6-K - RAYA - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2023

Commission File Number: 001-41568

Erayak Power Solution Group Inc.

No. 528, 4th Avenue

Binhai Industrial Park

Wenzhou, Zhejiang Province

People’s Republic of China 325025

+86-577-86829999

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Erayak Power Solution Group Inc
Date: November 21, 2023	By:	/s/ Lingyi Kong
	Name:	Lingyi Kong
	Title:	Chief Executive Officer

Exhibit Index

Exhibit No.	Description
99.1	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months Ended June 30, 2023 and 2022
99.2	Unaudited Interim Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2023 and 2022
101.INS	Inline XBRL Instance Document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Exhibit 99.1

MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIALCONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of ourfinancial condition and results of operations should be read in conjunction with our consolidated financial statements and related notesthat appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-lookingstatements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-lookingstatements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus,particularly in “Risk Factors.” All amounts included herein with respect to the six months ended June 30, 2023 and 2022 (“InterimFinancial Statements”) are derived from our unaudited consolidated financial statements for the six months ended June 30, 2023 and2022 included elsewhere in this prospectus. All amounts included herein with respect to the fiscal years ended December 31, 2022 and 2021are derived from our audited consolidated financial statements (“Annual Financial Statements”) included elsewhere in this prospectus.These Interim Financial Statements and Annual Financial Statements have been prepared in accordance with U.S. Generally Accepted AccountingPrinciples, 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”). 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, power banks, and custom-designed products. Our products are used principally in agricultural and industrial vehicles, recreational vehicles (“RVs”), electrical appliances, and outdoor living products. 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. We seek to leverage our flexibility and passion for quality to provide a personalized mobile living solution for each customer.

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. 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 of 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. 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. 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. We generated revenue mostly from four types of products: (1) inverters constituted approximately 43.66% and 62.52% of our total revenue for the six months ended June 30, 2023 and 2022, respectively; (2) chargers, which generated approximately 2.42% and 3.49% of our total revenue for the six months ended June 30, 2023 and 2022, respectively; (3) gasoline generators generated approximately 47.78% and 32.95% of our total revenue for the six months ended June 30, 2023 and 2022, respectively; and (4) power banks, which generated approximately 4.79% and nil of our total revenue for the six months ended June 30, 2023 and 2022, respectively.

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. 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. 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. 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. 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. 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. 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.

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. 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.
●	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. 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.
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●	Fluctuations in Foreign Currency Exchange - We sell a significant portion of our products in countries outside of China (approximately 46.68% for the six months ended June 30, 2023). 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. 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.
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Results of Operations

For the Six Months Ended June 30, 2023 and2022

The following table summarizes the results of our operations for the six months ended June 30, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

(All amounts, other than percentages, are in U.S. dollars)

	For the Six Months Ended<br> <br>June 30,						Variance
	2023			2022			Amount			Percentage
Sales	$	9,449,817		$	11,478,147		$	(2,028,330	)		-17.67	%
Cost of sales		(6,619,695	)		(7,603,901	)		984,206			-12.94	%
Gross profit		2,830,122			3,874,246			(1,044,124	)		-26.95	%
Operating expenses:
General and administrative expenses		(1,168,174	)		(357,521	)		(810,653	)		226.74	%
Selling and marketing expenses		(436,619	)		(332,218	)		(104,401	)		31.43	%
Research and development costs		(481,702	)		(560,017	)		78,315			-13.98	%
Inventory reserve provision		(83,419	)		-			(83,419	)		-	%
Total operating expenses		(2,169,914	)		(1,249,756	)		(920,158	)		73.63	%
Operating income	$	660,208		$	2,624,490		$	(1,964,282	)		-74.84	%
Other income (expenses):
Rental income, net		102,712			83,925			18,787			22.39	%
Interest expenses, net		(199,712	)		(240,904	)		41,192			-17.10	%
Other income, net		4,671			15,031			(10,360	)		-68.93	%
Total other (expenses) income, net		(92,329	)		(141,948	)		49,619			-34.96	%
Income before income taxes	$	567,879		$	2,482,542		$	(1,914,663	)		-77.13	%
Income tax provision		(92,707	)		(291,881	)		199,174			-68.24	%
Net income	$	475,172		$	2,190,661		$	(1,715,489	)		-78.31	%

Revenues

Revenues decreased by approximately $2.03 million, or 17.67%, to approximately $9.45 million for the six months ended June 30, 2023 from approximately $11.48 million for the six months ended June 30, 2022. The decrease in revenues was primarily driven by the decreased demand for inverters due to the sluggish market during the post-pandemic era. For the six months ended June 30, 2023, our sales on inverters decreased by approximately $3.05 million, which represents 42.51% decrease compared to the previous period.

The following tables present our top five markets by net revenues for the six months ended June 30, 2023 and 2022, respectively.

	June 30, 2023
Top Five Markets:	Sales Amount (In )	As %<br> of Sales
China			53.32	%
Poland			10.32	%
Germany			8.62	%
U.K.			5.48	%
Mexico			4.18	%

All values are in US Dollars.

	June 30, 2022
Top Five Markets:	Sales Amount (In )	As %<br> of Sales
China			56.84	%
Germany			7.16	%
Poland			6.64	%
Canada			5.27	%
France			4.48	%

All values are in US Dollars.

Gross profit

Our gross profit decreased by approximately $1.04 million, or 26.95%, to approximately $2.83 million for the six months ended June 30, 2023 from approximately $3.87 million for the six months ended June 30, 2022. Gross profit margin was 29.95% for the six months ended June 30, 2023, as compared to 33.75% for the six months ended June 30, 2022. The decrease in gross margin was primarily due to the increased initial cost in raw materials for producing newly developed products.

General and administrative (“G&A”)expenses

General and administrative expenses increased by approximately $0.81 million, or 226.74% to approximately $1.17 million for the six months ended June 30, 2023 as compared to approximately $0.36 million for the six months ended June 30, 2022. 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.

General and administrative expenses for the six months ended June 30, 2023 and 2022 consisted of following:

	2023
Employee compensation and benefits	$	207,833	142,900
Travel and communication expenses		31,916	18,146
Rent and utilities		30,454	22,071
Consulting fees		682,558	65,874
Insurance		13,680	12,971
Depreciation and amortization expenses		51,636	31,131
Sales tax		36,158	38,840
Entertainment		18,383	2,278
Office and miscellaneous		95,556	23,310
Total	$	1,168,174	357,521

Selling and marketing expenses

Selling and marketing expenses increased by approximately $0.11 million, or 31.43% to approximately $0.44 million for the six months ended June 30, 2023 as compared to approximately $0.33 million for the six months ended June 30, 2022. The increase in selling and marketing expenses was mainly due to the increase in entertainment expenses. After China lifted travel restrictions, the Company hosted more business visitors from both domestic and international markets.

Selling and marketing expenses as of June 30, 2023 and 2022 consisted of the following:

	2023		2022
Employee compensation and benefits	$	54,981	$	55,943
Travel and promotion		47,633		19,638
Transportation		105,514		90,388
Insurance		8,228		-
Consulting fee		6,053		1,349
Inspection and certification fees		67,265		106,195
Entertainment		110,453		49,247
Office and miscellaneous		36,492		9,458
Total	$	436,619	$	332,218

Research and development (“R&D”)expenses

Research and development expenses decreased by approximately $0.08 million, or 13.98% to approximately $0.48 million for the six months ended June 30, 20223 as compared to approximately $0.56 million for the six months ended June 30, 2022. The decrease in R&D expenses was mainly due to the decreased contract services and supplies, and design cost related to R&D activities. The Company’s R&D input accounts for about 5% of its total revenue. The decrease in R&D expenses is in line with the decreased revenue during the period.

Research and development expenses as of June 30, 2023 and 2022 consisted of the following:

	2023		2022
Salaries	$	210,995	$	231,691
Contract services and supplies		238,637		276,015
Utility		1,215		1,122
Design cost		14,047		40,901
Depreciation		12,883		10,091
Other		3,925		197
Total	$	481,702	$	560,017

Interest expenses, net

Our interest expense (net) decreased by approximately $0.04 million, to approximately $0.20 million for the six months ended June 30, 2023, from approximately $0.24 million for the six months ended June 30, 2022. The decrease of interest expense was mainly due to decreased short-term borrowings during the first half of fiscal 2023 as compared to the first half of fiscal 2022.

Provision for income taxes

Our provision for income taxes was approximately $0.09 million for the six months ended June 30, 2023, a decrease of approximately $0.20 million from approximately $0.29 million for the six months ended June 30, 2022. The decrease is in line with the decrease in operating income.

