s degree in Philosophy in 1995. 85 Jizhou Hou, Independent Director Nominee and Chair of Nominating Committee Mr. Hou is experienced in IoT and artificial intelligence with 20 years of experience.
Mak graduated with Honor from The Chinese University of Hong Kong with a Bachelor’s degree in Philosophy in 1995. 86 Jizhou Hou, Independent Director and Chair of Nominating Committee Mr. Hou is experienced in IoT and artificial intelligence with 20 years of experience.
We have determined that Jizhou Hou, Jing Chen and Peiling Cheng satisfy the “independence” requirements under NASDAQ Rule 5605. The directors will be up for re-election at our annual general meeting of shareholders. A director is not required to hold any shares in our company by way of qualification.
We have determined that Jizhou Hou, Jing Chen and Tsang Sheung satisfy the “independence” requirements under Nasdaq Rule 5605. The directors will be up for re-election at our annual general meeting of shareholders. A director is not required to hold any shares in our company by way of qualification.
Board Diversity Matrix (As of the date of this annual report) Country of Principal Executive Offices: China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 5 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 2 3 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction — LGBTQ+ — 91 6.D.
Board Diversity Matrix (As of the date of this annual report) Country of Principal Executive Offices: China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 5 Female Male Non-Binary Did Not Disclose Gender Part I: Gender Identity Directors 1 4 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction — LGBTQ+ — 92 6.D.
Chen is a Member of the Chartered Institute of Management Accountants (CIMA), a Senior Member of the International Financial Management (SIFM) accredited by the Ministry of Human Resources and Social Security of PRC and a Certified Internal Control Professional, as granted by Internal Control Institute (ICI). Peiling Cheng, Independent Director Nominee and Chair of Compensation Committee Ms.
Chen is a Member of the Chartered Institute of Management Accountants (CIMA), a Senior Member of the International Financial Management (SIFM) accredited by the Ministry of Human Resources and Social Security of PRC and a Certified Internal Control Professional, as granted by Internal Control Institute (ICI). Tsang Sheung, Independent Director and Chair of Compensation Committee Mr.
The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company.
The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.
Lanling Gu , Chief Financial Officer Ms. Gu has years of experience in international accounting (IFRS) and USA GAAP reporting and is familiar with preparation of consolidated financial statement. Prior to serving as our CFO in March 2021, Ms. Gu was the director of the Company’s accounting department since 2018. Ms.
Kong has been serving as the Chairman of the Board of Erayak International since inception in July 2018. Lanling Gu , Chief Financial Officer Ms. Gu has years of experience in international accounting (IFRS) and USA GAAP reporting and is familiar with preparation of consolidated financial statement. Prior to serving as our CFO in March 2021, Ms.
Name Age Position(s) Lingyi Kong 28 Chief Executive Officer, Chairman of the Board and Director Lanling Gu 34 Chief Financial Officer Wang-Ngai Mak* 56 Director Nominee Jizhou Hou (1)(2)(3)* 47 Independent Director Nominee, Chair of Nominating Committee Jing Chen (1)(2)(3)* 57 Independent Director Nominee, Chair of Audit Committee Peiling Cheng (1)(2)(3)* 43 Independent Director Nominee, Chair of Compensation Committee (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Nominating Committee * The individual shall be appointed and consents to be in such position upon Company’s listing on the Nasdaq Capital Market.
Name Age Position(s) Lingyi Kong 29 Chief Executive Officer, Chairman of the Board and Director Lanling Gu 35 Chief Financial Officer Wang-Ngai Mak* 57 Director Nominee Jizhou Hou (1)(2)(3)* 48 Independent Director Nominee, Chair of Nominating Committee Jing Chen (1)(2)(3)* 58 Independent Director Nominee, Chair of Audit Committee Tsang Sheung (1)(2)(3)* 64 Independent Director Nominee, Chair of Compensation Committee (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Nominating Committee * The individual shall be appointed and consents to be in such position upon Company’s listing on the Nasdaq Capital Market. 85 Lingyi Kong , Chief Executive Officer, Chairman of the Board and Director In 2018, Mr.