Results of Operations

Year ended December 31, 2022 compared toyear ended December 31, 2021

The following table summarizes the results of our operations for the years ended December 31, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

(All amounts, other than percentages, are in U.S. dollars)

	For the Fiscal Years Ended<br> <br>December 31,						Variance
	2022			2021			Amount			Percentage
Sales	$	26,909,025		$	18,628,886		$	8,280,139			44.45	%
Cost of sales		(20,290,231	)		(12,909,462	)		(7,380,769	)		57.17	%
Gross profit		6,618,794			5,719,424			899,370			15.72	%
Operating expenses:
General and administrative		(929,500	)		(690,619	)		(238,881	)		34.59	%
Selling and marketing		(720,120	)		(506,305	)		(213,815	)		42.23	%
Research and development		(932,268	)		(986,885	)		54,617			-5.53	%
Bad debt expense		-			(2,649	)		2,649			-	%
Inventory impairment reversal (provision)		31,668			(47,358	)		79,026			-166.87	%
Total operating expenses		(2,550,220	)		(2,233,816	)		(316,404	)		14.16	%
Operating income	$	4,068,574		$	3,485,608		$	582,966			16.72	%
Other income (expenses):
Interest expenses, net		(473,088	)		(417,648	)		(55,440	)		13.27	%
Rental income, net		98,716			116,193			(17,477	)		-15.04	%
Other income, net		219,530			512,412			(292,882	)		-57.16	%
Total other income (expenses), net		(154,842	)		210,957			(365,799	)		-173.40	%
Income before income taxes	$	3,913,732		$	3,696,565		$	217,167			5.87	%
Income tax provision		(437,771	)		(301,916	)		(135,855	)		45.00	%
Net income	$	3,475,961		$	3,394,649		$	81,312			2.40	%

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. 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. 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.

The following tables present our top 5 international markets by net revenues for the years ended December 31, 2022 and 2021, respectively.

	December 31, 2022
Top Five International Markets:	Sales Amount (In )	As %<br> of Sales
China			67.02	%
Poland			5.97	%
Germany			4.53	%
Canada			3.61	%
U.K.			3.27	%

All values are in US Dollars.

	December 31, 2021
Top Five International Markets:	Sales Amount (In )	As %<br> of Sales
China			57.11	%
France			6.46	%
Poland			6.06	%
Mexico			5.75	%
U.K.			4.24	%

All values are in US Dollars.

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. 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.

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. The increase in G&A expenses was mainly due to increased expenses in consulting services for lean manufacturing and management improvement in factory operation.

General and administrative expenses as of December 31, 2022 and 2021 consisted of following:

	2022
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

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. The increase in selling and marketing expenses was mainly due to the increase in cost of testing and certification on our exported products.

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. The decrease in R&D expenses was mainly due to decreased contract services and supplies, depreciation and other expenses related to R&D activities.

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. 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. The increase is in line with the increase in revenues.

Cash Flow Summary

	Six Months Ended<br> June 30,<br><br> 2023			Year Ended<br><br> December 31,<br> 2022			Year Ended<br><br> December 31,<br> 2021
Net cash provided by (used in) operating activities	$	5,454,714		$	(4,151,135	)	$	4,689,518
Net cash (used in) investing activities		(4,344,326	)		(4,896,167	)		(290,798	)
Net cash (used in) provided by financing activities		(619,025	)		11,319,867			(3,395,530	)
Effect of exchange rate changes on cash and cash equivalents		(284,958	)		(380,011	)		109,448
Net increase in cash and cash equivalents	$	206,405		$	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		7,273,652			7,067,247			5,174,693

Operating Activities:

Net cash provided by operating activities for the six months ended June 30, 2023 was approximately $5.45 million, which was primarily attributable to a net profit approximately $0.48 million, adjusted for non-cash items for approximately $0.54 million and adjustments for changes in working capital approximately $0.44 million. The adjustments for changes in working capital mainly included:

(i)	decrease in accounts receivable of approximately $3.73 million – our accounts receivable decreased due to the decrease in sales revenue, and the slower payback cycle on domestic sales during the first half of fiscal 2023;
(ii)	decrease in advance to suppliers of approximately $2.76 million was primarily due to collection of payments on potential purchase of oversea land and warehouse in the amount of $4 million, and advance payment on a potential long-term lease of a custom-built factory for the purpose of expanding business in the energy storage industry in the amount of $1 million;
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(iii)	increase in inventory of approximately $1.05 million due to our increased raw material inventory to respond to the higher demand from international market during the second half of the year;
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(iv)	decrease in accounts payable of approximately $0.58 million due to decreased payment cycle in purchase of integrated circuit related raw materials during the first half of fiscal 2023;
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(v)	decrease in advance from customers of approximately $0.33 million primarily due to decreased sales during the first half of fiscal 2023;
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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. 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;
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(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;
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(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;
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(vi)	increase in advance from customers of approximately $0.22 million primarily due to increased sales during the fiscal year of 2022;
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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. 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;
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(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;
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(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;
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(vi)	decrease in advance from customers of approximately $0.28 million primarily due to the order delivery which offsets the advance balance;
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(vii)	increase in other payables and accruals of approximately $0.36 million primarily due to the increased accrued payroll and welfare.

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. 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. 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 $4.34 million for the six months ended June 30, 2023. It was primarily attributable to the addition of fixed assets for production needs during the period, and a fixed deposit, which is presented as other non-current assets on the Interim Consolidated Balance Sheet.

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.

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.

Financing Activities:

Net cash used in financing activities was approximately $0.62 million for the six months ended June 30, 2023. It was primarily attributable to the repayment of short-term loans with an approximate amount of $1 million and repayment of related party loans with an approximate amount of $0.17 million, offset by the proceeds from long-term bank loans with approximate amount of $0.55 million.

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. 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.

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. 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.

Substantially all of our operations are conducted in China and a majority portion of our revenues, expense, cash and cash equivalents are denominated in Renminbi (RMB). 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 receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. 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. 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. 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.

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. Thus, the Company does not believe the collection issues will impact its liquidity adversely.

Credit Facility

We mainly finance our operations through short-term revolving loans provided by a syndicate of banks, as listed in Note 10 under our Consolidated Financial Statements. As of June 30, 2023, we had four outstanding short-term loans provided by one bank, totaling RMB 30,000,000 in the aggregate, or approximately $4.14 million. Each of these borrowings has a term of one year and, as per our agreement with the bank, all of the loans can be renewed. These loans have a fixed interest rate. 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 assets to support our business growth. Our capital expenditures amounted to approximately $0.40 million and $0.93 million for the six months ended June 30, 2023 and for the year ended December 31, 2022, 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 June 30, 2023 and December 31, 2022.

Critical Accounting Policies and Estimates

Basis of Presentation and Principles ofConsolidation

The accompanying consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles in the United Stated of America (“US GAAP”) and have been consistently applied. The accompanying consolidated financial statements include the financial statements of the Company and its majority-owned and controlled subsidiaries. All significant inter-company transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Such estimates include, but are not limited to, allowances for doubtful accounts, inventory valuation, useful lives of property, plant and equipment, intangible assets, impairment in equity investment, and income taxes related to realization of deferred tax assets and uncertain tax position. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of cash and deposits with financial institutions which are unrestricted as to withdrawal and use. Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with original maturities of three months or less when purchased.

Restricted Cash

The Company had bank acceptance notes outstanding with the bank and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. Those notes are generally short term in nature due to their short maturity period of six to nine months; thus, restricted cash is classified as a current asset.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective January 1, 2018, using the retrospective transition method.

As of June 30, 2023 and December 31, 2022, restricted cash was $1,500,224 and $34,728, respectively. No cash is restricted to assure future credit availability.

Revenue Recognition

The Company generates its revenues mainly from sales of electrical products, such as electrical converter and inverter, to third-party customers, who are mainly distributors and retailers. The Company follows Financial Accounting Standards Board (FASB) ASC 606 and accounting standards updates (“ASU”) 2014-09 for revenue recognition. On January 1, 2018, the Company has early adopted ASU 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with a customer. As part of its consideration of the contract, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In the principal versus agent consideration, since no another party is involved in transactions, the Company is a principal.

In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. The Company analyzed historical refund claims for defective products and concluded that they have been immaterial.

Revenues are reported net of all value added taxes. As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on their relative standalone selling price.

Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied at a point in time), which typically occurs at delivery. For international sales, the Company sells its products primarily under the free onboard (“FOB”) shipping point term. For sales under the FOB shipping point term, the Company recognizes revenues when products are delivered from Company to the designated shipping point. Prices are determined based on negotiations with the Company’s customers and are not subject to adjustment.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all accounting standards updates (“ASU”). Management periodically reviews new accounting standards that are issued.

Recently Issued Accounting Standards

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326). The amendments in this update are related to the following two issues:

–	Issue 1: Troubled Debt Restructurings (“TDRs”) by Creditors

The amendments in this Update eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40,

Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan.

–	Issue 2: Vintage Disclosures—Gross Writeoffs

For public business entities, the amendments in this Update require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost.

For entities that have adopted the amendments in Update 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted the amendments in Update 2016-13, the effective dates for the amendments in this Update are the same as the effective dates in Update 2016-13.

The Company does not expect the adoption to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company’s financial position, result of operations or cash flows.

Off-balance Sheet Commitments and Arrangements

There were no off-balance sheet arrangements for the periods ended June 30, 2023 and December 31, 2022, that have or that in the opinion of management are likely to have, a current or future material effect on our consolidated financial condition or results of operations.

Future Related Party Transactions

The Corporate Governance Committee of our Board of Directors will be required to approve all related party transactions. All related party transactions will be made or entered into on terms that are no less favorable to use than can be obtained from unaffiliated third parties.

Impact of Inflation

We do not believe the impact of inflation on our Company is material. Our operations are in China and China’s inflation rates have been relatively stable in the last three years: 3.7% for 2022, 0.85% for 2021, and 2.5% for 2020.

Holding Company Structure

We are a holding company with no material operations of our own. We conduct our operations through our subsidiaries in China. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries. Our PRC subsidiaries may purchase foreign exchange from relevant banks and make distributions to offshore companies after completing relevant foreign exchange registration with the SAFE. Our offshore companies may inject capital into or provide loans to our PRC subsidiaries through capital contributions or foreign debts, subject to applicable PRC regulations. If our subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our subsidiaries are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.

Under PRC law, each of our affiliates in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reached 50% of its registered capital, after which any mandatory appropriation stops. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation of the companies. The reserved amounts as determined pursuant to PRC statutory laws totaled $916,912 as of June 30, 2023.

Quantitative and Qualitative Disclosures aboutMarket Risk

Foreign Exchange Risk

All of our revenues and substantially all of our expenses are denominated in RMB. Our financial information uses RMB as the functional currency has been translated into U.S. dollars in our consolidated financial statements. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk.

The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. The PRC government allowed the RMB to appreciate by more than 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, the RMB and the U.S. dollar exchange rate had been stable and traded within a narrow band. Since June 2010, the PRC government has allowed the RMB to appreciate slowly against the U.S. dollar, though there have been periods when the RMB has depreciated against the U.S. dollar. In particular, on August 11, 2015, the PBOC allowed the RMB to depreciate by approximately 2% against the U.S. dollar. It is difficult to predict how long the current situation may last and when and how the RMB and the U.S. dollar relationship may change again.

To the extent that we need to convert U.S. dollars into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amounts available to us.

Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices. Our market risk exposure is generally limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Commodity Price Risk

Our revenue is exposed to the market risk of price fluctuations related to the sale of our generators. Prices for the generators that we sell are generally determined by market forces. These prices may be influenced by factors such as supply and demand, production costs (including the costs of our raw materials) and global and domestic economic growth. Adverse changes in any of these factors may reduce the revenue that we receive from the sale of our generators. Our costs are also exposed to fluctuations in prices for the purchase, processing and production of microchips and other raw material inputs. Historically, we have generally been able to pass along price increases to our customers; however, we may be unable to do so in the future. We do not engage in commodity price hedging activities.

Exhibit 99.2

ERAYAK POWER SOLUTION GROUP INC.

INTERIM CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022

(IN U.S. DOLLARS, EXCEPT SHARE DATA)

	June<br> 30,
	2023<br><br> (Unaudited)			December 31, 2022
ASSETS
Current<br> assets:
Cash<br> and cash equivalents	$	5,773,428		$	7,032,519
Restricted<br> cash		1,500,224			34,728
Accounts<br> receivable, net		5,909,695			9,961,343
Inventories		6,851,249			6,227,456
Advances<br> to suppliers		1,924,465			4,716,491
Prepaid<br> expenses		-			-
Loan<br> receivable		-			168,184
Other<br> receivables		131,476			95,007
Due<br> from related parties		965			-
Total<br> current assets		22,091,502			28,235,728
Property,<br> plant and equipment, net		1,803,058			1,662,155
Intangible<br> assets, net		7,765			8,814
Right-of-use<br> assets		7,047,686			7,665,013
Deferred<br> tax assets		31,855			33,490
Other<br> non-current assets		3,778,633			-
TOTAL<br> ASSETS	$	34,760,499		$	37,605,200
LIABILITIES<br> AND SHAREHOLDERS’ EQUITY
Current<br> liabilities:
Short-term<br> borrowings	$	4,964,627		$	6,227,165
Accounts<br> payable		3,976,010			4,729,174
Accrued<br> expenses and other current liabilities		462,448			790,608
Advances<br> from customers		364,844			711,013
Due<br> to related parties		219,547			391,151
Long-term<br> loans – current portion		4,429,524			4,349,591
Tax<br> payable		740,445			844,925
Total<br> current liabilities:		15,157,445			18,043,626
Non-current<br> liabilities:
Long-term<br> loans		442,958			217,523
TOTAL<br> LIABILITIES		15,600,403			18,261,149
COMMITMENTS<br> AND CONTINGENCIES
Shareholders’<br> Equity:
Class A shares, 450,000,000 shares authorized; 11,000,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022		1,100			1,100
Class B shares, 50,000,000 shares authorized, 1,000,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022		100			100
Additional<br> paid-in capital		10,645,122			10,645,122
Statutory<br> reserve		916,912			916,912
Retained<br> earnings		8,639,931			8,164,759
Accumulated<br> other comprehensive (loss) income		(1,043,069	)		(383,942)
Total<br> Shareholders’ equity		19,160,096			19,344,051
TOTAL<br> LIABILITIES AND SHAREHOLDERS’ EQUITY	$	34,760,499		$	37,605,200

The accompanying notes are an integral part of these interim consolidated financial statements.

F-1

ERAYAK POWER SOLUTION GROUP INC.

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OFINCOME AND COMPREHENSIVE INCOMEFOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022(IN U.S. DOLLARS, EXCEPT SHARE DATA)

	Six months ended <br><br>June 30,
	2023			2022
Sales	$	9,449,817		$	11,478,147
Cost of sales		(6,619,695	)		(7,603,901	)
Gross profit		2,830,122			3,874,246
Operating expenses:
General and administrative		(1,168,174	)		(357,521	)
Selling and marketing		(436,619	)		(332,218	)
Research and development		(481,702	)		(560,017	)
Inventory reserve provision		(83,419	)		-
Total operating expenses		(2,169,914	)		(1,249,756	)
Operating income		660,208			2,624,490
Other income (expenses):
Interest expenses, net		(199,712	)		(240,904	)
Rental income, net		102,712			83,925
Other income (expenses), net		4,671			15,031
Total other (expenses) income, net		(92,329	)		(141,948	)
Income before income taxes		567,879			2,482,542
Income tax provision		(92,707	)		(291,881	)
Net income	$	475,172		$	2,190,661
Other comprehensive income:
Foreign currency translation adjustment		(659,127	)		(406,611	)
Total comprehensive (loss) income	$	(183,955	)	$	1,784,050
Earnings per share attributable to common shareholders:
Shares		12,000,000			9,000,000
Earnings per share	$	0.04		$	0.24
Weighted average number of shares outstanding
Basic and Diluted		12,000,000			9,000,000

The accompanying notes are an integral part of these interim consolidated financial statements.

F-2

ERAYAK POWER SOLUTION GROUP INC.

UNAUDITED INTERIM CONSOLIDATED STATEMENTS OFCHANGES IN SHAREHOLDERS’ EQUITYFOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022

(IN U.S. DOLLARS, EXCEPT SHARE DATA)

For the six months ended June 30, 2023:


Balance at December 31, 2022	11,000,000	1,000,000	100	10,645,122	916,912	8,164,759	(383,942	)	19,344,051
Foreign currency translation loss							(659,127	)	(659,127	)
Net income						475,172			475,172
Balance at June 30, 2023	11,000,000	1,000,000	100	10,645,122	916,912	8,639,931	(1,043,069	)	19,160,096

All values are in US Dollars.

For the six months ended June 30, 2022:


Balance at December 31, 2021	8,000,000	1,000,000	100	1,060,510	568,418	5,037,292	227,202		6,894,322
Foreign currency translation loss							(406,611	)	(406,611	)
Net income						2,190,661			2,190,661
Balance at June 30, 2022	8,000,000	1,000,000	100	1,060,510	568,418	7,227,953	(179,409	)	8,678,372

All values are in US Dollars.