Kong visited Germany, France, Belgium, the Netherlands, and Australia on behalf of the company for business interviews, and successfully obtained OEM contracts with well-known European companies such as AEG, Projecta, Greencell, Einhell, and Duracell, among other well-known North American companies. Mr. Kong has been serving as the Chairman of the Board of Erayak International since inception in July 2018.
At the same time, Mr. Kong visited Germany, France, Belgium, the Netherlands, and Australia on behalf of the company for business interviews, and successfully obtained OEM contracts with well-known European companies such as AEG, Projecta, Greencell, Einhell, and Duracell, among other well-known North American companies. Mr.
Employees As of December 31, 2021 and December 31, 2022, we have a total of 132 employees in the following departments: As of December 31, 2022 Administration 18 Research and Development 23 Manufacture 82 Business Operations 9 Total 132 Our employees are not represented by a labor organization or covered by a collective bargaining agreement.
Employees As of December 31, 2023, we have a total of 290 employees in the following departments: As of December 31, 2023 Administration 40 Research and Development 50 Manufacture 179 Business Operations 21 Total 290 Our employees are not represented by a labor organization or covered by a collective bargaining agreement.
Gu served as an auditor at Zhejiang Oulong Electric Co., Ltd., Ms. Gu participated in the company’s IPO due diligence in 2017, conducted audits for the company and independently led a team to complete audit work of accounting subjects, including inspection of accounts and verification of accuracy of financial statements and check of operational procedures.
Gu participated in the company’s IPO due diligence in 2017, conducted audits for the company and independently led a team to complete audit work of accounting subjects, including inspection of accounts and verification of accuracy of financial statements and check of operational procedures. Thanks to years of experience in electronics manufacturing plants, Ms.
Thanks to years of experience in electronics manufacturing plants, Ms. Gu has a deep understanding of cost control and accounting. Ms. Gu obtained an associate’s degree in accounting from Anhui Wuhu Vocational and Technical College in 2011, and a certificate for Intermediate Accountant in 2020 from the China Accounting Online School. Wang-Ngai Mak, Director Nominee Mr.
Gu has a deep understanding of cost control and accounting. Ms. Gu obtained an associate’s degree in accounting from Anhui Wuhu Vocational and Technical College in 2011, and a certificate for Intermediate Accountant in 2020 from the China Accounting Online School. Wang-Ngai Mak, Director Mr. Mak is currently the Executive Vice President of Barakah Capital Holdings (M) Sdn.
Kong served as an international business representative of Zhejiang Real Electronics Company, leading the company’s business team to participate in the Dusseldorf Motor Show in Germany, the Berlin Electronics Show in Germany, and the Guangzhou Trade Fair in China. At the same time, Mr.
Kong graduated from Ningbo University with a Bachelor’s degree in Engineering Management. From 2018 to 2019, Mr. Kong served as an international business representative of Zhejiang Real Electronics Company, leading the company’s business team to participate in the Dusseldorf Motor Show in Germany, the Berlin Electronics Show in Germany, and the Guangzhou Trade Fair in China.
Copies of our committee charters has been posted on our corporate investor relations website. 88 Each committee’s members and functions are described below. Audit Committee. Our audit committee will consist of Jizhou Hou, Jing Chen and Peiling Cheng upon the effectiveness of their appointments. Jing Chen will be the chair of our audit committee.
Copies of our committee charters has been posted on our corporate investor relations website. 89 Each committee’s members and functions are described below. Audit Committee. Our audit committee consists of Jizhou Hou, Jing Chen and Tsang Sheung. Jing Chen is the chair of our audit committee.
Nominating Committee. Our nominating committee will consist of Jizhou Hou, Jing chen and Peiling Cheng Wong upon the effectiveness of their appointments. Jizhou Hou will be the chair of our nominating committee. The nominating committee will assist the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
Nominating Committee. Our nominating committee consists of Jizhou Hou, Jing Chen and Tsang Sheung. Jizhou Hou is the chair of our nominating committee. The nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
Lingyi Kong is the controlling person of Erayak International Limited and has sole voting and dispositive power over shares beneficially owned by Erayak International limited. (2) The individual is a director nominee and consents to be a director upon the Company’s listing on the Nasdaq Capital Market.