The accompanying notes are an integral part of these interim consolidated financial statements.

F-3

ERAYAK POWER SOLUTION GROUP INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022(UNAUDITED, IN U.S. DOLLARS)

	2023			2022
Cash Flows from Operating Activities:
Net income	$	475,172		$	2,190,661
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		187,305			121,817
Imputed interest expenses		18,146			28,553
Right of use lease asset		254,354			271,988
Inventory reserve provision		83,419			-
Loss on asset disposal		-			145
Changes in operating assets and liabilities:
Accounts receivable		3,731,422			(3,342,794	)
Inventories		(1,054,574	)		(224,043	)
Advances to suppliers		2,756,002			1,948,325
Prepaid expenses		(25,000	)		(115,017	)
Other receivables		(60,832	)		(69,801	)
Loan receivable		167,429			-
Accounts payable		(576,122	)		(325,467	)
Accrued expenses and other current liabilities		(109,871	)		145,677
Advances from customers		(325,968	)		175,253
Tax payable		(66,168	)		408,227
Net cash provided by operating activities		5,454,714			1,213,524
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(389,532	)		(172,192	)
Fixed deposit		(3,954,794	)		-
Net cash used in investing activities		(4,344,326	)		(172,192	)
Cash Flows from Financing Activities:
Proceeds from short-term borrowings		1,443,356			3,992,074
Repayments on short-term borrowings		(2,446,488	)		(4,344,422	)
Proceeds from related parties		9,132,977			14,769,886
Payments to related parties		(9,301,896	)		(14,255,139	)
Proceeds(repayment) of notes payable		-			30,868
Proceeds from long-term bank loans		5,131,230			765,538
Repayments on long-term bank loans		(4,578,204	)		(342,934	)
Net cash (used in) provided by financing activities		(619,025	)		615,871
Effect of exchange rate changes on cash		(284,958	)		(305,645	)
Net increase in cash and cash equivalents		206,405			1,351,558
Cash and cash equivalents at the beginning of period		7,067,247			5,174,693
Cash and cash equivalents at the end of period		7,273,652			6,526,251
Reconciliation of cash, cash equivalents and restricted cash to the Consolidated Balance Sheet
Cash and cash equivalents		5,773,428			6,496,392
Restricted cash		1,500,224			29,859
Cash and cash equivalents at the end of year	$	7,273,652			6,526,251
Supplemental disclosures of cash flows information:
Cash paid for income taxes	$	-		$	94,541
Cash paid for interest	$	218,050		$	217,398

The accompanying notes are an integral part of these interim consolidated financial statements.

F-4

ERAYAK POWER SOLUTION GROUP INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

Erayak Power Solution Group Inc. (“ErayakGroup”)

Erayak Group was incorporated on June 14, 2019 under the laws of Cayman Islands. Under its memorandum of association, Erayak Group was authorized to issue 500,000,000 ordinary shares of par value of $0.0001 each, comprising of: (i) 450,000,000 Class A Ordinary Shares of par value of USD0.0001 each, and (ii) 50,000,000 Class B Ordinary Shares of par value of USD0.0001 each. There are currently 11,000,000 issued and outstanding Class A Ordinary Shares and 1,000,000 issued and outstanding Class B Ordinary Shares, of which 6,000,000 Class A and 1,000,000 Class B Ordinary Shares are owned by Erayak International Limited, 1,400,000 Class A Ordinary Shares are owned by CEC Science and Innovation Co., Ltd., and 600,000 Class A Ordinary Shares are owned by Grand Merchant Incorporation Limited.

Erayak Group is a holding company and is currently not actively engaging in any business. Erayak Group’s registered agent is Harneys Fiduciary (Cayman) Limited, and its registered office is at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands.

Entity Name	Registered<br><br> <br>Location	Date of Incorporation	Ownership as of the<br><br> <br>issuance date of the report
Erayak Power Solution Group Inc. (“Erayak Group”)	Cayman Islands	June 14, 2019	Parent
Erayak Power Solution Limited<br><br>(“Erayak BVI’)	British Virgin Island	June 17, 2019	100% by the Parent
Erayak Power Solution Hong Kong Limited (“Erayak HK”)	Hong Kong	June 26, 2019	100% by Erayak BVI
Wenzhou Wenjie Technology Limited (“Wenjie”)	Wenzhou, China	December 11, 2019	100% by Erayak HK
Zhejiang Leiya Electronics Limited (“Leiya”)	Wenzhou, China	March 5, 2009	100% by Wenjie
Wenzhou New Focus Limited<br><br>(“New Focus”)	Wenzhou, China	November 21, 2012	100% by Leiya

Erayak Power Solution Limited (“ErayakBVI”)

Erayak BVI was incorporated on June 17, 2019 under the laws of British Virgin Islands. Under its memorandum of association, Erayak BVI is authorized to issue 50,000 ordinary shares of a single class, par value $1 per ordinary share. There are currently 100 issued and outstanding ordinary shares, of which 100% are owned by Erayak Power Solution Group Limited. Erayak BVI is a holding company and is currently not actively engaging in any business. Erayak BVI’s registered agent is Harneys Corporate Services Limited and its registered office is at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands.

Erayak Power Solution Hong Kong Limited (“ErayakHK”)

Erayak HK was incorporated on June 26, 2019 under the laws of Hong Kong and is a wholly owned subsidiary of Erayak Power Solution Limited. The paid in capital was $3,900,000 as of June 30, 2023. Erayak HK did not have any operations as of June 30, 2023.

Wenzhou Wenjie Technology Limited (“Wenjie”)

Wenjie was incorporated on December 11, 2019 in People’s Republic of China (“China” or “PRC”), and is a wholly owned subsidiary of Erayak Power Solution Hong Kong Limited. Wenjie is a wholly-foreign owned enterprise organized under the laws of the PRC. The paid in capital was $3,000,000 as of June 30, 2023. Wenjie did not have any operations as of June 30, 2023.

F-5

Zhejiang Leiya Electronics Limited (“Leiya”)

Leiya was incorporated on March 5, 2009 under the laws of the People’s Republic of China. The paid in capital was RMB 6,900,000 as of June 30, 2023.

The registered principal activities of Leiya are mainly development, production and sales of inverters, chargers and gasoline generators.

Wenzhou New Focus Limited (“New Focus”)

New Focus was incorporated on November 21, 2012 in China, and is a wholly owned subsidiary of Leiya. The paid in capital was RMB 5,000,000 as of June 30, 2023.

The principal activity of New Focus is mainly the sale of Leiya’s products, which involves exports to multiple countries.

Reorganization

In or about April and August 2020, the Company completed corporate reorganization to roll several controlled entities (now referred to as the subsidiaries) into one legal corporation (the Company). Shengling Xiang transferred 10% equity of Leiya to Hecang Limited, a Hong Kong entity’s subsidiary, on January 14, 2020. On April 21, 2020, Wenjie acquired 90% equity of Leiya from Shengling Xiang, and 10% from Hecang Limited. As a result, Leiya’s equity interest is 100% held by Wenjie as of April 21, 2020. On August 12, 2020, Chuanlong Lin transferred 100% equity of New Focus to Leiya. Therefore, Leiya holds 100% of equity interest of New Focus as of August 12, 2020. Shengling Xiang, Hecang Limited, and Chuanlong Lin were holding shares on behalf of Lingyi Kong, and therefore, the Company is under the control of Lingyi Kong both before and after the transactions.

During the years presented in these consolidated financial statements, the control of the entities has never changed (always under the ultimate control of Lingyi Kong). Accordingly, the combination has been treated as a corporate restructuring (reorganization) of entities under common control and thus the current capital structure has been retroactively presented in prior periods as if such structure existed at that time and in accordance with ASC 805-50-45-5, the entities under common control are presented on a combined basis for all periods to which such entities were under common control. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

F-6

Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Such estimates include, but are not limited to, allowances for doubtful accounts, inventory valuation, useful lives of property, plant and equipment, intangible assets, and income taxes related to realization of deferred tax assets and uncertain tax position. Actual results could differ from those estimates.

Foreign Currency Translation

The financial records of the Company’s subsidiaries in People’s Republic of China (“PRC”) are maintained in their local currencies which are Chinese Yuan (“CNY” or “RMB”). Monetary assets and liabilities denominated in currencies other than their local currencies are translated into local currencies at the rates of exchange in effect at the consolidated balance sheet dates. Transactions denominated in currencies other than their local currencies during the year are converted into local currencies at the applicable rates of exchange prevailing when the transactions occur. Transaction gains and losses are recorded in other income/(expense), net in the consolidated statements of income and comprehensive income.

The Company maintained its financial record using the United States dollar (“US dollar”) as the functional currency, while the subsidiaries of the Company in Hong Kong and mainland China maintained their financial records using RMB as the functional currencies. The reporting currency of the Company is US dollar. When translating local financial reports of the Company’s subsidiaries into US dollar, assets and liabilities are translated at the exchange rates at the consolidated balance sheet date, equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are translated at the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the consolidated statements of income and comprehensive income.

The relevant exchange rates are listed below:

		June 30,		December 31,
		2022		2022
Period Ended RMB: exchange rate	7.2513		6.6981		6.8972
Period Average RMB: exchange rate	6.9283		6.4791		6.7290

All values are in US Dollars.

Cash and Cash Equivalents

Restricted Cash

As of June 30, 2023 and December 31, 2022, restricted cash was $1,500,224 and $34,728, respectively.

F-7

Accounts Receivable, net

Accounts receivables are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. 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. 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. 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.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the weighted-average method. The Company records adjustments to inventory for excess quantities, obsolescence or impairment when appropriate to reflect inventory at net realizable value. These adjustments are based upon a combination of factors including current sales volume, market conditions, lower of cost or market analysis and expected realizable value of the inventory.

Advances to Suppliers

Advances to suppliers refer to advances for purchase of materials or services, which are applied against accounts payable when the materials or services are received.

The Company reviews a supplier’s credit history and background information before advancing a payment. If the financial condition of its suppliers were to deteriorate, resulting in an impairment of their ability to deliver goods or provide services, the Company would write off such amount in the period when it is considered impaired. As of June 30, 2023 and December 31, 2022, the Company had no write-offs for advances to suppliers.

Advances from Customers

Advances from customers refer to advances received from customers, which are applied against accounts receivable when products are sold.

Property, Plant and Equipment, net

Property, plant, and equipment are recorded at cost less accumulated depreciation. Depreciation commences upon placing the asset in use and is recognized on a straight-line basis over the estimated useful lives of the assets with 5% of residual value, as follows:

	Useful lives
Buildings	10 years
Machinery and equipment	5-10 years
Transportation vehicles	4 years
Office furniture and equipment	5 years
Electronic equipment	3-5 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.

Intangible Assets

Intangible assets consist of patents and a trademark. Intangible assets are amortized using the straight-line method with the following estimated useful lives:

	Useful lives
Patents	10 years
Trademark	10 years

F-8

Leases/Right of use assets

Effective January 1, 2018, the Company adopted the new lease accounting standard using a modified retrospective transition method which allowed the Company not to recast comparative periods presented in its consolidated financial statements. In addition, the Company elected the package of practical expedients, which allowed the Company to not reassess whether any existing contracts contain a lease, to not reassess historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company combines the lease and non-lease components in determining the ROU assets and related lease obligation. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed in financial statements. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.

Impairment of Long-lived Assets

The Company’s management reviews the carrying values of long-lived assets whenever events and circumstances, such as a significant decline in the asset’s market value, obsolescence or physical damage affecting the asset, significant adverse changes in the assets use, deterioration in the expected level of the assets performance, cash flows for maintaining the asset are higher than forecast, indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.

There was no impairment charge recognized for long-lived assets for the periods ended June 30, 2022 and December 31, 2021.

Fair Value Measurement

Fair Value Measurements and Disclosures requires disclosure of the fair value of financial instruments held by the Company. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

●	Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
●	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
---	---
●	Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
---	---

For the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, other receivables, accounts payable, other current liabilities, and bank loans, the carrying amounts approximate their fair values due to their short maturities as of June 30, 2023 and December 31, 2022.

F-9

Value-added Tax (“VAT”)

Sales revenue represents the invoiced value of goods, net of VAT. All of the Company’s products that are sold in the PRC are subject to a VAT on the gross sales price. The Company is subject to a VAT rate of 17% before May 1, 2018, 16% on and after May 1, 2018, and a new VAT rate of 13% effective on April 1, 2019. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products.

Revenue Recognition

The Company generates its revenues mainly from sales of electrical products, such as electrical converters and inverters, to third-party customers, who are mainly distributors and retailers. The Company follows Financial Accounting Standards Board (FASB) ASC 606 and accounting standards updates (“ASU”) 2014-09 for revenue recognition. On January 1, 2018, the Company has early adopted ASU 2014-09, which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Rental income

Rental income is from subleasing part of the leased assets under operating leases, and it is recognized in the statements of comprehensive income on a straight-line basis over the term of the lease.

Government Grant

Government grants are the compensation for expenses already incurred or for the purpose of giving immediate financial support to the Company. The government evaluates the Company’s eligibility for the grants on a consistent basis, and then makes the payment. Therefore, there are no restrictions on the grants.

Government grants are recognized when received and all the conditions for their receipt have been met. The grants received were $109,472 and $89 for the six months ended June 30, 2023 and 2022, respectively, which were included in other income on Income Statement.

F-10

Research and Development Costs

Research and development activities are directed toward the development of new products as well as improvements in existing processes. These costs, which primarily include salaries, contract services and supplies, are expensed as incurred.

Shipping and Handling Costs

Shipping and handling costs are expensed when incurred and are included in selling and marketing expense. Shipping and handling costs were $92,087 and $92,988 for the six months ended June 30, 2023 and 2022, respectively.

Advertising Costs

Advertising costs are expensed as incurred in accordance with ASC 720-35, “Selling and Marketing Expenses-Advertising Costs”. Advertising costs were $26,114 and $7,929 for the six months ended June 30, 2023 and 2022, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability method whereby it calculates deferred tax assets or liabilities for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits by applying enacted tax rates applicable to the years in which those temporary differences are expected to be reversed or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. The components of the deferred tax assets and liabilities are individually classified as non-current amounts.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

To the extent applicable, the Company records interest and penalties as other expense. All of the tax returns of the Company’s PRC subsidiaries remain subject to examination by PRC tax authorities for five years from the date of filing. The fiscal year for tax purpose in PRC is December 31.

The Company and its subsidiaries are not subject to U.S. tax laws and local state tax laws. The Company’s income and that of its related entities must be computed in accordance with Chinese and foreign tax laws, as applicable, and all of which may be changed in a manner that could adversely affect the amount of distributions to shareholders. There can be no assurance that Income Tax Laws of PRC will not be changed in a manner that adversely affects shareholders. In particular, any such change could increase the amount of tax payable by the Company, reducing the amount available to pay dividends to the holders of the Company’s ordinary shares.

Earnings Per Share

Earnings (loss) per share is calculated in accordance with ASC 260 Earnings per Share. Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is computed in accordance with the treasury stock method and based on the weighted average number of ordinary shares and dilutive ordinary share equivalents. Dilutive ordinary share equivalents are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive. There were no dilutive ordinary share equivalents outstanding during the six months ended June 30, 2023 and 2022.

The Company did not use the two-class method to compute net income per ordinary share, because it did not have other issued securities other than ordinary shares. Class A and Class B shares are both ordinary shares, and per Article 6 in Memorandum and Articles of Association (amended and restated), they have the same rights, preferences, privileges, and restrictions, except for voting and conversion rights.

F-11

Comprehensive income/(loss)

Comprehensive income/(loss) is defined as the changes in shareholders’ equity during a period arising from transactions and other events and circumstances excluding transactions resulting from investments by shareholders and distributions to shareholders. Comprehensive income or loss is reported in the consolidated statements of comprehensive income/(loss). Accumulated other comprehensive income/(loss), as presented on the accompanying consolidated balance sheets, consists of accumulated foreign currency translation adjustments.

Certain Risks and Concentration

Exchange Rate Risks

The Company operates in PRC, which may give rise to significant foreign currency risks mainly from fluctuations and the degree of volatility of foreign exchange rates between the USD and the RMB.

Currency Convertibility Risks

Substantially all of the Company’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentration of credit risks consist primarily of cash and cash equivalents, restricted cash, notes receivable. The Company places its cash and cash equivalents, restricted cash, and note receivable in good credit quality financial institutions in Hong Kong and PRC. Concentration of credit risks with respect to accounts receivables is linked to the concentration of revenue. To manage credit risk, the Company performs ongoing credit evaluations of customers’ financial condition.

Interest Rate Risks

The Company is subject to interest rate risk. The Company has bank interest bearing loans charged at variable interest rates. And although some bank interest bearing loans are charged at fixed interest rates within the reporting period, the Company is still subject to the risk of adverse changes in the interest rates charged by the banks when these loans are refinanced.

Risks and Uncertainties

The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note1, this may not be indicative of future results.