Lingyi Kong is the controlling person of Erayak International Limited and has sole voting and dispositive power over shares beneficially owned by Erayak International limited.
Name of Beneficial Owner Amount of Beneficial Ownership Percentage Ownership Directors, Director Nominees and Named Executive Officers: Lingyi Kong 1 6,000,000 Class A ordinary shares and 1,000,000 Class B ordinary shares 83.87 % Lanling Gu 0 % Wang-Ngai Mak 2 3 1,400,000 Class A ordinary shares 4.52 % Jizhou Hou 4 - 0 % Jing Chen 4 - 0 % Peiling Cheng 4 - 0 % All directors, director nominees and executive officers as a group (6 persons) 7,400,000 Class A ordinary shares and 1,000,000 Class B ordinary shares 88.39 % 5% or Greater Shareholders: Erayak International Limited 1 6,000,000 Class A ordinary shares and 1,000,000 Class B ordinary shares 83.87 % CEC Science and Innovation Co., Ltd. 3 1,400,000 Class A ordinary shares 4.52 % (1) Through Erayak International Limited.
Named Executive Officers and Directors Amount of Beneficial Ownership (Class A) Percentage Ownership (Class A) Amount of Beneficial Ownership (Class B) Percentage Ownership (Class B) Combined Voting Power of Class A and Class B Combined Voting Power of Class A and Class B Ordinary Shares as a Percentage (3) Directors and Named Executive Officers: Lingyi Kong, Chief Executive Officer and Chairman 1 6,000,000 52.40 % 1,000,000 100 % 26,000,000 83.87 % Lanling Gu, Chief Financial Officer Wang-Ngai Mak, Director 2 2,000,000 17.47 % - 0 % 1,400,000 4.52 % Jing Chen, Independent Director and Chairwoman of Audit Committee - 0 % - 0 % - 0 % Tsang Sheung, Independent Director and Chairman of Compensation Committee - 0 % - 0 % - 0 % Jizhou Hou, Independent Director and Chairman of Nominating Committee - 0 % - 0 % - 0 % All directors and executive officers as a group (6 persons) 8,000,000 69.87 % 1,000,000 100 % 28,000,000 89.03 % 5% Beneficial Owners: Erayak International Limited 1 6,000,000 52.40 % 1,000,000 100 % 26,000,000 83.87 % CEC Science and Innovation Co., Ltd. 2 1,400,000 12.22 % - 0 % 1,400,000 4.45 % (1) Through Erayak International Limited.
They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person. 92 The calculations in the table below are based on [--] Class A ordinary shares and 1,000,000 Class B ordinary shares issued and outstanding as of the date hereof.
The calculations in the table below are based on 11,450,000 Class A ordinary shares and 1,000,000 Class B ordinary shares issued and outstanding as of the date hereof.
He served as Vice President, e-Banking, in CITIC Ka Wah Bank (Hong Kong) from January 2000 to July 2003, in charge of the development of the Internet banking and stock trading system. From February 2004 to February August 2009, Mr. Mak was employed at the ITG Systems Sdn.
Bhd. since 2011, where he is responsible for projects evaluation and business development. Mr. Mak has extensive experience in business strategy, corporate development and management consulting. He served as Vice President, e-Banking, in CITIC Ka Wah Bank (Hong Kong) from January 2000 to July 2003, in charge of the development of the Internet banking and stock trading system.
In the event of a breach or termination causing loss to our company by the employee, the employee may be required to indemnify us against loss. 6.C. Board Practices Board of Directors and Board Committees Our board of directors consists of five directors, three of whom are independent as such term is defined by the Nasdaq Capital Market.
In the event of a breach or termination causing loss to our company by the employee, the employee may be required to indemnify us against loss.
Compensation Committee. Our compensation committee will consist of Jizhou Hou, Jing Chen and Peiling Cheng upon the effectiveness of their appointments. Peiling Cheng will be the chair of our compensation committee.