Liquidity Risks

Our primary sources of liquidity consist of existing cash balances, cash flows from our operating activities and availability under our revolving credit facility. 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 June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $7,273,652 and $7,067,247, respectively. We believe that our current cash, cash to be generated from our operations and access to loans from our related parties will be sufficient to meet our working capital needs for at least the next twelve months. 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. We are also not dependent upon this offering to meet our liquidity needs for the next twelve months. However, we plan to expand our business to implement our growth strategies in our existing market and strengthen our position in the marketplace. To do so, we will need more capital through equity financing to increase our production and meet market demands.

F-12

Recent Accounting Pronouncements

The Company considers the applicability and impact of all accounting standards updates (“ASU”). Management periodically reviews new accounting standards that are issued.

Recently Issued Accounting Standards

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326). The amendments in this update are related to the following two issues:

-	Issue 1: Troubled Debt Restructurings (“TDRs”) by Creditors

The amendments in this Update eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40,

-	Issue 2: Vintage Disclosures—Gross Writeoffs

The Company does not expect the adoption to have a material impact on its consolidated financial statements.

Reclassification of Prior Period Presentation

Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable as of June 30, 2023 and December 31, 2022 consisted of the following:

	June 30,<br> 2023			December 31, <br> 2022
Accounts receivable	$	5,912,052		$	9,963,821
Less: allowance for doubtful accounts		(2,357	)		(2,478	)
Accounts receivable, net	$	5,909,695		$	9,961,343

The average accounts receivable turnover period was approximately 154 days and 79 days for the fiscal periods ended June 30, 2023 and December 31, 2022, respectively.

Changes of allowance for doubtful accounts for the fiscal periods ended June 30, 2023 and December 31, 2022 were as follow:

	June 30,<br> 2023			December 31, <br> 2022
Beginning balance	$	(2,478	)	$	(2,682	)
Exchange difference		121			204
Ending balance	$	(2,357	)	$	(2,478	)

There was no bad debt expense recorded by the Company during the fiscal periods ended June 30, 2023 and December 31, 2022.

F-13

NOTE 4 – INVENTORIES

Inventories as of June 30, 2023 and December 31, 2022 consisted of the following:

	June 30,<br> 2023			December 31, <br> 2022
Raw materials	$	5,404,093		$	4,298,235
Work in process		591,234			642,235
Finished goods		948,368			1,300,383
Inventory valuation allowance		(92,446	)		(13,397	)
Total	$	6,851,249		$	6,227,456

The inventory valuation allowance recognized for the fiscal periods ended June 30, 2023 and December 31, 2022 was $79,703 and $0, respectively. There were no write-offs for the fiscal periods ended June 30, 2023 and December 31, 2022.

NOTE 5 – ADVANCES TO SUPPLIERS AND OTHER

Advances to suppliers and other as of June 30, 2023 and December 31, 2022 consisted of the following:

	June 30,<br><br> 2023		December 31, <br><br>2022
Advance to suppliers	$	723,111	$	515,137
Advance payment for potential factory lease and land purchase		1,201,354		4,201,354
Total		1,924,465		4,716,491

As of June 30, 2023, there was an advance payment in the amount of $1,000,000, which was related to a potential long-term lease of customized factory for the purpose of expanding business in the energy storage industry.

As of December 31, 2022, there was $4,201,354 included in advances to suppliers, which was relating to potential oversea land purchase for the purpose of expanding business in North America. The advance was paid to a third-party company, who signed an agreement with the Company to seek the suitable land on the Company’s behalf. If the third-party company fails to locate the land that meet the Company’s requirements within 180 days of the signed date of the agreement, the agreement terminates, and the third-party company will return the $4.2 million advance received from the Company. On May 5, 2023, the Company received $4 million of returned advances related to the potential land purchase.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 2023 and December 31, 2022 consisted of the following:

	June 30,<br> 2023		December 31, <br> 2022
Machinery and equipment	$	1,849,145	$	1,769,482
Transportation vehicles		396,526		237,255
Electronic devices		101,732		89,614
Office furniture and equipment		56,155		48,728
Leasehold improvements		23,836		-
Building		489,906		501,023
Total property plant and equipment, at cost		2,917,300		2,646,102
Less: accumulated depreciation		1,114,242		983,947
Property, plant and equipment, net	$	1,803,058	$	1,662,155

As of June 30, 2023 and December 31, 2022, the Company had no impaired or pledged property and equipment.

Additions to property and equipment for the fiscal periods ended June 30, 2023 and December 31, 2022 were $400,414 and $926,117, respectively. There were no disposals during these periods.

Depreciation expenses were $186,658 and $121,126 for the six months ended June 30, 2023 and 2022, respectively

There were no depreciation expenses included in cost of sales during the six months ended June 30, 2023 and 2022.

F-14

NOTE 7 – INTANGIBLE ASSETS

Intangible assets as of June 30, 2023 and December 31, 2022 consisted of the following:

	June 30,<br> 2023			December 31, <br> 2022
Intangible assets
Cost	$	12,494		$	13,136
Accumulated amortization		(4,082	)		(2,851	)
Additions, at cost					-
Amortization current period		(647	)		(1,471	)
Intangible assets, net	$	7,765		$	8,814

The intangible assets represent the ERAYAK trademark and the Company’s purchase of patents related to new technologies to produce inverters.

There were no disposals for the fiscal periods ended June 30, 2023 and December 31, 2022.

During the periods of June 30, 2023 and December 31, 2022, the Company had no impaired or pledged intangibles.

Five succeeding years of amortization are as follows:

Year	Amortization		Net carrying<br><br> value
2024	$	1,249	$	6,516
2025		1,249		5,267
2026		1,249		4,018
2027		1,249		2,769
2028		1,249		1,520

NOTE 8 – LEASE

The Company has one related party lease for the land where it operates with no option to renew, and the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. After paid part of the 20-year lease payment, the Company secured the right to use of property, and the lessor, Wenzhou Ailefu Technology Co., Ltd (“Ailefu”), provided the leased assets as guarantee for the Company to apply bank loan, and the lease payment for the future 20 years have been prepaid. The Company sub-leases part of the property and uses rental income to cover part or all of the interest expense on the bank loan. The related bank loan is disclosed in Note 11 – Long-term Loans. Rental income from the sublease is disclosed in Note 17 – Rental Income, Net. Relation between the Company and Ailefu is disclosed in Note 20 – Related Party Transactions.

The ending balances of right of use assets were $7,047,686 and $7,665,013 as of June 30, 2023 and December 31, 2022, respectively.

NOTE 9 – OTHER NON-CURRENT ASSETS

As of June 30, 2023, other non-current assets included a three-year fixed deposit in the amount of RMB 27,400,000, or $3,778,633, in Minsheng Bank, from June 9, 2023, to June 9, 2026. The annual interest rate on the deposit is 3.2%, and early withdrawal before the expiry date is not allowed.

NOTE 10 – SHORT-TERM BORROWINGS

Short-term borrowings consisted of the following as of June 30, 2023 and December 31, 2022:

	As of
	June 30,<br> 2023		December 31,<br> 2022
Short-term borrowings from financial institutions	$	4,137,189	$	4,777,301
Government loan		827,438		1,449,864
Total	$	4,964,627	$	6,227,165

F-15

Short-term borrowings from financial institutions consisted of the following at June 30, 2023:

Bank Name	Amount – RMB		Issuance<br><br>Date	Expiration<br><br>Date
Minsheng Bank		10,000,000	2022.08.09	2023.08.09	4.10	%
Minsheng Bank		10,000,000	2022.08.16	2022.08.15	4.10	%
Minsheng Bank		5,000,000	2023.01.13	2023.07.13	4.00	%
Minsheng Bank		5,000,000	2023.01.13	2023.07.13	4.00	%
Total	RMB	30,000,000

All values are in US Dollars.

Short-term borrowings from financial institutions consisted of the following at December 31, 2022:

Bank Name	Amount – RMB		Issuance<br><br>Date	Expiration<br><br>Date
Longwan Rural Commercial Bank		1,200,000	2022.06.15	2023.06.14	9.60	%
Longwan Rural Commercial Bank		1,750,000	2022.06.15	2023.06.14	9.60	%
Minsheng Bank		10,000,000	2022.08.02	2023.02.02	4.10	%
Minsheng Bank		10,000,000	2022.08.09	2023.08.09	4.10	%
Minsheng Bank		10,000,000	2022.08.16	2023.08.15	4.10	%
Total	RMB	32,950,000

All values are in US Dollars.

The Company’s short-term bank borrowings are guaranteed by the Company’s major shareholders, their immediate family members, and related companies. For the fiscal periods ended June 30, 2023 and 2022, interest expenses on short-term borrowings from financial institutions amounted to $107,308 and $94,323, respectively.