Compensation Committee. Our compensation committee consists of Jizhou Hou, Jing Chen and Tsang Sheung. Tsang Sheung is the chair of our compensation committee.
Cheng graduated from University of Texas with a Masters degree in Accounting in 2006, and National Chung Cheng University in Taiwan with a Bachelors degree in Foreign Languages and Literature in 2002. 86 Family Relationships There are no family relationships among any of our directors, director nominees or executive officers as defined in Item 401 of Regulation S-K. 6.B.
Sheung has extensive experience in financial services, human resources, and corporate communications. 87 Family Relationships There are no family relationships among any of our directors, director nominees or executive officers as defined in Item 401 of Regulation S-K. 6.B.
(3) Represents 1,400,000 Class A ordinary shares directly held by CEC Science and Innovation Co., Ltd., a company incorporated under the laws of England and Wales. CEC Science and Innovation Co., Ltd. is beneficially owned and controlled by Wang-Ngai Mak and its current address is Unit G25, Waterfront Studios 1 Dock Road, London, United Kingdom.
(2) Represents 1,400,000 Class A ordinary shares directly held by CEC Science and Innovation Co., Ltd., a company incorporated under the laws of England and Wales, and 600,000 Class A ordinary shares held by GRAND MERCHANT INCORPORATION LIMITED, a company incorporated under the law of Hong Kong SAR.
Removed
Lingyi Kong , Chief Executive Officer, Chairman of the Board and Director In 2018, Mr. Kong graduated from Ningbo University with a Bachelor’s degree in Engineering Management. From 2018 to 2019, Mr.
Added
Gu was the director of the Company’s accounting department since 2018. Ms. Gu served as an auditor at Zhejiang Oulong Electric Co., Ltd., Ms.
Removed
Mak is currently the Executive Vice President of Barakah Capital Holdings (M) Sdn. Bhd. since 2011, where he is responsible for projects evaluation and business development. Mr. Mak has extensive experience in business strategy, corporate development and management consulting.
Added
From February 2004 to February August 2009, Mr. Mak was employed at the ITG Systems Sdn.
Removed
Peiling Cheng currently serves as an assistant controller at EduServe, Inc. in Fort Lauderdale, Florida, where she is responsible for reviewing annual financial statements for various corporate entities and assisting with budgeting and maintaining updated forecast to present to corresponding business unit owners, as well as an accounting supervisor at Crown Castle in Sunrise, Florida, where she oversees and balances resources on the team as well as the resources in the Operations Support, supervises senior accountants on day-to-day and month end rolls and responsibilities, coordinates discussions with the corporate supply chain group and the various national operations groups to improve company processes and efficiency, and provides valuable ad hoc analytics, insight, and guidance to operations.
Added
Tsang Sheung has served as a director of Fuji (China) Industrial Technology Co., Ltd. in Hong Kong and as the General Manager of Shenzhen Zhongzhi Investment Co., Ltd. since 2009. He started his career at Bank of China (Hong Kong) Limited as a journalist after obtaining his bachelor’s degree in law from Jinan University in Guangzhou.
Removed
Prior to this, she has been a senior accountant for Insulet Corporation from 2017 to 2018, a $500 million revenue publicly traded medical device company based in Billerica, MA. In this capacity, Ms. Cheng monitors activities for revenue and accounts receivable cycle both domestically and internationally.
Added
Thereafter, he served successively as the director of the human resources, the director and then vice president of the president’s office, and the assistant to the president of the management division. Having served as an integral part of the restructuring and merger of Bank of China (Hong Kong) Group, Mr.
Removed
She also builds estimate and accounting policy for revenue cycle related reserves, implements ASC 606 research and process design, and assist management with required Board of Directors’ meeting minutes. Prior to her position at Insulet, Ms.
Added
Compensation Recovery Policy On December 1, 2023, our board of directors adopted an executive compensation recovery policy (the “Compensation Recovery Policy”), providing for the recovery of certain incentive-based compensation from current and former executive officers of the Company in the event the Company is required to restate any of its financial statements filed with the SEC under the Exchange Act in order to correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
Removed
Cheng was a senior accountant for Avid Technology, Inc., a $500 million revenue publicly traded technology and multimedia company based in Burlington, MA, from December 2013 to May 2017. At Avid, Ms.