For the six months ended June 30, 2023 and 2022, the imputed interest expense recorded by the Company on the government loan was $18,146 and $28,553, respectively.

NOTE 11 – LONG-TERM LOANS

As of June 30, 2023, the long-term loans consisted of the following:

Description	Amount – RMB				Issuance<br><br>Date	Expiration<br><br>Date
WeBank Shenzhen		452,698			2023.01.17	2025.01.23	7.92	%
WeBank Shenzhen		200,000			2023.04.27	2025.04.23	6.6528	%
WeBank Shenzhen		357,143			2022.10.06	2024.09.23	7.272	%
WeBank Shenzhen		304,853			2022.10.22	2024.10.23	6.552	%
WeBank Shenzhen		514,440			2022.12.30	2024.12.23	7.128	%
WeBank Shenzhen		452,697			2023.01.17	2025.01.23	7.92	%
WeBank Shenzhen		100,000			2023.03.29	2025.03.23	7.4844	%
Longwan Rural Commercial Bank		1,200,000			2023.06.02	2026.05.30	6.6	%
Longwan Rural Commercial Bank		1,750,000			2023.06.02	2026.05.30	6.6	%
Minsheng Bank		10,000,000			2023.03.29	2024.06.17	4.12	%
Minsheng Bank		10,000,000			2023.03.30	2024.06.17	4.12	%
Minsheng Bank		10,000,000			2023.03.31	2024.06.17	4.12	%
Subtotal		35,331,831
Current portion of long-term loans		(32,119,810	)	)
Total	RMB	3,212,021

All values are in US Dollars.

F-16

As of December 31, 2022, the long-term loan consisted of the following:

Description	Amount – RMB				Issuance<br><br>Date	Expiration<br><br>Date
WeBank Shenzhen		500,000			2022.10.06	2024.09.23	7.27	%
WeBank Shenzhen		400,120			2022.10.23	2024.10.23	6.55	%
WeBank Shenzhen		600,180			2022.12.30	2024.12.23	7.13	%
Minsheng Bank		30,000,000			2021.04.12	2023.04.08	4.70	%
Subtotal		31,500,300
Current portion of long-term loans		(30,000,000	)	)
Total	RMB	1,500,300

All values are in US Dollars.

As of June 30, 2023 and December 31, 2022, the long-term loans from Minsheng Bank were secured by the leased property from Ailefu, which is disclosed in Note 8 - Lease.

For the six months ended June 30, 2023 and 2022, interest expenses on long-term loans amounted to $110,742 and $110,020, respectively.

NOTE 12 – SALES

Disaggregated sales by types as of June 30, 2023 and 2022 consisted of the following:

	2023		2022
Inverters	$	4,125,882	$	7,176,484
Chargers		228,389		400,413
Gasoline generators		4,514,899		3,782,129
Power bank		452,318		-
Other products		128,329		119,120
Total	$	9,449,817	$	11,478,147

There is no warranty, discount or return policy documented in the sales agreements.

NOTE 13 – GENERAL AND ADMINISTRATIVEEXPENSES

General and administrative expenses as of June 30, 2023 and 2022 consisted of following:

	2023		2022
Employee compensation and benefits	$	207,833	$	142,900
Travel and communication expenses		31,916		18,146
Rent and utilities		30,454		22,071
Consulting fees		682,558		65,874
Insurance		13,680		12,971
Depreciation and amortization expenses		51,636		31,131
Sales tax		36,158		38,840
Entertainment		18,383		2,278
Office and miscellaneous		95,556		23,310
Total	$	1,168,174	$	357,521

NOTE 14 – SELLING AND MARKETING EXPENSES

Selling and marketing expenses as of June 30, 2023 and 2022 consisted of the following:

	2023		2022
Employee compensation and benefits	$	54,981	$	55,943
Travel and promotion		47,633		19,638
Transportation		105,514		90,388
Insurance		8,228		-
Consulting fee		6,053		1,349
Inspection and certification fees		67,265		106,195
Entertainment		110,453		49,247
Office and miscellaneous		36,492		9,458
Total	$	436,619	$	332,218

F-17

NOTE 15 – RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses as of June 30, 2023 and 2022 consisted of the following:

	2023		2022
Salaries	$	210,995	$	231,691
Contract services and supplies		238,637		276,015
Utility		1,215		1,122
Design cost		14,047		40,901
Depreciation		12,883		10,091
Other		3,925		197
Total	$	481,702	$	560,017

NOTE 16 – INTEREST EXPENSES, NET

Interest expenses as of June 30, 2023 and 2022 consisted of the following:

	2023			2022
Interest expense	$	(238,269	)	$	(248,130	)
Interest income		38,557			7,226
Total interest expense, net	$	(199,712	)	$	(240,904	)

NOTE 17 – RENTAL INCOME, NET

The Company subleases part of the leased assets on a straight-line basis to other third parties. The lease terms with lessees vary and usually start from two years. Rental income as of June 30, 2023 and 2022 consisted of the following:

	2023			2022
Rental income	$	213,405		$	233,542
Rental expense		(110,693	)		(149,617	)
Total rental income, net	$	102,712		$	83,925

NOTE 18 – OTHER INCOME, NET

The following table shows the detail of net other income (expenses) for the six-month periods ended June 30, 2023 and 2022:

	2023			2022
Government grant	$	109,472		$	89
Loss on asset disposal		-			(145	)
Exchange gains (losses)		(14,153	)		19,873
Bank charges		(6,648	)		(5,985	)
Miscellaneous income		4,627			1,200
Miscellaneous expenses		(88,627	)		(1	)
Total other income (expenses), net	$	4,671		$	15,031

F-18

NOTE 19 – CUSTOMER AND SUPPLIER CONCENTRATIONS

Significant customers and suppliers are those that account for greater than 10% of the Company’s revenues and purchases.

The Company sold a substantial portion of products to one customer (26.08% of total revenues) during the six months ended June 30, 2023. As of June 30, 2023, amount due from this customer included in accounts receivable was $714,542, representing 12.09% of total accounts receivable. Beside the significant customer, there were other significant concentrations of accounts receivable, which included four customers who accounted for 28.62%, 13.90%, 10.73% and 10.49%, respectively, of the total accounts receivable for the six months ended June 30, 2023.

The Company sold a substantial portion of products to two customers (11.38% and 10.95% of total revenues) during the six months ended June 30, 2022. As of June 30, 2022, the amount due from these customers included in accounts receivable was $674,590, representing 13.76% of total accounts receivable. Beside the significant customers, there were other significant concentrations of accounts receivable, which included three customers who accounted for 24.18%, 16.11% and 11.71%, respectively, of the total accounts receivable for the six months ended June 30, 2022.

The loss of one significant customer or the failure to attract new customers could have a material adverse effect on our business, consolidated results of operations and financial condition.

For the six months ended June 30, 2023 and 2022, 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.

NOTE 20 – RELATED PARTY TRANSACTIONS

1) Nature of relationships with related parties

Name	Relationship with the Company
Wenzhou Ailefu Technology Co. Ltd. (“Ailefu”)	An entity 100% owned by Xiangze
Hangzhou Xiangze Trading Co. Ltd. (“Xiangze”)	An entity 100% owned by Lingyi Kong
Wenzhou Weidi Technology Co. Ltd. (“Weidi”)	An entity 100% owned by Chuanlong Lin’s wife
Shanghai Fushishenye Mechanical and Electrical Equipment Co. Ltd. (“Fushishenye”)	An entity with Lingyi Kong as legal rep
Ruian Xiaobai New Energy Automobile Rental Co. Ltd. (“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

F-19

2) Related party transactions

The Company leases offices and factory buildings from Ailefu. 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 six months ended June 30, 2023 and 2022. As of June 30, 2023 and December 31, 2022, the Company had no outstanding balances from these entities.

Chuanlong Lin periodically provides working capital to support the Company’s operations when needed. Chuanlong Lin didn’t provide working capital during the six months ended June 30, 2023 and 2022. As of June 30, 2023 and December 31, 2022, the Company had no outstanding balance from this individual.

Shengling Xiang periodically provides working capital to support the Company’s operations when needed. During the six months ended June 30, 2023 and 2022, Shengling Xiang provided working capital of $1,256 and $253,122, respectively. As of June 30, 2023, the Company had outstanding due from this individual in the amount of $965. As of December 31, 2022, the Company had no outstanding balance from this individual.

Lingyi Kong periodically provides working capital to support the Company’s operations when needed. During the six months ended June 30, 2023 and 2022, Lingyi Kong provided working capital of $9,120,278 and $13,706,544, respectively. As of June 30, 2023 and December 31, 2022, the Company had outstanding payable due to Lingyi Kong with an amount of $209,894 and $344,528, respectively. This represented unsecured, due on demand and interest free borrowings between the Company and Lingyi Kong. For the six months ended June 30, 2023 and the fiscal year ended December 31, 2022, there were notes receivables endorsed by Lingyi Kong with recourse to the Company’s suppliers to settle accounts payable in the amount of $3,551,339 and $2,844,019, respectively.

Chunhua Xiang periodically provides working capital to support the Company’s operations when needed. During the six months ended June 30, 2023 and 2022, Chunhua Xiang provided working capital of $9,653 and $810,221, respectively. As of June 30, 2023 and December 31, 2022, the Company no outstanding due to this individual in the amount of $9,653 and $0.

3) Related party balances

Net outstanding balances with related parties consisted of the following as of June 30, 2023 and December 31, 2022:

Accounts	Name of related parties	June 30,<br><br> 2023			December 31, <br><br>2022
Due from related party	Shengling Xiang		965			-
Total due from related party		$	965			-
Due to related party	Lingyi Kong		(209,894	)		(344,528	)
	Shengling Xiang		-			(46,623	)
	Chunhua Xiang		(9,653	)		-
Total due to related parties		$	(219,547	)	$	(391,151	)

NOTE 21 – SHAREHOLDERS’ EQUITY

Ordinary shares

The Company is authorized to issue 500,000,000 ordinary shares of par value of $0.0001 each, comprising of: (i) 450,000,000 Class A Ordinary Shares of par value of USD 0.0001 each, and (ii) 50,000,000 Class B Ordinary Shares of par value of USD 0.0001 each. There are currently 11,000,000 issued and outstanding Class A Ordinary Shares and 1,000,000 issued and outstanding Class B Ordinary Shares, of which 6,000,000 Class A and 1,000,000 Class B Ordinary Shares are owned by Erayak International Limited, 1,400,000 Class A Ordinary Shares are owned by CEC Science and Innovation Co., Ltd., and 600,000 Class A Ordinary Shares are owned by Grand Merchant Incorporation Limited.

Holders of Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the Members. Each Class A Ordinary Share shall entitle the holder thereof to one (1) vote on all matters subject to vote at general meetings of the Company, and each Class B ordinary share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at general meetings of the Company. Each Class B Ordinary Share is convertible into one (1) Class A Ordinary Share at any time at the option of the holder thereof. In no event shall Class A Ordinary Shares be convertible into Class B Ordinary Shares. Save and except for voting rights and conversion rights, the Class A Ordinary Shares and the Class B Ordinary Shares shall rank pari passu with one another and shall have the same rights, preferences, privileges and restrictions.

F-20

Initial Public Offering

On December 14, 2022, the Company consummated its initial public offering (“IPO”) of 3,000,000 Class A ordinary shares at a price of $4.00 per share, generating gross proceeds to the Company of $12,000,000 before deducting underwriting discounts and commissions and offering expenses. After deducting underwriting discounts, commissions and expenses related to the offering, the Company recorded $10,646,322 (with $1,200 in par value and $10,645,122 in additional paid in capital) net proceeds from its initial public offering. The underwriter was granted a 45-day over-allotment option to purchase up to an additional 450,000 Class A ordinary shares at the initial public offering price. Meanwhile, other costs incurred in the IPO totaled $1,061,170, the main nature of which was professional fees. As a result, Class A shares increased by $300, and additional paid-in capital increased by $9,584,612.

Statutory Reserve

The Company’s PRC subsidiaries are required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors of each of the PRC subsidiary. The reserved amount as determined pursuant to PRC statutory laws totaled $916,912 as of June 30, 2023 and December 31, 2022.

Under PRC laws and regulations, paid in capital, additional paid in capital, and statutory surplus reserves are restricted to set-off against losses, expansion of production and operation and increasing registered capital of the respective company and are not distributable other than upon liquidation. The reserves are not allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor allowed for distribution except under liquidation.

NOTE 22 – INCOME TAXES

Enterprise Income Taxes (“EIT”)

Erayak Power Solution Group Inc. is incorporated in Cayman Island as an offshore holding company and is not subject to tax on income or capital gain under the laws of Cayman Island.

Erayak Power Solution Limited is incorporated in BVI as an offshore holding company and is not subject to tax on income or capital gain under the laws of BVI.

Erayak Power Solution Hong Kong Limited is established in Hong Kong and is subject to statutory income tax rate at 16.5%.

Wenzhou Wenjie Technology Limited is established in PRC and is subject to statutory income tax rate at 25%.

Zhejiang Leiya Electronics Limited and Wenzhou New Focus Limited are the Company’s main operating subsidiaries in PRC. Zhejiang Leiya Electronics is a high technology company and has applicable EIT rate of 15%. Wenzhou New Focus Limited has applicable EIT rate of 5%. As of June 30, 2023, the tax years ended December 31, 2017 through December 31, 2022 for the Company’s PRC entities remain open for statutory examination by PRC tax authorities.

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of June 30, 2023, and December 31, 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the fiscal periods ended June 30, 2023 and December 31, 2022, respectively, and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2022.

Per the consolidated statements of income and comprehensive income, the income tax expenses for the Company can be reconciled to the income before income taxes for the six months ended June 30, 2023 and 2022 as follows:

	2023			2022
Income before taxes excluded the amounts of loss incurring entities	$	1,024,835		$	2,485,280
PRC EIT tax rates		15	%		15	%
Tax at the PRC EIT tax rates	$	153,725			372,792
Tax effect of R&D expenses deduction		(72,255	)		(84,002	)
Tax effect of non-deductible expenses		24,804			3,091
Tax effect of accumulated loss		(13,567	)		-
Income tax expenses	$	92,707		$	291,881

F-21

Income taxes for the six months ended June 30, 2023 and 2022 are attributed to the Company’s continuing operations in China and consisted of:

	2023		2022
Current income tax	$	92,707	$	291,881
Deferred income tax		-		-
Total income tax expense	$	92,707	$	291,881

The deferred tax assets consisted of the following as of June 30, 2023 and December 31, 2022:

	As of
	June 30,<br> 2023			December 31, <br> 2022
Deferred tax assets:
Opening balance		33,490			36,247
Effect of exchange rate		(1,635	)		(2,757	)
Total	$	31,855		$	33,490

There was no valuation allowance for the deferred tax assets as of June 30, 2023 and December 31, 2022. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax assets are deductible, and the scheduled reversal of deferred tax liabilities, management believes it is more likely than not the company will realize the benefits of those deductible differences as of June 30, 2023 and December 31, 2022.

NOTE 23 – COMMITMENTS AND CONTINGENCIES

As of June 30, 2023 and December 31, 2022, the Company had no material purchase commitments, and one lease, which has been disclosed under right of use lease assets in Note 8 – Leases.

From time to time, the Company is involved in various legal proceedings, claims and other disputes arising from commercial operations, employees, and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity. As of June 30, 2023 and December 31, 2022, Company had no pending legal proceedings outstanding.

NOTE 24 – SEGMENT REPORTING

ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Management, including the chief operating decision maker, reviews operation results as one operating segment. The Company has single operating entity at a single location, and all of the products are electrical products and use the similar product line and labors. Based on management’s assessment, the Company has determined that it has only one operating segment as defined by ASC 280.

F-22

The following tables present revenue for five major markets for the six months ended June 30, 2023 and 2022, respectively.

	June 30, 2023
Top Five Markets:	Sales Amount (In )	As %<br> of Sales
China			53.32	%
Poland			10.32	%
Germany			8.62	%
U.K.			5.48	%
Mexico			4.18	%

All values are in US Dollars.

	June 30, 2022
Top Five Markets:	Sales Amount (In )	As %<br> of Sales
China			56.84	%
Germany			7.16	%
Poland			6.64	%
Canada			5.27	%
France			4.48	%

All values are in US Dollars.

NOTE 25 – FINANCIAL IMPACT OF COVID-19

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which spreaded throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern,” and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic.” Governments in affected countries were imposing travel bans, quarantines and other emergency public health measures, which had caused material disruption to businesses globally resulting in an economic slowdown.

As the PRC government announced optimization of COVID-19 rules in November 2022, many of the restrictive measures previously adopted by the PRC governments at various levels to control the spread of the COVID-19 virus have been revoked or replaced with more flexible measures. The financial impact of COVID-19 outbreak on the Company’s financial condition and results of operations is declining. However, for the full fiscal year of 2023, the Company is currently unable to quantify the expected impact of the COVID-19 pandemic on its future operations, financial condition, liquidity and results of operations.

NOTE 26 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through November XX, 2023. No other matters were identified affecting the accompanying financial statements or related disclosures.

F-23