Added
Adoption of the Compensation Recovery Policy was mandated by new Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1.
Removed
Cheng helped the company maintain SOX controls and related documentation and prepared for quarterly reviews and year-end audits, working with external auditors in providing support for general ledger balances, support for journal entries and compliance with GAAP for successful audit completion. Ms.
Added
The Compensation Recovery Policy is in addition to Section 304 of the Sarbanes-Oxley Act of 2002 which permits the SEC to order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer’s chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of misconduct, and the reimbursement of those funds to the issuer.
Removed
Cheng is a certified public accountant and received her Master of Science in Accounting from the University of Texas in 2006. Ms.
Added
A copy of the Compensation Recovery Policy has been filed herewith as Exhibit 97.1. 6.C. Board Practices Board of Directors and Board Committees Our board of directors consists of five directors, three of whom are independent as such term is defined by the Nasdaq Capital Market.
Removed
(4) The individual is an independent director nominee and consents to be an independent director upon the Company’s listing on the Nasdaq Capital Market.
Added
They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person. 93 Our company is authorized to issue 450,000,000 Class A ordinary shares of $0.0001 par value per share and 50,000,000 Class B ordinary shares of $0.0001 par value per share.
Added
Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our Class A ordinary shares and/or Class B ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities.
Added
CEC Science and Innovation Co., Ltd. and GRAND MERCHANT INCORPORATION LIMITED are beneficially owned and controlled by Wang-Ngai Mak.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

8 edited+3 added−1 removed2 unchanged
(“Xiaobai”) An entity 30% owned by Shengling Xiang Chuanlong Lin Relative of Lingyi Kong; former controlling shareholder of New Focus Shengling Xiang Executive and legal rep of the Company Lingyi Kong Controlling shareholder of the Company Chunhua Xiang Relative of Lingyi Kong 2) Related party transactions The Company leases offices and factory premises from Ailefu.
(“Xiaobai”) An entity 30% owned by Shengling Xiang Chuanlong Lin Relative of Lingyi Kong; former controlling shareholder of New Focus Shengling Xiang Executive and legal rep of the Company Lingyi Kong Controlling shareholder of the Company Chunhua Xiang Relative of Lingyi Kong 2) Related party transactions The Company leases offices and factory buildings from Ailefu.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 7.A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees — 6.E. Share Ownership.” The company’s major shareholders do have different voting rights than the other shareholders. 93 7.B.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 7.A. Major Shareholders Please refer to “Item 6. Directors, Senior Management and Employees — 6.E. Share Ownership.” The company’s major shareholders do have different voting rights than the other shareholders. 94 7.B.
As of December 31, 2022 and 2021, the Company had outstanding payable due to Lingyi Kong with an amount of $182,528 and $158,198, respectively. This represented unsecured, due on demand and interest free borrowings between the Company and Lingyi Kong.
As of December 31, 2023, 2022 and 2021, the Company had outstanding payable due to Lingyi Kong with an amount of $1,877,489, $344,528, and $158,198, respectively. This represented unsecured, due on demand and interest free borrowings between the Company and Lingyi Kong.
As of December 31, 2022 and 2021, the Company had no outstanding balance from this individual. 94 3) Related party balances Net outstanding balances with related parties consisted of the following as of December 31, 20221 and 2021: Accounts Name of related parties 2022 2021 Due to related party Lingyi Kong (182,528 ) (158,198 ) Shengling Xiang (46,623 ) - Net due to related parties $ (229,151 ) $ (158,198 ) Other Related Party Transactions During the year ended December 31, 2022, other than disclosed in elsewhere (including the financial statements for the fiscal years ended 2021 and accompanying footnotes), we did not have any other related party transactions.
Ltd. 405,640 - - Net due to related parties $ 2,283,129 $ 391,151 $ 158,198 95 3) Related party balances Net outstanding balances with related parties consisted of the following as of December 31, 2023, 2022 and 2021: Accounts Name of related parties 2022 2021 Due to related party Lingyi Kong (182,528 ) (158,198 ) Shengling Xiang (46,623 ) - Net due to related parties $ (229,151 ) $ (158,198 ) Other Related Party Transactions During the year ended December 31, 2022, other than disclosed in elsewhere (including the financial statements for the fiscal years ended 2021 and accompanying footnotes), we did not have any other related party transactions.
As of December 31, 2022 and 2021, the Company had no outstanding balance from this individual. Chunhua Xiang periodically provides working capitals to support the Company’s operations when needed. During fiscal year 2022 and 2021, Chunhua Xiang provided working capital of $780,131 and $928,439, respectively.
During fiscal years 2023, 2022 and 2021, Chuanlong Lin provided working capital of $0, $0 and $11,130, respectively. As of December 31, 2023, 2022 and 2021, the Company had no outstanding balance from this individual. Chunhua Xiang periodically provides working capital to support the Company’s operations when needed.
For the fiscal years of 2022 and 2021, there were notes receivables endorsed by Lingyi Kong with recourse to the Company’s suppliers to settle accounts payable in the amount of $2,844,019 and $5,043,783, respectively. During fiscal years 2022 and 2021, Lingyi Kong provided total working capital of $22,696,628 and $14,344,678, respectively.
For the years ended December 31, 2023, 2022 and 2021, there were notes receivables endorsed by Lingyi Kong with recourse to the Company’s suppliers to settle accounts payable in the amount of $6,797,772, $2,844,019, and $5,043,783 respectively. Chuanlong Lin periodically provides working capitals to support the Company’s operations when needed.
The nature of the lease is disclosed in Leases in Note 9. There were no transactions between the Company and Weidi, the Company and Xiangze, the Company and Fushishenye, and the Company and Xiaobai for the fiscal years of 2022 and 2021. Lingyi Kong periodically provides working capital to support the Company’s operations when needed.
The nature of the lease is disclosed in Note 8 - Lease. There were no transactions between the Company and Xiangze, the Company and Weidi, the Company and Fushishenye, and the Company and Xiaobai during the years ended December 31, 2023, 2022 and 2021.
Shengling Xiang periodically provides working capital to support the Company’s operations when needed. As of December 31, 2022 and 2021, the Company had outstanding payable due to Shengling Xiang with an amount of $46,623 and $0, respectively. This represented unsecured, due on demand and interest free borrowings between the Company and Shengling Xiang.
As of December 31, 2023, 2022 and 2021, the Company had no outstanding balances from these entities. Shengling Xiang periodically provides working capital to support the Company’s operations when needed. During the years ended December 31, 2023, 2022 and 2021, Shengling Xiang provided working capital of $2,217, $46,623 and $27,177, respectively.
Removed
During fiscal years 2022 and 2021, Shengling Xiang provided working capital of $483,498 and $27,177, respectively. Chuanlong Lin periodically provides working capitals to support the Company’s operations when needed. During fiscal year 2022 and 2021, Chuanlong Lin provided working capital of $0 and $11,130, respectively.
Added
As of December 31, 2023, 2022 and 2021, the Company had outstanding balance from this individual of $0, $46,623 and $0, respectively. Lingyi Kong periodically provides working capital to support the Company’s operations when needed. During the years ended December 31, 2023, 2022 and 2021, Lingyi Kong provided working capital of $16,559,369, $22,696,628, and $14,344,678, respectively.
Added
During the years ended December 31, 2023, 2022 and 2021, Chunhua Xiang provided working capital of $9,886, $780,131, and $928,439, respectively.
Added
As of December 31, 2023, 2022 and 2021, the Company had no outstanding balance from this individual. 3) Related party balances Net outstanding balances with related parties consisted of the following as of December 31, 2023, 2022 and 2021: Accounts Name of related parties 2023 2022 2021 Due to related party Lingyi Kong 1,877,489 344,528 158,198 Shengling Xiang - 46,623 - Wenzhou Ailefu Technology Co.

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